By David Schlichter
If you’re thinking about selling and/or buying a Denver metro area home in 2022, here are 10 things you need to know that will likely have significant impact on home values and market conditions this year. Now, more than ever, working with a highly informed, experienced, and strategic real estate team is critical to successfully navigating this market. If you'd like our award-winning team to help you with your real estate purchase and/or sale, please be in touch today!
Buyer demand for Denver area homes went through the roof in 2021. This was fueled by the high quality of life here, the strong job market, low interest rates, positive migration into the Denver metro area, shifting needs as a result of many people working from home, and more. With homes in Denver selling for an unprecedented average of 5% over the asking price in the peak of 2021 and multiple offer situations continuing with high frequency throughout December (which is very uncommon for Denver), more buyers than usual were unable to purchase a home last year and will be continuing to look in 2022. The 2021 buyers who are still looking get added to all of the new buyers who are starting searches in 2022 that weren’t looking in 2021, and that combination will create very competitive conditions for at least the first half of 2022 (and likely throughout the entire year).
Low inventory levels (the lack of enough homes for sale) have been a problem across the nation--but especially in attractive markets like Denver, as builders have been unable to keep up with buyer demand. The rapidly rising prices here in Denver, low inventory levels, and lack of a desire of many homeowners to leave the region have created a vicious cycle in which many sellers worry about being able to find a replacement home--so, instead of listing their homes for sale, they are staying put, which further reinforces the low inventory problem. Thankfully our award-can help you navigate this market to negotiate a period of time to rent your home back from a buyer while you look for a new home or help you buy your new home first then sell your current home after (and even potentially make you a cash buyer while doing it--contact us for more information).
The Fed is expected to raise interest rates approximately 3 times in 2022. How will rising interest rates impact the market locally? Some buyers will likely start their searches earlier in the year than they otherwise would in the hopes they can lock in a lower interest rate on their home loan before the rate hikes take effect, which will further enhance the competitiveness of the first half of the year. As interest rates rise, homes become less affordable, which can ease some of the upward pressure on prices--but it would take significant interest rate hikes to fundamentally change the major imbalance between buyer demand and seller supply that we are experiencing currently. Additionally, a lot of prospective buyers, especially first-time homebuyers, don’t pay very close attention to interest rates prior to the time that they are actively looking, so rising rates may not have an enormous impact on the housing market unless and until they rise significantly.
The pandemic led to what is now being referred to as “the Great Resignation," in which workers quit their jobs in large numbers. Here, locally, we think of it more as a “Great Shuffle.” Many people are keeping their jobs in expensive coastal cities, and shuffling over to Denver where they can experience a higher quality of life and lower cost of living while keeping their same jobs. Additionally, many people locally are sticking with their current jobs but are shuffling to a new home in the region because they need more inside space in their homes for a home office and/or want more outdoor living space. These forces will continue in 2022, and the result will be a lot of additional shuffling.
We hear from many more people who are interested in coming to Denver than are interested in leaving it, and according to the National Association of Realtors, Denver was the #2 migration destination for individuals (who make up 70% of movers). When we work with clients relocating from the San Francisco Bay Area, New York, Los Angeles, and other expensive coastal cities, they can’t believe how affordable Denver is, the amount of space they can get for their dollar, and the overall quality of life they get to experience at such “low” prices. The word has certainly gotten out on all of the positives of life in Denver, and we expect significant migration from expensive large coastal cities to continue in 2022. If you're thinking about moving to Denver from another city, our team of experts can do virtual showings so that you can tour properties from other cities in preparation for a move.
In any given year, some people will need to move to other cities for family, work, or other reasons. Denver’s home values have more than doubled(!) in the last decade, with the average Denver homeowner earning nearly $100,000 in equity in the last year alone. As Denver continues to appreciate, some homeowners are taking their equity gains and moving to other (often less expensive) cities. Other aspiring homeowners are getting priced out of this market, are tired of paying high rent, and/or find other cities to be more attractive for other reasons. While we still expect positive net migration (and Denver was one of the metro areas that has been a net migration beneficiary during the pandemic), we are starting to see a marginal uptick in the number of people moving away from the region as prices continue to rise.
