Signs of a Slowdown: May 2022 in Review
Median closed prices decreased, but the market remained attractive for sellers and difficult for buyers.
Overview
For the first time this year, the median close price for residential properties decreased 0.8% to $590,895. In major cities, rents continued to rise about 1.8% month-over-month, with the Denver Metro area median rent reaching over $1,700 for the first time.
Residential Sales
The red-hot housing market persisted throughout May, though some indicators suggested signs of a shifting market in the later weeks of the month. Median close prices declined in the Denver Metro Area month-over-month for the first time in 2022, but inventory remained very low resulting in an increased median close to list price ratio of 104.1%. Rents increased month-over-month in nearly every major city in Colorado, and Denver Metro rents reached all-time highs.
Median closed prices in the Denver Metro Area decreased in May by 0.8% driven by a decrease in closed prices of single-family homes. Condos/townhouses experienced a slight increase in median closed prices of $4,200 (+1.05%) to a May figure of $400,000.
The number of new and closed listings increased 0.75% and 3.63% respectively in May. The slower growth pace indicates lower inventory and a slowing market, slightly shifting advantage away from sellers and towards buyers.
Despite the slight shift in pricing and inventory, median days on market in the Denver Metro Area remained at its four-month straight all-time low of four days, consistent with days on market figures from the previous summer.
Residential Leases
In 26 analyzed markets, rent grew on average by 1.81% MoM in May. The average median rent for one and two-bedroom units in those markets were $1490 and $1834, respectively. Rents in May were, on average, 21.2% higher than since the beginning of the pandemic in March 2020, and 14.6% higher than twelve months ago.
Superior had the highest median 2 bedroom rent at $2,353, likely mostly attributable to relocation due to the December/January Marshall Fire which impacted over 1,000 structures.
Glendale, the small city located adjacent to the Cherry Creek residential district, experienced the highest relative YoY rent growth at 19.2%.
Greeley appeared as the least desirable of the analyzed cities, with both the lowest median 2 bedroom rent at $1,145 and YoY rent growth at just 9.5%.
In the Denver Metro Area, rents continued their rapid climb to new all-time highs, reaching $1,459 and $1,766 for one and two-bedroom units respectively. The pace of rent increases has accelerated considerably since the beginning of the COVID pandemic. The compounding annual growth rate (CAGR) for overall rents during the three years preceding March 2020 was 2.77%, while the trailing two-year CAGR of overall rents in May was 9.40%.
Outlook
With recession fears looming and increased volatility in the mortgage market, it is difficult to predict the conditions of the housing market for the rest of the year. If broad economic conditions remain strong, the slowdown in the housing market will likely be slight as prices remain elevated and appreciation rates stay high. Continual rate hikes by the Fed will likely make the cost of money more expensive, balancing any decreases in closed prices with increases in monthly mortgage costs.
Historically, the peak of inventory and prices occurs in May and June, and the current status of the market suggests the peak occurred slightly earlier this year in late-April to early-May. I predict a slight slowdown and shift away from the extreme seller’s market for the remainder of the summer months, with conditions in the fall and winter dependent upon how the U.S. economy reacts to recession fears.