denver housing market forecast
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By Aly J. Yale | Published on March 29, 2023
The last year or so has been a volatile one in housing, largely thanks to rising mortgage rates, which pingponged from the low 3% range to over 7% at one point in 2022. Those rates have eaten into buyers’ budgets, causing a pullback in overall demand – and home prices.
In the Denver metropolitan statistical area, though, even waning demand can’t alter the market much – not with the ultra-low supply the area is dealing with. In fact, despite the changes today’s higher mortgage rates have ushered in, Denver still ranks as the fourth-strongest housing market in the nation, according to the U.S. News Housing Market Index.
Will that continue to be the case as we get further into 2023, though? We used data from the U.S. News Housing Market Index to compile a comprehensive look at the Denver housing market, as well as what’s to come in the next few months. Keep reading to learn more about where Denver real estate is headed.
How the Denver Housing Market Changed in 2022
Permits to build new, single-family homes plummeted in 2022, falling from a March high of 1,378 to just 475 by year’s end. Things picked up slightly in January, but still, in the last three months where data is available (November-January), the Denver metropolitan statistical area – which includes Aurora and Lakewood – saw only 1,542 single-family permits approved. That’s down considerably, about 51%, from the 3,167 approved a year prior.
Multifamily permits fell quite a bit in 2022, too. Like those for single-family properties, they nudged up ever so slightly in January but are still significantly under the prior year’s numbers. Between November and January, 3,180 multifamily permits got approved. The previous year, it was 4,658, marking a nearly 32% drop.
Denver Housing Supply and Demand
The number of for-sale listings in Denver is incredibly low. As of January, the region had just a 1.9-month supply of housing – well below the national 3.2-month supply. (For reference, around six months is considered balanced, where neither buyer nor seller has the upper hand).
Surprisingly, Denver’s less-than-two-month supply is actually an increase compared to the prior year. In December 2021, supply was at just 0.43 – meaning less than a half month’s supply was available on the market.
According to real estate agents on the ground, high mortgage rates are mostly to blame for the shortage.
“The high rates have caused a noticeable negative impact in supply from existing homeowners,” says Colleen Covell, broker associate with Mile Hi Modern in Denver. “Homeowners sitting on a 3 percent mortgage are loathe to trade that in for a high-6% or 7%-plus rate unless they basically have no choice but to sell.”
With so little for-sale inventory available, it’s no wonder rental vacancies are low, too. As buyers get priced out or are unable to find properties that meet their needs, they turn to renting instead.
Since July, just after mortgage rates started to rise, rental vacancies have declined steadily, and as of December, the metro’s vacancy rate sat at 4.8%. While that’s up just slightly from the year prior, it’s below the national rate of 5.8%.
Consumer sentiment bottomed out in mid-2022, but it’s recovered steadily ever since, according to the University of Michigan Index of Consumer Sentiment. The Index ranks local sentiment at nearly 65 (out of 100). That’s down 2.3 points from a year ago but up quite a bit from the 50-point rating seen in June.
You can see this improving attitude in recent mortgage applications. Per data released March 22 by the Mortgage Bankers Association, applications to purchase a home are up 3% compared to the week prior, though they’re still down 36% over the year.
For those who do enter the market right now, agents say higher rates are playing a big role, causing many to be more discerning as they search for a home.
“While the market is absolutely heating back up and normalizing to the metro area's prepandemic pace, buyers' budgets are much tighter today than they were last spring,” says Michelle Schwinghammer, broker associate at RE/MAX Alliance in Arvada, a suburb of Denver. “In turn, buyers are being more discerning than they were last year. Buyers want – and frankly, buyers need – a home they can move into without significant work or expenses because higher interest rates are impeding their ability to spend money on major projects after purchase.”
Median Home Price in Denver
When mortgage rates started to rise in mid-2022, median prices started to drop. In the Denver metro, they peaked at $615,000 in April, falling to $535,000 by January, according to Redfin. Despite this, prices are down a mere 0.9% compared to the year prior and are also well above the nation’s $383,000 median – largely thanks to the city’s ultra-low supply.
“While prices may be about a percent lower than this time last year, this speaks more to the stability of the Denver market,” says Libby Levinson-Katz, broker associate at Kentwood Real Estate in Denver. “While interest rates have doubled year-over-year, prices have remained generally unchanged.”
Rent prices followed suit, peaking in the summer of 2022 and falling by the end of the year. As of January, the typical rent was $1,952 in the Denver metro, according to the Zillow Observed Rent Index. Annually, though, rents are actually up 5.2% compared to last year and are right on par with both national rents and national rent growth.
With national construction costs up 12% annually – and our forecasts predicting continued drops in both single-family and multifamily permits over the next few months – it’s likely both rents and home prices will remain stable, at least for the foreseeable future.
Unemployment Trends in Denver
Employment has increased consistently since the days of the early pandemic, according to the Bureau of Labor Statistics. As of December, over 1.6 million workers were employed in the metro – an increase of 61,600 in the last year.
Construction jobs are up in the area, too, though only slightly. They’ve actually decreased quite notably since July, which could play a role in why permits have dropped off as well.
Unemployment is incredibly low in Denver, with just 2.8% of area residents unemployed. That’s down nearly a full percent in just 12 months and below the nation’s 3.5% unemployment rate.
According to Black Knight, foreclosures have risen slightly in Denver over the last year. Despite this, the state's foreclosure rate is a mere 0.1%, well below the nation’s 0.37%. At the state level, the delinquency rate was 1.8%, which is loans 30 or more days past due but not in foreclosure. That's below the nation's 3.1% delinquency rate.
Builder Confidence in Denver Improves
When buyer demand pulled back on the backs of higher mortgage rates last year, builder sentiment plummeted. Now, it’s on its way to recovery.
As of February, it sat at 37 (out of 100), according to the National Association of Home Builders/Wells Fargo Housing Market Index. That’s down 54 points compared to the year prior but a notable improvement from its trough of 25 in December.
“We have definitely noticed more builder activity,” says Susan Thayer, a real estate agent and owner of The Thayer Group in Denver.
Nonresidential construction, which is measured using architectural billings, followed a similar trajectory, falling notably and then recovering at the start of the year. They’re now up 3.7 points per year and are around typical pre-pandemic (2018-2019) numbers, per the Architecture Billings Index.
Denver Real Estate Market: Predictions
With low unemployment, low supply and improving customer sentiment, Denver’s housing market is poised to carry on strong. While increased builder confidence could lead to more supply, our forecasts predict building permits will fall – at least for the next few months. This should keep supply low and demand strong for the area’s very limited housing.
“I believe prices will stay pretty much where they are because of a lack of inventory,” Thayer says. “Unless we see a large increase in the number of sellers, buyers will be limited and therefore, face higher prices due to the law of supply and demand.”