The real estate market for the Metro Denver area has been very active over the past few years, and they have been characterized by strong demand. Combined with a low supply of available properties, rising home prices, and record-low mortgage interest rates, Denver real estate has been a strong seller’s market since at least 2020. To no surprise, this coincides strongly with the COVID-19 pandemic and its lasting effects, and much of this market activity will persist as a result.
Much of this is likely to stay the same going into 2022. Demand is predicted to rise, supply is likely to remain low, and home prices will continue to reach historic new highs. Yet with inflation possibly stirring the Federal Reserve to raise rates, mortgage prices are poised to disrupt this equilibrium. Meanwhile, with the coronavirus pandemic possibly hitting its peak and beginning to decline, this may change things as well. Let’s examine four major trends driving Denver real estate in 2022.
Demand Will Remain High
According to the Denver Metro Association of Realtors (DMAR), demand for residential homes in Denver was quite high in 2021 and is likely to continue on this trend throughout 2022. The impetus behind the booming demand for homes is tied to the COVID-19 pandemic in part, as more people sought to work from home instead of going into the office to protect their health and prevent contracting the virus.
While there is an increasing percentage of people in the Metro Denver area that are now vaccinated against the coronavirus, there is still much uncertainty thanks to the emergence of new variants of the virus. The Omicron variant, for example, has shown to be much more communicable than earlier variants, and this has resulted in a fluctuating infection count that could extend many people’s desires to continue to work from home in a safer environment.
Supply Will Continue to Be Low
Available homes for sale were quite scarce during 2021, and this trend is also likely to continue for the next year. Lack of inventory is a major problem, as a January report from DMAR found that the entire 11-county market for the Denver Metro area only had 1,477 homes for sale – a 34 percent drop from just a month prior. Meanwhile, year-on-year availability was down by 42 percent when compared to January 2021.
Again, the pandemic is playing a strong role in the housing supply. Few people that already have safe and secure homes will feel particularly motivated for pulling up stakes and relocating during the coronavirus outbreak, as everything that goes into moving represents dozens of different vectors of infection risk. It’s much more likely that owners of existing homes will become much more willing to relocate after COVID-19 is more reliably under control.
Home Prices Will Keep Climbing
Due to both the high demand for residential homes and the extremely low inventory of those homes on the market, it has been a strong seller’s market for several years. According to research, the median home price for Denver properties in November of 2020 was $472,000, but this rose to $577,000 in November of 2021. The same research estimates that home values could continue to rise by as much as 17.5 percent, leading to a new average price of $678,000 by November of 2022.
Besides high demand and low inventory, historically low-interest rates on borrowing have also been instrumental in buyers being able to afford to pay higher prices for Denver properties. With all three of these factors coming together, the result has been runaway home prices. Unless something changes going forward, these home prices will continue to climb, though some experts say that a more reasonable expectation for growth lies somewhere between 5 percent and 15 percent.
Interest Lates May Not Stay Low
Speaking of interest rates, they have been indeed quite low for quite some time in an effort to stimulate the economy – again, in the face of the economic slowdown caused by the COVID-19 pandemic. However, with inflation rates topping 7 percent in 2021, the likelihood of interest rates coming up in order to curb some of this inflation is becoming more and more of a certainty.
In fact, early in February, Jerome Powell, the Federal Reserve Chair, stated that the Fed is poised to become much more aggressive on interest rates specifically to target inflation. While long-term rates like mortgages are not as influenced by Fed hikes as short-term rates are, pressures brought about by inflation will likely have an impact on mortgages and longer-term lending rates as well. This, in turn, may stabilize the rising house prices in the Denver area and result in less growth than expected.
The Final Word on Denver’s Real Estate Trends for 2022
For much of Denver, the real estate market is likely to be due for more of the same in 2022. Low supply, high demand, and rocketing prices will continue at least in part, much of which are all driven by pandemic-related complications. This is likely to continue until COVID-19 is much more firmly under control and life returns closer to some semblance of normal for residents in Denver and around the world.
However, one wild card remains whether interest rates for mortgage lending are going to increase in 2022. The Fed is eager to put a stop to rampant inflation and raising interest rates is one of the tools at their disposal to do so. Even if the Fed is not as aggressive as they might need to be by raising rates, high inflation may prompt mortgage rates higher regardless. This may help to keep home prices more stable, though it will do little to assuage the low inventory problem going forward.