Denver market softening?

[Tom McDermott]

A multifamily apartment building in the Denver, CO area had a price drop. While I have only been tracking the market since the beginning of the year, this was the first property I have seen a price drop on. Is this a sign of the next phase of the market cycle?

[James Carlson]

@Tom McDermott

You're not alone. The price drops are happening everywhere. And Denver's no exception. I had three listings in the last month that went for under asking price. And none of my buyer clients -- be it Airbnb or STR investors who we mainly work with or plain jain owner-occupants -- have had to pay asking price in the last month and a half.

You ask about the seller's mindset. Yeah, if they have a good agent, the seller knows they don't have as much power anymore. We're getting concessions either in the form of seller-paid closing costs, priced reductions and also just repairs done. Gone are the days of taking it as-is.

A few interesting stats from the latest Denver Metro Association of Realtors' July report (with data only up through end of June):

-- SFH listings are up 119% year over year. That's a lot more supply on the market. (It's up 65% just over the previous month!)

-- # of closed transactions is down 25% year over year.

-- Days on market for SFHs is up 25% year over year and 11% up just over the previous month.

-- Median price for SFHs is up 12% over last year (but only 0.5% over last month)

I'm seeing similar trends in Colorado Springs, where we also work:

-- Active SFH listings are up 173% over last year

-- # of deals is down 5.7%

-- and yet, the median home price is up 10% (or $495,000, a new record)

What does this all mean? It's a mixed bag. Supply is up, which is good, but prices still saw double digit appreciation year over year. Denver's real estate market and Colorado Springs' real estate market, like everywhere else, is finally cooling off a bit. Rising interest rates have made a big dent in demand. Is it dropping off a cliff? No. I think things will continue to cool and we'll continue to see some price drops, but we're not crashing.

As just one example ... we have 6,000 or so active listings at the end of June. That's about triple what it was last year, so the supply is increasing, which helps with prices. (Great!) But that supply number is roughly the same as it was April of 2020 and April of 2019 and April of 2018. And no one was talking about those markets as soft. 

So, again, it's a mixed bag. We might see prices level for a bit, maybe some will even decrease, but I suspect interest rates will go down in 2023 and with that will come an increase in demand again.

That's my take anyway. What do others think?