From June 2021 to June this year, the number of active listings for single-family homes in the Denver metro area jumped up by about 52%. Statewide, the number saw about a 43% uptick.
But despite the larger pool of options, home prices continue to climb. The median sales price rose 11% statewide in that same time, and it increased by about 11% in the Denver metro area, where the median sales price sat at a staggering $647,500 as of June.
The good news? The 11% price bump represents a notably smaller increase than Colorado had endured each month over the past year, according to a report by the Colorado Association of Realtors.
The jump in the supply of available homes means buyers now have a better chance of purchasing a house, but prices in metro Denver and Colorado at large remain notoriously expensive.
“The story here, just to be frank, is not that all the sudden the market has drastically changed — it’s that it mellowed out compared to 2021 and 2020,” said Matthew Leprino, a Realtor based in metro Denver. “The current state of Colorado’s housing market is not that different from 2019.”
Already sky-high housing prices saw a spike after the early days of the coronavirus pandemic, but the effects of inflation now appear to be pressing the brakes on homebuying — at least partly.
“As fears of inflationary pressures reach households through the grocery store and gas pump, home buyers have adopted a more cautious attitude,” Cooper Thayer, a Douglas County Realtor, said in the association’s report.
Early pandemic years affected demand
Surging prices for consumer goods such as gas and food helped catapult U.S. inflation to a new four-decade peak in June, the Associated Press reported.
Inflation can occur when demand for a good exceeds the production capacity for that good, driving up prices. It can also happen when production costs increase and result in price hikes, for example.
The government fights inflation by raising what are called interest rates, or the amount a lender charges a borrower for a loan. A country's central bank — such as the Federal Reserve in the U.S. — causes interest rates to rise or fall.
By sharply raising interest rates, the Fed hopes to tamp down consumer demand. Higher rates will make it more expensive to carry a credit card balance, get a car loan or buy a house, National Public Radio reported.
The hike in interest rates is a main factor driving the increase in the pool of available homes, but the dizzying level of housing prices themselves appears to be slowing demand down too, Leprino said.
“I wouldn’t say it was totally unexpected. You can’t have the kind of price appreciation that we’ve had” and not see a slowdown at some point, said Leprino, using a term for an increase in price.
In July 2021, the metro Denver area saw an 18% increase in median sales price compared to the prior year. Statewide, the increase in that time was nearly 19%, sitting at $525,000.
When looking at the current market, the public should “remember that 2021 was an exceptional year for real estate, fueled by historically low interest rates and unprecedented buyer demand,” Durango-area Realtor Jarrod Nixon said in the report.
When employers decided employees didn’t have to be in the office amid the pandemic, some people had more flexibility in where they were going to live and drove up suburban home prices, Ron Throupe, an associate professor of real estate, said in a University of Denver article. People suddenly began looking at housing in new ways, Leprino said.
“It was their office, their home, their gym, their schools for the kids, and suddenly people needed way more space,” Leprino added.
Home prices ‘always go up’
But housing prices had been on a steep upward swing for years in Colorado even before the pandemic.
“I think everybody’s spent the past 14 years or so waiting for the next shoe to drop,” wondering whether a new housing recession will occur, Leprino said.
But “we’ve just gone down to a simmer now,” Leprino added.
The yearslong stretch of high housing prices in Colorado — particularly in metro Denver — raises the question: When will housing become more affordable again?
In the historical trend of home prices, there may be short-term regressions in price: 2007 and the next couple years are good examples, Leprino said.
“But by 2014, we had more than rebounded the prices of what they would have already been had the dip not taken place,” Leprino continued.
“In a long-term scenario, (housing prices) always go up,” Leprino added.
One factor that makes the housing market so stubborn: Colorado has long been an attractive destination for people moving from out of state.
Colorado experienced a positive “net migration” during the 25 years dating back to the early 1990s, according to a 2018 article from the Federal Reserve Bank of Kansas City. Net migration is the difference between the number of people coming into and the number of people leaving an area.
An estimated one-third of net migrants that came to Colorado from 2010 to 2016 were from California, Illinois and New York, while migrants left Colorado for Wyoming, South Carolina and Arkansas. Overall, Colorado attracted more individuals than it lost from most states, according to the reserve bank article.
“Denver has been such a draw for people for so long because it was inexpensive, because it’s clean, because it’s safe,” but those attributes aren’t quite as true today, Leprino said.
While Leprino notes that he is not an economist, he guessed that demand from people who want to move to metro Denver from outside of Colorado — as well as demand from people wanting to move to metro Denver from other places within Colorado — could theoretically decrease based on a myriad of factors. Chief among those could be crime, cost of living, quality of education, and aspects such as traffic or access to jobs, Leprino said.
“I don’t think (Denver’s quality of life) is in jeopardy but do see that either demand going down because of these factors or more building — or a combination of both — would ease housing shortages,” said Leprino, who is CEO of the real-estate brokerage Remingo in metro Denver.
Net migration into Colorado in 2020 is estimated at 27,000, according to the state Demography Office’s website. That’s the lowest number since 2005, according to the site, and represents a large drop from recent years.
Workers’ pay not keeping pace
Fewer buyers bought homes in Denver this June than any time over the previous six months, according to the Realtors association report. The downtick in sales is a cause of the increased inventory, or available housing, according to the report.
Meanwhile, the rate of new housing construction isn’t making much of a difference, Leprino said.
“I don’t think it’s making any difference whatsoever in prices,” Leprino said, adding that “we are so far behind” in housing supply. He didn’t want to speculate regarding how much more construction it would take to make housing more affordable.
Because housing prices always go up in the long term, the Colorado Association of Realtors says purchasing real estate is a strong investment “because you’re never going to lose money” in the long term, Leprino said.
The other side of that coin: Homebuying only grows further out of reach for people living on lower incomes, particularly because the rise in housing prices in recent decades far outstrips the increase in what American families earn.
In the last decade, the median home price rose roughly 30% and incomes crept up just 11% over the same time period, according to a Bankrate analysis of data from the National Association of Home Builders/Wells Fargo Housing Opportunity Index, CNBC reported in 2021.
Over 50 years, the difference is even starker. After accounting for inflation, home prices have jumped 118% since 1965, while income has only increased by 15%, according to a separate report by online brokerage Clever Real Estate, based on census data, CNBC reported.
Throupe, the associate University of Denver professor, said in the DU article that “there’s no one solution” to the housing crisis.
“It’s going to have to be a group of items for getting people into property. It’s not one size fits all,” Throupe said in the article. “Some of it is government programs. Some of it is cooperation. They need to expand on existing programs and other programs to fit different needs.”
The Colorado Association of Realtors defines the seven-county Denver metro area as Adams, Arapahoe, Boulder, Broomfield, Denver, Douglas and Jefferson counties.
The association’s most recent report as of early August, dated July 13, is based on June 2022 numbers.