The Marshall and Middle Fork Fires were the most destructive fire in Colorado history with approximately 1,000 homes destroyed in the span of mere hours. They were a horrible disaster, and you can help support victims here or here (you can also provide free lodging to victims through Airbnb here). While many of the victims will hopefully be able to rebuild, that process will be protracted, and in the interim most of those folks will need to purchase new homes or rent other homes in the Denver/Boulder metro area. This will add additional renter/buyer demand to an already competitive market. Will climate change and additional wild fires continue to threaten the Denver metro area? While we hope the answer is no, none of us imagined fires like the ones that occurred in December 2021--and those were after a summer that was notable for the presence of smoke from wildfires from thousands of miles away. Climate change is impacting us locally whether we want it to or not, and some of its impact may lead some folks to search for other places with lower risk.
While Denver metro area homes generally get less expensive per square foot the farther away they are from downtown, when the pandemic hit people felt a need for more space and the need to be close to work became less relevant with many offices going remote. Accordingly, this significantly increased demand for suburban and mountain homes, while downtown condos, for example, were in relatively low demand. The amount of home sales in Vail in the first half of 2021 was almost double the amount of home sales there from the same period in 2020.
As the acute phase of the pandemic (hopefully) recedes, as businesses fully reopen, and as events/entertainment return to a more normal state, it is likely that demand for urban homes will increase correspondingly. In 2022 it is very likely that a large number of buyers (particularly those who are currently renting), will want to take advantage of the relative affordability of urban Denver condos which, between December of 2019 and December of 2021, appreciated by "only" 16.8% as compared to detached single family homes in Denver which appreciated by a staggering 35%.
Over the last decade, Denver’s population has grown substantially, and we are now one of the 20 largest metropolitan areas in the country. As Denver has grown from a small- to a medium-sized city, so much has changed for the good. Our city is filled with phenomenal restaurants and food halls, breweries, shops, parks, schools, cultural institutions, traditions, and so much more. The music scene is incredible. Unemployment levels here in Colorado are among the lowest of any state. Public transportation has improved dramatically with the expansion of the light rail.
Along with all of the positives of growth and development, we’ve also begun to experience our fair share of bigger city challenges. Traffic, for example, while substantially better here than in many cities across the country, has gotten worse as our population has swelled, particularly to/from the mountains. Affordable housing is a major challenge here in Denver and in the mountain markets. And homelessness has become a growing challenge particularly near downtown Denver. As we continue to grow as a city, issues like these will become more abundant and will require thoughtful and strategic city and state leadership to address. How they are managed will determine the attractiveness of urban life versus suburban life (or life in other metro areas).
Whereas the song goes “in a New York minute, everything can change,” 2020-2021 taught us that in a COVID minute, everything can change. In spring of 2020 when the pandemic started, it looked like the entire economy and real estate market were going to collapse. The stock market temporarily crashed, but government stimulus including low interest rates, foreclosure protection, home loan forbearance, eviction moratoriums, rental assistance, the Payroll Protection Program (PPP), and other initiatives helped support the stability of the housing market, kept people in their homes, and kept creditors away until the economy had a chance to recover.
The approval of vaccines for the general public in early/mid 2021 seemed like the light at the end of the pandemic tunnel, but the Delta and Omicron variant outbreaks have created a substantial amount of uncertainty in the economy and housing market. Will we see the pandemic fizzle and shift to being endemic in 2022 with widespread immunity from vaccines and the high rate of infections? Or will new variants emerge that evade prior immunity and are more harmful? How will the government respond to these challenges? The answers to these questions will have profound implications for migration patterns, suburban v urban demand, condo demand, demand for larger versus smaller homes, and more.
In this competitive and rapidly-changing environment, it is more important than ever to work with a highly skilled team of agents that can help you successfully navigate these complex market dynamics. Our award-winning team of experts is highly experienced and successful at helping both sellers and buyers to successfully navigate these complex market dynamics. Be in touch today for additional insight as it relates to your specific home sale and/or purchase!