U S. home prices could fall as much as 20% next year

Table of Content

• Drop in metro Denver home sales will be steeper…
• Why is housing so expensive in Colorado?
• Listen to a Colorado Postcard
• Will Housing Demand Exceed Supply, Raising Prices in 2023?
• Is Denver housing market going to crash?
• Things have been messy at Denver jazz station KUVO. Here’s how new General Manager Nikki Swarn is looking forward (and back)

Over the past month, the average rent for a studio apartment in Denver decreased by -3% to $1,364. The average rent for a 1-bedroom apartment decreased by -4% to $1,638, and the average rent for a 2-bedroom apartment decreased by -2% to $2,240. Keep your thermostat set above 65 degrees when leaving your house or business for several days.

Some housing areas have experienced major recalibration since the spring price high and are projected to incur losses in 2023. Nonetheless, more deteriorating inventory, some relief in mortgage rate rises, and reasonably optimistic economic data may help eventually stabilize home values. Denver’s Mile High reputation still applies to the city’s elevation and, of course, its legal cannabis patrons—but not so much to the housing market. Plus, home prices here have historically been close to the average U.S. home price.

Drop in metro Denver home sales will be steeper…

Denver, CO home values are forecasted to rise 1.2% between July 2022 to July 2023. Colorado Springs, CO home values are forecasted to rise 4.5% between July 2022 to July 2023. Fort Collins, CO home values are forecasted to rise 1.1% between July 2022 to July 2023. Total year-to-date sales for homes in Colorado Springs are also up in September 2021 compared with previous years. More than 13,500 homes have been sold in Colorado Springs since the beginning of the year. The recent dip in U.S. home prices has some housing analysts warning of a potential collapse in 2023, though if it happens, the pain won't be evenly distributed across the country.

Boomtowns including Austin (-8.6%), Denver (-7.8%), Las Vegas (7.7%), Raleigh (-5.6%), Salt Lake City (4.9%), and Nashville (-4.5%) simply saw home prices soar too far beyond what local incomes can support. Once the market turned over, builders and iBuyers—which make up a larger share of inventory in those places—rushed for the exits. That's helped to intensify the downward home-price spiral in those bubbly markets.

Why is housing so expensive in Colorado?

Some experts reckon that home prices will soften in the new year by only a small amount. Earlier this month, the Federal Reserve hiked rates by half a point to a range of 4.25% to 4.5% to help counter inflation, and the Fed has pledged to make more increases in 2023. March, April, and May are the most competitive months on the market. There are also plenty of buyers to bid against each other for those properties in the late spring months.

But like other metros on the list, its prices shot up over the past couple of years, up about 33% since the start of the pandemic. Home prices are still up almost 8% year over year, but price reductions are abundant, rising about 257% in September compared with last year. Austin became the poster child for torrid housing market growth during the pandemic.

Listen to a Colorado Postcard

Colorado Springs is another sizzling hot market for real estate investment in 2020. Forget the Mile High City and invest in the Colorado Springs real estate market. According to Realtor.com, there are 69 neighborhoods in Denver, where properties are available for sale.

For anyone seriously looking to sell, now is the time to act, the Seattle-based brokerage advised. Yet he understands that stability may feel like a crisis for home sellers in a city that has been high on high prices for years. After all, they might have to wait a few weeks, offer incentives to buyers and even reduce the price in hopes of selling in this more competitive market. Even though prices are only down a little, Denver’s realtors say it could be the start of a larger drop in prices as interest rates and inflation hamper homebuying. Since there are so few homes available to purchase and so many motivated buyers in the market, expect that home prices will continue to rise in 2022. A rise in home value in the future is a great indication you are making a sound decision to become a homeowner.

Despite the recent cooling off, there are several reasons to consider a long-term investment in the Denver real estate market. Because interest rates affect a buyer's capacity to afford a home, buyers are taking more time to examine the value of each home, indicating that buyers are pickier. The average price fell 0.58 percent from $736,675 to $732,437 month over month. While this is a slight decrease, it is a 4.17 percent rise over this time last year, when the average price was $703,119. Furthermore, market-wide price decreases are decreasing, with close-price-to-list-price percentages falling by only 0.40 percent for attached and detached houses. Real estate experts have speculated that home prices and the demand for houses will continue to increase in early 2022, albeit at a slower rate than we saw in 2021.

The housing market slump deepened in November as sales of previously occupied U.S. homes slowed for the tenth consecutive month — the longest such stretch on records going back to 1999. And mortgage rates have come down since the beginning of November, dropping from 7.08% early in the month to around 6.6% by the end, according to Freddie Mac. Sales in November were at their weakest level since May 2020, when the real estate market was at a standstill during the pandemic lockdowns. If not for that anomalous month, sales last month would have been at the lowest level since November 2010. House prices are expected to continue to fall through to mid-2023.

Will Housing Demand Exceed Supply, Raising Prices in 2023?

Despite a sluggish market and waning buyer enthusiasm, we anticipate that home demand will continue to outstrip available inventory. Increasing rental costs should add to this expected development. However, as the number of available homes increases, the demand for housing should decrease owing to affordability concerns. The current rate of home price growth is unsustainable, and higher mortgage rates combined with increased inventory will result in slower home price growth but unlikely any big price decline. Nationally, the U.S. housing market has experienced positive annual appreciation each quarter since the start of 2012.

Low mortgage rates and limited inventory continue to make the market conditions very competitive for buyers. Based on data, now is a good time to buy a house — and first-time buyers agree. According to Fannie Mae’s National Housing Survey, more than 60% of renters would buy a home if their lease ended. Those who’ve been waiting for the housing market to cool down may find themselves in murky waters yet again — just in a different way.

The firm found an average drop in housing prices of 9.3 percent over the next five years for those areas, starting in late 2019. While low housing inventory has plagued the housing industry so far in 2022, April was an improvement, as the Denver metro area had 610 more properties on the market this April compared to April 2021. Compared to a typical 8.59% increase in month-over-month inventory, April saw a massive 44.26% increase.

If buyers and sellers have unreasonable expectations, 2023 could be a stalemate. In its most recent prediction, Fannie Mae reiterated its opinion that the housing market will push the United States into recession at the beginning of 2023. To figure out where home prices dropped the most, Realtor.com looked at the monthly median home list prices in the 100 largest metropolitan areas.

Economic forecasters, despite the recent recession, continue to expect robust demand from purchasers and high home price increases in the housing market. While this may appear to be oversimplified, it is how markets work. There is now an excessive demand for houses in several property markets, and there simply aren't enough homes to sell to prospective purchasers.

There is a surge of millennial buyers who are maturing into the conventional first-time buyer age bracket. Boomers comprised the highest proportion of house sellers at 42 percent, however, the ratio of millennial sellers has increased from 22 percent to 26 percent over the last year. The NAR report found that the combined share of younger millennials and older millennial buyers rose to 43% in 2021, up from 37% the year prior. Nearly two-thirds of younger millennials, or 65%, located the property they ultimately purchased online, a proportion that steadily declines with older generations. Eighty-seven percent of homebuyers utilized a real estate agent.