Troubling Signs Emerge for Denver’s Housing Market
By Robert Davis
Denver’s housing market has been a tough nut to crack for a while now. First-time homebuyers are being increasingly priced out as all-cash buyers and investors swoop in to expand their portfolios. And new data reveals that the market may get tougher before it gets better.
According to the Denver Metro Association of Realtors’ (DMAR) monthly market report, the median residential home price in the City & County has increased over 15% year-over-year. Meanwhile, properties are spending an average of just 19 days in the Multiple Listing Service (MLS). That represents a 20% decrease from the previous month and a 36% decrease from April 2020.
This year also marked the first time that Denver saw a decrease in housing inventory between February and March since 2014, the report says. At the end of March 2021, just 1,111 homes were actively on the market compared to the 3,829 that were available last year.
DMAR said the historical average listings for March is 14,250.
“As interest rates continue to trickle up, prices continue to rise and inventory continues to shrink, the most consistent question continues to be: are we in a bubble, and is now a good time to buy?” Andrew Abrams, the chairman of DMAR’s market trend committee, wrote in the report.
“If you use supply and demand as a metric for the “bubble” question, it would be difficult to think that we are in one… Even if buyer demand starts to decrease as interest rates go up, that doesn’t necessarily translate to prices going down. Instead, it could translate to prices going up at a slower pace and a return to normalcy,” he continued.
This plateau effect Abrams describes wouldn’t necessarily mean the city’s housing market would be able to provide more affordable housing either. The City’s move to increase the minimum wage, coupled with staggering price increases for homebuilding materials, makes it difficult for any private homebuilder to build affordable homes.
Meanwhile, many of the homes that are being sold are becoming investments or second homes. In 2020, second-home sales increased 44%, according to the Colorado Association of Realtors (CAR).
In turn, the average closing price of a single-family home in Denver rose to $560,000, DMAR said. For townhomes and multi-family developments, the average closing price was $353,000, up nearly $20,000 from the previous month.
The Federal Reserve Bank of New York identified another reason for the rapid home price increases: more Americans view housing as a better investment than the stock market.
“When asked to choose between investing in a rental property or the overall stock market, more than 50% of the households recommended housing,” the survey concludes.
These trends are not isolated to the Mile High City either. A report by Seattle-based real estate company Redfin shows that the number of buyers who are purchasing a second home increased 128% year-over-year in March. That month marked the 10th consecutive month of at least 80% annual growth.
The growth of second-home sales is primarily driven by increase work-from-home opportunities, according to the report. Redfin agent Nisa Sheikh, who works in Palm Springs, Florida, said she is seeing an influx of affluent tech workers from out-of-town buying in the area because they can primarily work from a home office.
People don’t want to vacation in a hotel room right now, and many of my buyers are planning to turn their second homes into Airbnb rentals and earn some extra income when they’re not in town,” Sheikh said in a statement.
“Out-of-towners tend to have more money than locals, and they’re pushing up prices for everyone,” she continued.
For renters, the outlook isn’t quite as perilous. Real estate intelligence company Yardi Matrix released a report showing the average rent for a multifamily unit in Denver increased a quarter-of-a-percent more than the national average.
Meanwhile, the real estate data website RenCafé found that the average rent for apartments and single-family homes has leveled out since November 2020. The average rent in the city stands at $16,26, representing a 2% year-over-year decline.
Colorado’s legislature is debating a bill that would increase legal protections for renters. If passed, Senate Bill 21-173 would allow renters who prove they were unlawfully evicted from their home to bring charges against landlords under the Consumer Protection Act. It also establishes court procedures for breach of warrant or habitability cases.
Similarly, Denver’s rental vacancy rate has decreased more than two percentage points since 2018, according to the latest numbers from the U.S. Census Bureau. However, the agency still estimates the city has more than 19,000 vacant rental units.
At the same time, the 2020 Point in Time Count showed Denver’s unhoused population grew by 228 people before the pandemic hit. With the city’s economy still in the early stages of its recovery, some are worried market conditions could keep many people out of housing as prices continue to outpace wage growth.
“This recession has driven wealthy and low-income Americans further and further apart, and the soaring demand for vacation homes during the pandemic is a perfect example of their unequal financial footing, with some people buying second homes and others unable to buy their first,” Redfin Chief Economist Daryl Fairweather said in a statement.
“Home prices just keep going up. That’s a good thing for Americans who already own one home because they can take advantage of their increased equity to buy other assets, which in some cases includes another home. But it’s bad for lower- and middle-class families, particularly those who are renters because the barrier to homeownership is getting higher and higher,” he added.