Home-price growth remains tepid at 1.4% year over year in May.
Home prices in the Denver metro area rose just 1.4 percent year over year in May to $425,000, marking the sixth consecutive month of annual home-price growth of less than 5 percent. The trend of tepid price growth comes after more than six straight years of 5 percent-plus growth in the Denver area, one of the hottest markets in recent history. Last May, home prices were up 11 percent year over year; the months that followed marked the start of the cooldown.
Denver stands apart from other metros that were red hot in early and mid-2018 and cooled dramatically into early 2019, like San Francisco and Seattle. Unlike San Francisco and Seattle, whose housing markets are fueled by growing wealth from hot IPOs and expansion of locally headquartered major tech companies, Denver hasn’t heated back up this spring.
“Denver’s price growth up until last summer was unsustainable and affordability has become an issue for many prospective homebuyers,” said local Redfin agent Andy Potarf. “Not as many people can afford the house they want. Many homebuyers became frustrated after losing out on home after home over the last few years due to bidding wars and homes selling over list price, and they’re still hesitant to jump back into the fray.”
In May, 12 percent of offers in the Denver area written by Redfin agents on behalf of their homebuying customers faced a bidding war. That’s down from 20 percent just one month earlier and down from 57 percent in May 2018. Meanwhile, the bidding war rate has recovered in other metros that were hot in mid-2018. Both San Francisco and San Diego have also seen substantial decreases in bidding wars since last May, but the rate has increased since last month.
Even with the stalling price growth and falling bidding war rate, home sales in Denver were up 5.6 percent year over year in May, the fourth month in a row of rising sales. But when you consider that supply was up 32.1 percent for the same time period, the ninth straight month of double-digit increases, you can see that a lot of homes are lingering on the market.
In fact, 41 percent of homes for sale in May in Denver had a price drop, up from 36.3 percent a year earlier but still lower than the record high of 48 percent in October. Denver’s share of homes with price drops last month was the third-highest of any metro in the U.S. behind Fresno (48.7%) and Indianapolis (42.5%). Nationwide, 25.9 percent of homes experienced price drops in May.
“I’m seeing homes sell in two to three weeks instead of two to three days, like some of them were a year ago. Homes in the Denver area are still selling, but at a more reasonable pace and a more reasonable price,” Potarf said. “The price drops are largely a result of unrealistic sellers. Right now, many sellers believe they can get as high of a price as they could have last year even though demand isn’t as strong. Even with mortgage rates as low as they are right now, we aren’t seeing the rebound in homebuyer interest we expected.”
“The new construction around town is putting a lot of pressure on individual sellers,” said local Redfin agent Martin Mata. “I’m also noticing that people are less interested in buying a home than they used to be. A lot of renters can’t justify paying a premium for subpar homes, which is causing prices to plateau. Denver is definitely trending toward a more balanced market.”
Other metrics suggest that Denver is still moving away from the hot seller’s market it was a year ago. For instance, homes that sold in the area in May went under contract quickly, in 10 days, but that’s up from just six days a year ago. And while 33.7 percent of homes sold above list price in May, that’s down from 48.2 percent a year before.
Redfin’s most recent migration report shows that more people are looking to leave Denver than are looking to move in. In the first quarter of 2019, 24.2 percent of Redfin.com users in Denver looked at homes in another metro area, up from 19.6 percent a year before. Of the home searchers looking away from Denver in the first quarter, Seattle was the most popular destination.