Drop in metro Denver home sales will be steeper than expected

Metro Denver’s housing market is facing some major headwinds that will contribute to a larger than expected drop in home sales and slower than predicted price gains, according to a mid-year update from the Denver Metro Association of Realtors.

Despite the worst global pandemic in more than 100 years, both 2020 and 2021 unexpectedly turned into record-breaking years for residential real estate activity. The initial forecast was that 2022 would come off last year’s 63,684 closings by about 4% to 5%. Now the expectation is that the decline will be closer to 7% to 9%, and the plunge could be deeper than that depending on the direction of interest rates.

“Given the current volatility, do not be surprised by a number that exceeds 9%,” advised Steve Danyliw, past chairman of the DMAR Market Trends Committee, in the group’s mid-year update.

Likewise, the committee has taken its forecast of home price gains from the 11% to 13% range this year down to a 9% to 11% range, which is still robust and above the gains seen in most years before the pandemic. But if annual consumer inflation keeps running at 8.3%, the gains in real terms will be closer to 1% to 3%.

The initial forecast was based on a view that inflation was transitory and that 30-year mortgage rates, which have shot up from just over 3% to nearly 6%, wouldn’t jump as sharply as they have. The committee’s expectation is that mortgage rates will end up somewhere between 6% to 7% by the end of the year.

A typical buyer in metro Denver could afford a monthly payment of $2,100 at the start of the year, which would have allowed them to buy a home costing around $540,000, said Nadia Evangelou and Lawrence Yun, economists with the National Association of Realtors, in the update.