Denver Real Estate Market Update – November 2022

November 2022 Denver Real Estate Market Update

Hard to believe we have Thanksgiving right around the corner and then onto Christmas and New Year’s….where does the time go??  I hope this update finds you and your family doing great and let me be one of the first to wish you and your loved ones a very Merry Christmas and Happy New Year!

I have been wanting to sit down and get an update out to everyone as this has to be one of the most extreme years I’ve witnessed since being in real estate going from a very intense sellers’ market earlier this to year to more of a buyer’s market now which has finally brought some much-needed balance to the Denver market.  We really had a perfect storm earlier this year with even more all-time lows in inventory, the onslaught of rising interest rates which drove extremely high buyer demand earlier this year, and then the state of the economy moving into 2023 which really impacted a whole lot of everything with real estate, the stock market, and the overall economy.  I will dive into the some of these areas in this update.

Denver Metro Area Home Report: October

While the market has in fact changed and inventory levels have risen substantially from earlier this year, we are still only at half of our historical averages for inventory so ironically we still have some room to go before we get back a more normalized situation.  We have essentially been in a strong seller’s market now for almost a decade and while the market has made a pretty dramatic shift the data seems to point to a more stabilized market, not a real estate crash.  The million dollar question then comes, how does this impact you with any changes you may or may not be thinking about making now and into 2023?

First off, we need to take a look at what the market has in fact done so far in 2022 and eliminate some misconceptions.  As I hinted at earlier, we really had a perfect storm from January until about May this year with extreme buyer demand and next to no inventory.  We saw more bidding wars with offers being written 10%-15% over asking prices on homes, and to add insult to injury sellers were putting anything on the market and they were being snatched up which created a whole lot of frustration for buyers.  To help illustrate, we saw a 13%+ increase in home values from 12/31/2021 to 4/30/22 alone which was already on top of the 19% increase we saw in 2021, so we can already see real estate prices really needed to pull back from the peak and probably has more room to come down further which is actually a good thing for the overall marketplace.  From the peak in May though the end of October, we have seen around a 9% decline in prices, but even with that decline it still leaves us at a 4% overall increase for the year.  The historical average appreciation on real estate has been in the 3.5%-4% range, so even if we were to pull back another 10% or so on prices, we are still at a 6.5% average annual appreciation for 2021 & 2022 which is well above historical averages.  We may have all gotten just a tad bit spoiled with the extreme price increases we were seeing and this correction we are witnessing now is long overdue and healthy for a longer term marketplace.  We all just need to take this into consideration and forget what our homes were worth in May, because those values were arguably overinflated to begin with.

Real estate should always be approached as a longer term investment regardless, so as long as you are using this as your motivation when trying to decide whether you should be making a move up, downsizing, or relocating, real estate always has been a great investment… especially with the continued increase in population which will continue to drive housing demands into the future.  Remember, I’m here to help you sound things out to see if it makes sense and help you through it!

Here are some real estate market facts from the latest DMAR newsletter and other sources:

  • The all-time low for inventory levels in the Denver market was set in February at 2,024 in active listings.  Through the end of October, we are sitting at 7,290 active homes for sale which represents a 260% increase in just 8 months.  If we were to wind the clock back 12 months, we were sitting at 3,376 active homes for sale, which represents a 115% increase in 12 months.  The historical average for active listings from 1985-2021 sits a 14,957 homes for sale, so even at current levels we are still at half of our historical averages.
  • This year interest rates have risen to as high as the low 7% range to where we were seeing 3% rates in January representing a 133% increase in rates.  We have never witnessed anything like it for several decades, but rate increases were long overdue.  Anyone that has read any of my past newsletters will know I have clamoring for rates to increase for some time and if anything the Fed waited too long to do so.  This would have eased the burden of going from one extreme to another in just 8 months, but the good news is markets will adjust.  Let’s just hope the Fed doesn’t over tighten on rates and we can settle into a more normalized situation going into the future.  Rates have dropped back down some since the peak and now hover in the low to mid 6% range, but the days of extremely low rates are likely gone which is a good thing so we aren’t inflating asset bubbles.
  • Don’t let interest rate increases cripple your decision to make any changes if you have been contemplating them.  One of the beautiful things of the 30 year mortgage is it can always be refinanced when rates drop AND with the market cooling off this presents opportunities to get properties at lower prices as I discussed above with home values coming down which should be your ultimate goal anyway.  Use me as a resource to help you see if it makes sense or not and put my vast arsenal of experience in finance and investing to work!
  • We are currently witnessing an inverted yield curve, where short term rates are higher than long term rates.  In a normalized economy we want to see short term rates lower than long term rates, so this is something worth keeping an eye on for the economic outlook going forward.
  • From the fallout of the 2008 financial crisis, lending practices became much better regulated on loans made to borrowers so we aren’t facing any problems there.  This current situation is more derived from supply chain issues and labor shortages which has put heavy pressure on prices that really came from the Covid shutdown of the world economy.  This will take time to shake out throughout the economy and hopefully gets better managed by our elected officials moving forward.
  • The S&P 500 is down 16.8% YTD (as of 11/16/22), but is off its lows set in mid-October which has bounced back up.  The S&P 500 was down 25% YTD in mid-October.  The stock market has always been used as a leading indicator of economic activity, so perhaps the tad bit better inflation news recently released has likely brought a little enthusiasm back.  However, more rate hikes are on the horizon as inflationary pressures still exist, but hopefully at a slower pace.  As long as the Fed doesn’t over tighten this is healthy for the longer term and the stock market was over inflated to begin with and needed a good correction.
  • iBuyer programs where they make cash offers on your property such as Opendoor and Redfin are seeing historic losses and it appears more trouble is coming.  Opendoor just made a $65 million dollar settlement and claims of market manipulation by Opendoor and Zillow may be bringing even more lawsuits.  Redfin has announced they are getting out of the iBuyer program completely joining Zillow and also laying off 13% of their workforce.  These were never viable long term options anyway as they were trying to capitalize on the housing boom and appears to have blown up in their faces.  They were bad for sellers and bad for the marketplace, so I couldn’t be happier this is happening.

That should do it for this market update.  As always, if you or anyone you know should have any real estate needs, please consider using me as a resource as your business and referrals are GREATLY appreciated!

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