Denver home prices continue to appreciate, but wage growth and affordable housing are key to continued growth
Last week, I touched on how, despite the recent news of Denver real estate market slowdowns, Denver home prices over time indicate area real estate remains a great long-term investment.
When a booming urban market like ours makes this transition, however, there can be a few bumps along the way.
Right now, for middle-class homebuyers, price growth is outpacing growth in income. According to the Case-Shilling Index, Denver home prices are up 8 percent over the past year. Compare this to the 6 percent increase in average hourly earnings in the region.
Rising interest rates, up nearly 1.5 percent since 2015, are cooling buyer interest. Buyers on the margin are less willing to borrow and those considering selling in Denver fear abandoning their current, lower interest rate mortgages.
Affordable housing shortage
The shortage of affordable homes in Denver is also gumming up the market. Although inventory is increasing as we head into the slower winter market, it is still too low to match middle class buyer’s demands.
The graph above shows the recent increase in inventory, but more apparent is the overall decrease since 2008.
In an attempt to meet buyer demand, sellers are slashing prices. The Denver Metro Association of Realtor’s October market trends report showed a decrease in average sales price each month since this past April.
New construction slowdown is pinching the supply of affordable homes, too. Over the past year, residential building permits are down 5.5 percent nationwide.
Affordable housing is not proving profitable for homebuilders. Expensive lot prices and rising material and labor costs are making builders reluctant to build homes under $300,000.
Despite the shortage, Denver is still a business magnet. VF Corporation and other large firms are moving to Denver and bringing high-paying jobs with them.
The Denver City Council is also making moves to subsidize new affordable housing. In August, it voted to double the budget to $30 million for the affordable housing fund. Nonprofits are also raising funds to establish land trusts, securing a future stock of affordable homes.
This all means that the shifting market is still strong, it just requires a savvy strategy to maximize your buy or sell opportunity. I can help! Reach out and I can provide you some expert perspective on your particular circumstance.