Is the Denver Housing Market Going to Crash? Here’s Why or Why Not.
Median home prices in Denver rose by double-digit percentages in 2021, meaning if you owned a home in the Mile High City last year, your home value increased by six figures. Lucky for some; unlucky for most.
If this makes you think home prices are significantly overvalued and the market is not sustainable, you’re not wrong. Cue: ominous feelings of an impending collapse. In fact, the last time the U.S. housing market saw appreciation rise this quickly, home values ended up falling by 30-50%, and more disastrous consequences ensued.
But..is a housing crash really going to happen again? If so, why? Or why not? Should you wait to buy a home? Here’s a few things to consider according to economic and industry experts:
This really is about supply and demand.
In the simplest of terms, there’s not enough houses, and huge numbers of people wanting homes. Basic economics always taught us increasing prices = low supply + high demand. This is exactly what’s playing out now. Low inventory is nothing new and has also been a problem plaguing the market for years thanks to significant underbuilding after the economic collapse.
It’s estimated the housing market needs approximately 5 million homes nationwide. In Denver, we need to build 50,000 affordable homes a year (yes, annually!) to help alleviate our current housing crisis. This doesn’t mean that these large percentage increases in price appreciation isn't worrisome or unsustainable. But it’s also easily explained when you look at the fundamentals.
Demographics are playing a central role.
It’s probably no surprise that demographics (people) play a pretty important part when it comes to economic and cultural trends. It’s no different when it comes to housing and demand for housing. While most demand is being fueled by low interest rates and the desire for “move-up” homes, it’s also because more populations are entering the market; Millennials being one of them, and the largest generation, to boot. On the other side of the coin, Baby Boomers – who own a whopping 54% of the nation’s homes – are staying put, creating further inventory challenges. When you consider this and that Denver ranks among the most popular places to live for Millennials, it’s understandable experts don’t foresee the real estate market letting up soon.
The market is more likely to “slow down” than “go down”.
First of all, it’s important to note that experts aren’t predicting a massive halt in Denver’s real estate market in the foreseeable future. However, the likelihood of appreciation rates slowing, compared to previous years, is much higher than prices declining altogether. Given supply, demand, demographics, and more, Denver Metro Association of Realtors still predicts property values will continue to rise, even among increasing interest rates. Economists from Zillow estimate Denver will see a 17.5 percent increase in home values by year-end 2022.
Foreclosure activity is almost nonexistent.
After the housing crash, millions of foreclosures flooded the market, causing prices to decrease. The difference this time around? Forbearance programs (the option to reduce or stall mortgage payments for a predetermined amount of time) helped many homeowners navigate financially challenging times. Home values also appreciated significantly, unemployment remained low, and the lack of travel/dining out enabled many homeowners to save and make more money, giving them a cushy amount of equity and a nice “nest egg” to eliminate the possibility of foreclosure altogether. It’s probably no surprise that foreclosures hit record lows during the pandemic, too. Unless several million unexpectedly hit the market, it’s unlikely conditions will shift.
Stricter lending standards.
Probably the biggest differentiator from this housing cycle compared to the 2008 housing crash is lending standards. Back then, lenders were issuing subprime loans like hot cakes. Basically, loans provided to people with poor credit scores, who couldn’t, in reality, afford the houses they were buying. Prior to the housing collapse, borrowers didn’t even need to document things like income in order to get financing. If that sounds crazy, it was. Fortunately, things have changed pretty drastically since then.
