2022 marked a fast shift in the real estate market. For several years prior, interest rates as low as 2‐3% attracted more buyers, and “cheap debt” spiked demand and pushed Denver real estate prices to new heights. Denver fast became a relatively expensive US market with the average home price nearly hitting $820,000 by Q2 of 2022. Buying homes was very competitive and it wasn’t uncommon for a listing to have several offers within the first few days of hitting the market.
Worries about inflation and the waning power of the US dollar have become a huge concern, in addition to rising prices due to supply chain issues through COVID and the Russian war against Ukraine. As a reactionary solution, the Federal Reserve began to raise interest rates sharply to cool the economy. They anticipate that rates will remain high until The Committee hits its inflation goal of 2 percent. Even at the cost of a recession.
With rising mortgage rates hitting 7%, along with the natural seasonality of the market, we did see inventory levels rise in spring and summer with a peak of 8,496 homes in September which spurred predictions of a shifting market favoring buyers. However, inventory dropped to just 4,454 homes by Q4. With rates being much higher, many homeowners with mortgages below 4% decided to remain in their homes or convert their houses to rental properties. This increased rental inventory for both long-term leases and short‐term vacation rentals in the Denver Metro area.
As a result, we saw the average detached home sale prices in December drop down to $702,000. We also saw a slowdown in rent increases to an average of $2,600/month for a 2-bedroom in Denver. However, although prices went down month to month in 2022, with the low inventory levels, Year over Year appreciation was still 11%!
Lastly, I want to note the opportunity that awaits us in 2023. It’s predicted that mortgage rates will stabilize as inflation begins to slow down. Since inventory will remain low, experts do not foresee a huge crash or drop in prices so appreciation may remain flat. However, as more motivated sellers hit the market, this will be a great opportunity for home buyers and investors to purchase favorably this year and refinance later once mortgage rates drop. n addition, there has not been a better time in years for sellers to take their time in selling their house while having great negotiation power in purchasing a replacement home. Massive wealth is created in shifting markets, so we never want to waste an opportunity such as this. Be sure to reach out to me directly so we can come up with a long-term game plan for your real estate portfolio.