The Denver Housing Market – August 2023
The Denver metro housing market is showing signs of cooling down from its ultra-heated pandemic peak, according to the latest quarterly trends report from top local brokerage Your Castle Real Estate. As mortgage rates have surged, sales slowed over the past year. Price drops are beginning to materialize. Though still low historically, inventory is rebounding off once-in-a-lifetime lows.
Heading into the back half of 2023, is the seller’s market finally shifting back towards balance? Here is an in-depth look at the current state of the Denver real estate market.
Home Prices Flattening Out
After a decade of nearly uninterrupted rapid price increases, metro Denver is experiencing a return to more moderate single-digit appreciation. Average home prices in Q2 were down about 3% from the same period last year, following similar declines in the previous two quarters.
Luxury homes over 3,000 square feet saw the biggest jump in value this past year, up 11%. But smaller entry-level homes appreciated just 2-4%, indicating pricing is beginning to stall across most of the market.
Condo prices followed a similar trajectory, with the overall average down 4% year-over-year. Surprisingly, the smallest and largest condos saw the largest gains at 6-11%, while mid-sized units were flat to down a few percentage points.
Across all segments, properties that required a price drop to find a buyer took nearly 6 times longer to sell compared to homes accurately priced from the outset. This shows sellers can no longer expect to easily achieve sizable premiums in the current market.
Inventory Rising off Historic Lows
Denver metro is experiencing one of the lowest resale housing inventories on record. Active listings stand at just 1.5 months of supply for single family homes and 2 months for condos.
While still extremely tight by historical standards, inventory has rebounded substantially since bottoming out at under 1 month of supply in early 2022. The number of new sellers entering the market is roughly flat versus last year. But combined with slowing sales activity, this modest growth in new listings has allowed overall inventory to expand.
New construction is not expected to meaningfully help satisfy pent-up housing demand. The area has added few new homes relative to population growth over the past decade. High land, labor, materials and permitting costs continue to hinder developers.
The Local Housing Outlook
Your Castle expects home prices across metro Denver to rise a moderate 2-5% annually over the next two years as the market normalizes. While well below the double-digit gains seen in 2021, this price trajectory is closer to the area’s 50-year average appreciation rate.
Demand should hold strong with the Front Range continuing to add around 40,000 new residents per year. Investors are also eagerly buying properties to rent out, as the metro vacancy rate hovers near all-time lows. But without a significant boost in new construction, inventory will remain low.
First-time buyers need to act quickly when a starter home becomes available, as these listings tend to turn over fastest. Move-up and luxury buyers have more selection but still cannot be overly picky. Overall, Denver housing continues to be a seller’s market, just not to the extreme degree seen last year.
In summary, mounting economic uncertainty and higher mortgage rates have taken the boil off the Denver market. While no longer red-hot, resilient local demand combined with a structural housing shortage means the metro area likely still has room to run. Home values may cool but a crash seems unlikely.
If you would like me to send you a copy of the Second Quarter 2023 Denver Real Estate Trends in pdf format, contact me. I’ll send it right over!