Denver home prices frothy, but risk of a reversal remains low

June 06, 2016 / Posted in Denver, Real Estate

Metro Denver had third fastest rate of annual home price appreciation after Seattle, Portland

Photo by Steve Nehf, The Denver Post

Metro Denver home prices are about 18.3 percent higher than what income gains can explain and justify.


Metro Denver home prices are about 18.3 percent higher than what income gains can explain and justify, according to a first quarter update from Arch MI.

That’s on the high side among metro areas and above the excess appreciation rates seen a decade ago during the housing boom. In fact, they haven’t been so high in Denver since the oil boom days of the early 1980s.

But the odds that metro Denver will suffer a home price decline over the next two years remains at a low 2 percent due to a strong economy and the region’s continued popularity among those relocating, according to the Housing and Mortgage Market Review from Arch MI.

“Don’t expect Denver home prices to go down. Everybody wants in. It isn’t a bubble and it will continue to be like this,” predicted Ralph DeFranco, global chief economist with Arch MI.

Arch MI, which is based in Walnut Creek, Calif., provides mortgage insurance, giving it a motivation to stay on top of home price trends.

Although elevated home prices and a lack of affordability can put a housing market at risk, rising unemployment and out migration are more dangerous in the short-term. And DeFranco notes that home construction continues to lag demand, which wasn’t the case last decade.

Colorado home values are about 12.6 percent above where they should be given income gains, making the state the third-most overvalued after North Dakota and Texas. But like metro Denver, the state as a whole faces only a 2 percent chance of a home price index decline over the next two years versus a 5 percent chance of a decline nationally, according to Arch MI.

States dependent on natural resources are at the greatest risk of a housing downturn as they shed jobs and population gains slow. North Dakota, now in a recession, faces even odds of a drop in home prices in the next two years.

Other states at the greatest risk of suffering home price declines include Wyoming, West Virginia, New Mexico, Alaska, Louisiana and Oklahoma.

Metro Denver in April continued to have the third-fastest rate of annual home price appreciation after Seattle and Portland, Ore., according to the S&P/Case-Shiller home price indexes out on Tuesday.

Metro Denver’s home price index rose 9.5 percent versus a 5 percent gain in the U.S. National home price index.

Breaking out those gains by tiers, the bottom third of metro Denver homes in price were appreciating at a 16 percent annual rate in April, while the middle tier was up 10 percent and the most expensive tier of homes appreciated at a 6 percent clip, according to the S&P/Case-Shiller Denver home price index.