Are Denver housing prices dropping? We’ve all heard the saying, what goes up must come down. And will Denver housing prices drop in 2022? This spring, we were off to a strong start, but then income mortgage rates rising above 5%, along with higher inflation and higher rents. Now, many of the metro areas seeing medium list price declines have seen an influx of smaller homes come to the market, which carry lower prices, says George Ratiu, manager of economic research for realtor.com. He goes on to say, at the same time, several of the cities have unemployment rage, which, while historically low, are above the natural level. This indicates buyers may face steeper affordability challenges for rising mortgage rates. Now, let’s face it. This is not a repeat of the great recession when a housing bubble popped and prices plummeted across the country. These are mostly smaller decreases that don’t warrant another crash.
Now, according to realtor.com, they laid out the top 10 areas where housing has fallen the most. And the number one area was Toledo, Ohio with a negative 18.7% median list price change. Right now, there is no area in Colorado that is on that top 10 list that you can see right here. On the other side of that, realtor.com’s most recent data says that median home list prices in America hit a new high of 425,000 in April, up 14.2% in just one year. Meanwhile, average mortgage rates climbed to 5.25% in the week ending May 19th, 2020, a 75% increase in the year. The result is new buyers would be paying about 50% more for the same house compared to a year ago.
Now, inflation at a 40-year high, spiking gas prices, and rent levels reaching new highs have greatly diminished people’s buying power. The main people affected currently are the first time home buyers because along with higher prices, there are also higher down payment requirements. And with the spike in everything that I had just mentioned before, it’s very difficult to save money for these down payments.
Mortgage applications, according to the Mortgage Bankers Association, drop 15.2% year-over-year in the week ending May 13th. And realtor.com chief economist, Daniel Hale says, “As the year progresses, we’ll see home sales slow further.” And home prices have yet catch up according to realtor.com, as home prices were up 12% compared to last year and experts predict fewer bidding wars and less outrageous offers over asking prices. Now, most experts even predict prices will flatten rather than drop. “What drove down home prices before where all the foreclosures and short sales,” says McBride of Calculated Risk. He also goes on to say the vast majority of people don’t need to sell. And without short sales and foreclosures, you don’t have that downward pressure on prices.
Not every housing market will get through this unscathed. We could see vacation areas in parts of the country, along with the weaker economies in areas be the most affected. And also, second homes usually get hit the hardest during times like these as well. One sector, though, where there is a positive are the investors as there are a lot of investors with cash on the sidelines, and they all could keep this housing market going. Of course, we think areas with the highest run ups in prices could be affected. That’s yet to be seen. In the Denver area, I have not seen anything yet to say that we will see this happen here.
Maybe a normalization. I am still seeing a great influx of people moving here to the Denver area from California, Texas, and Florida. Now, Lawrence Young, the chief economist of the National Association of Realtors goes on to save, “If there is a correction, it will be a brief duration, and we may see some price reductions for one year before everything popping up again.” Now, there is some good news for all of this. As more homes are up for sale, and instead of having a tight inventory, there are about 5% more homes on the market in the week ending May 14th compared to a year ago, according to realtor.com. Now, this is the first time we have had an increase in housing since June 2019.
So as you can see, for the most part, things are up in the air as far as, are we going to see home prices drop drastically? We will monitor this in the future, obviously, in the next coming months, to see exactly where things are going to shake out.
