Appreciation is Dropping. Will Home Values Fall? | Guest Post

Rising interest rates will slow demand as will rising home prices, and buyers will have to make hard choices.
Nicole Rueth

Did we peak in February? Both average and median price growth slowed in April. I’d like to breakdown our median closed prices. Average home sale prices can often be misleading due to extremes like Russell Wilson’s home purchase for $25 million this month, so, let’s stick with the median.

Looking back, month-over-month median home price growth started out flat in January, yet low inventory and strong pending home sales provided a strong close-to-list of 102 percent. In February, prices rose 6.5 percent, as active listings stayed depressingly low due to an equal number of under contracts to new listings, pushing close-to-list up to 105 percent. March saw a swell of much-needed inventory, if you can call 6,020 homes a swell, giving buyers a few more choices but no extra days. Days in the MLS stayed at four while the close-to-list increased to 106.5 percent. Median home prices softened to a 4.8 percent month-over-month increase. April’s data reflected a slowing median home price growth again as it increased only 3.81 percent from last month with almost 7,000 homes hitting the market, yet the close-to-list continued to increase to 107 percent.

So what’s happening?

As more inventory comes online, you would expect days in the MLS to increase, close-to-list to decrease and appreciation to slow. In fact, those adjustments would move us towards a more balanced market. However, buyers are still going out fiercely, getting homes under contract in a weekend and paying over asking, even if they are the only offer. They don’t know the buyer pool is relaxing but they are still afraid to miss out on their piece of the American Dream, their hedge against inflation and their plan for multi-generational wealth. 

Rising interest rates will slow demand as will rising home prices, and buyers will have to make hard choices. Some buyers will be priced out and forced to rent, while others will migrate to lower-priced metros. Denver shows no shortage of buyers who can afford to be here and are willing to compete for and finance the limited properties available. 6,881 new homes came on the market in April and 5,725 went under contract. This happened during a month when interest rates went up by half a percent (.5 percent) and cash buyers dropped to 18.7 percent of the market.

On a broader economic level, similar tugs of war are occurring with consumer sentiment hitting its lowest level since 2011, yet consumer spending was up 1.1 percent. This is in the face of an 8.5 percent CPI (Consumer Price Index) and 6.6 percent PCE (Personal Consumption Expenditures Index) Inflation. Higher costs are slowing some people down, but not all. Consumers have been flush with cash for the last two years, winning big in the stock market and in housing. 

Home prices are expected to moderate as more inventory comes online. Zillow is currently forecasting a 14.9 percent appreciation for the next 12 months. Fannie Mae is expecting appreciation to decelerate through 2022 and 2023, landing the fourth quarter of 2023 at 3.2 percent. CoreLogic is calling for a 17 percent appreciation for 2022. Much of this appreciation deceleration is dependent on inventory coming back to levels seen pre-pandemic. We need to watch for inventory to increase year-over-year to get any relief. DMAR’s 11 counties had 3,204 active homes for sale this month. This is a 23.5 percent increase from 2021’s 2,594 homes for sale, a move in the right direction. However, we are still down 53 percent from 2020’s 6,855 homes and 54 percent from 2019’s 7,012 homes for sale. Considering we closed 4,912 homes in April, we are well short of the 29,472 homes we need for a balanced market, which was last experienced in 2011.

The market we have seen for the last two years can exhaust and scare anyone. As headlines remind us of rising prices and unaffordability, potential homeowners are left grappling with whether buying now makes sense. Our jobs as real estate and mortgage professionals are to show them there is a path to homeownership even in markets like this.

Did you know that having a net wealth of $1.2 million pre-pandemic put you in the top 10% of the country? If you’re 18-24 years old, $50,000 in net wealth puts you there. 2021 saw over 3.2 trillion in home equity growth. April saw a 3.81 percent month-over-month and 19.04 percent year-over-year increase in Denver Metro’s median price growth. Meanwhile, bitcoin dropped 18 percent, Nasdaq 13 percent and the S&P 9 percent.

Until next time, that’s a wrap for this month’s Market Trends update. It’s my pleasure to keep you updated,

Nicole Rueth of The Rueth Team of Fairway Mortgage


The views, opinions and positions expressed within this guest post are those of the author alone and do not necessarily represent those of the Denver Metro Association of Realtors®. The accuracy, completeness and validity of any statements made within this article are not guaranteed. We accept no liability for any errors, omissions or representations. The copyright of this content belongs to the author and any liability with regards to infringement of intellectual property rights remains with them.

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