Colorado Real Estate Bubble Causing Worry Among Denver Economists

Denver is currently one of only three cities in the U.S. in which real estate economists believe it’s financially safer to rent than to purchase a home.

A national index created through the combined efforts of Florida Atlantic University and Florida International University staff members dictates that Denver, Dallas, and Houston are the only three housing markets in the U.S. where purchasing a home isn’t recommended over renting. According to the index, Denver received a score that labeled it as “worrisome in terms of local housing market conditions.”

One of the researchers who worked on the index explained that scores this low haven’t been seen since just before the last real estate market crash.

“The scores for Dallas, Denver and Houston have worried us for some time now,” they said.

According to the Denver Metro Association of Realtors, several years of low housing inventory in Denver culminated in a record low for February 2017. The record-breaking low in real estate listings came as a surprise to some, as there was still an increase in new listings for the month.

Despite the increase in new listings, February was the second consecutive month that saw home price growth restricted to small percentages. Even house flipping is no longer an option for many Denver investors. Most hard money loans are secured by property with 30-50% equity, but investors in Denver may not feel protected enough with more people shifting towards renting.

February marked the third time that the number of active listings dipped to under 4,000. Not only that, but the average price of a single-family home in Denver stayed stagnant at $402,516 in that month. About one-third of single-family homes come with a porch or patio that can boost the sale price, but inflated prices in Denver aren’t reflecting accurate values of homes.

However, Steve Danyliw, chairman of the DMAR Market Trends Committee and Denver real estate agent, expressed cautious optimism when he spoke to the Denver Business Journal.

“Adding fuel to the fire is record low inventory and high demand. As prices continue to rise, concerns over affordability will begin to cool things a little,” he said.

But at the same time, increasing interest rates may still create a cautious buying market for those people looking at single-family homes. Approximately 83% of Americans believe having a yard is important, but a volatile housing market like Denver’s may not allow those potential buyers to purchase the dream homes they want.

Last month, Fitch Ratings put Colorado among 11 other states in which the rate of home price appreciation is creating a higher risk of mortgage debt. Denver, Dallas, and Houston may not have experienced very large declines in real estate prices, but their conditions are still very much a concern for economists and homebuyers alike.

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