Updated: Oct 12, 2020
Colorado homes have skyrocketed in value especially in highly sought after areas such as Denver, Boulder, and Colorado Springs. These home values have increased due to a variety of factors from the growing population, lower interest rates, and builders focusing on luxury homes.
Colorado's great outdoors, fantastic beer, and a plethora of other reasons have driven people to move here in droves. The more people who move to the city the more housing is in demand. Classic supply and demand models combined with the fact that there is a finite amount of land and builders can't keep up have caused real estate prices to skyrocket. Denver has had on average over 35 people move into the city every day. California has priced out a lot of the population and has similar sunny skies such as Colorado which causes many to move here.
When coming from California where the median home price is $615,090 makes Colorado's median price single family home of $428,364 look small. These Californians move here after their houses have appreciated so rapidly that the Colorado home prices seem cheap and reasonable. This isn't the only migrating state, there are lots of people who come here with oil-rich jobs from Texas or move out from the big metro areas of New York City and Boston. These wealthy individuals also bring with them large amounts of cash and are normalized to high real estate prices. This population creates a housing shortage and drives prices up. This is the unfortunate side effect of Colorado's great success.
To fully understand the housing boom of Colorado it is important to look back to the great recession. Back in 2008, Colorado wasn't becoming overdeveloped as many other places and therefore didn't have as much housing moving into the recession. After the recession, home builders sought after wealthy homes since they have higher margins and are seen as a safer bet. This has created an excess of luxury homes in the real estate market, with minimal smaller homes suited for millennialfirst timehome buyers or older individuals looking to downsize. Affordable housing has low profit margins only farther increasing the median price. This created tremendous interest in the few smaller homes that do hit the market. Denver is also leading the country in high-income renters, this specifically means households that make over $100,000 per year. These wealthy Coloradans have expanded at an impressive 146% in the past decade. These high-income renters drive up the apartment complex prices throughout the entire housing market and mean that builders move away from the lower market rentals.
Denver has consistently been one of the best places to grow your career. The state offers a wide variety of jobs from oil and gas, technology. manufacturing, tourism, and mining. These industries have grown throughout the front range and beyond. Colorado has found an extremely low unemployment rate, even during the COVID-19 recession. In July 2020 the centennial state (Colorado) has a 7.4% unemployment rate compared to a 10.2% unemployment rate throughout the United States. This can be helped by the fact that the U.S. Census shows almost 50% of Denver residents have a bachelors degree or higher. These low unemployment numbers have lead to a rise in pay but also an increased cost of living. These job opportunities have increased farther as the installation of the light rail has allowed downtown to boom.
Interest rates have been found at an all-time low. Since almost everyone needs a mortgage to buy a home, a home's affordability is often based upon its monthly cost. With interest rates plummeting, monthly rates have fallen. The lower interest payment means that buyers are able to afford higher priced homes. It is advised not to spend more than 30% of your income on housing. The median income in Denver is $68,000 per year which means that with the new 3% interest rate and an affordable $1700 per month, the average Denverite can afford a $425,000 home assuming a 20% down payment. This actually comes close to Denver metros' median home value of $465,000. These Denver home prices are still significantly higher than according to Zillow, the national average price of $227,000.
The new COVID-19 virus has affected a large proportion of industries. With more individuals living at home, many have wanted to have the space to relax in their own home and backyard. This has lead for many individuals to leave the downtown Denver apartment complex's and move toward the suburban single family homes. This allows for more bedrooms to turn into a new office instead of everything piled into a one bedroom apartment. COVID-19 has also caused many lumber mills to shut down. This decrease in supply has caused skyrocketing lumber prices, yet another high cost making housing costs also more expensive.
Will housing prices go down in Colorado?
Home prices in Colorado have been rising even throughout the coronavirus crises. Nobody can perfectly predict the future, and anyone claiming they can is very likely after your money. Home prices in the coming months may start to drop as the full effects of the recession start to take effect. This could become apparent if rent eviction memorandums and mortgage forbearance comes to an end.