Why Home-Price Growth in Denver May Finally Fall

A sign like this one hasn't been on view very often in the Denver area during recent years.
A sign like this one hasn't been on view very often in the Denver area during recent years.
Photo by Michael Roberts
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In recent weeks, the average price of a single family home in Denver topped $500,000. But are such abodes actually worth that much? In many cases, no.

According to a new report from California-based CoreLogic, homes in the Denver area are generally overvalued, meaning the price buyers are being asked to pay is simply too high. But while that's bad news for house hunters right now, it could result in improvements down the line in the Mile High City and beyond.

"Looking across the U.S., nearly one-half of the largest 100 metro areas appear to be overvalued," notes Frank Nothaft, chief economist for CoreLogic, corresponding via email. "In such markets, we expect home-price growth to slow in the coming year."

Among the top fifty American markets, CoreLogic stats calculate that 48 percent of them were overvalued in February, the most recent month for which statistics are available. Moreover, homes in all fifty states gained value on a year-over-year basis, with Colorado among those experiencing the largest increase.

Values in Colorado were up 8.4 percent over February 2017, tied (with California) for the seventh biggest boost over that period on a list topped by Washington's 12.5 percent. The national average was a 6.7 percent rise, and it's gone up for seven months in a row.

A home in the Bonnie Brae neighborhood.
A home in the Bonnie Brae neighborhood.
YouTube file photo

What accounts for this course of events? In Nothaft's words, "A strong labor market and low for-sale inventory has led to home-price growth that is at or above the national trend" — and all of these factors are at play in Denver.

To arrive at these conclusions, Nothaft continues, "we measure whether a market is over- or undervalued by comparing the level of home prices to local residents’ income, and comparing over a long time period."

The results for several other major communities in Colorado echo those here. "The Denver, Boulder and Fort Collins metro areas have elevated prices by this yardstick, while Colorado Springs is fairly valued," Nothaft reveals.

At the same time, he goes on, "mortgage rates have begun to move higher, and as they move above current levels, the affordability squeeze will become even more challenging for local residents."

Until prices finally begin to fall, that is.

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