The Beginning of a Healthy Reset: June 2022 in Review
Prices decrease slightly once again as inventory climbs up. A returning sense of normal may ease recession fears.
As fears of inflationary pressures reach households through the grocery store and gas pump, home buyers have adopted a more cautious attitude, returning the residential real estate market a step towards normalcy. While demand continued to outpace supply in June, sales volume in the Denver Metro Area experienced a -11.78% MoM decline as buyers were priced out of the market due to inflated prices and higher borrowing costs. For the second consecutive month, median close prices declined in the Denver Metro Area to $618,000.
While some economic signs point in the direction of an impending recession (or at least some kind of macroeconomic slowdown), a modestly cooling housing market can actually decrease inflation through less excess discretionary spending. Let’s look at some stats from this past month:
Price per square foot lands at $299
Historically, the median price per square foot peaks seasonally in June or July and appears to have hit its seasonal maximum at $299 this year, down from its May peak of $304. A graphic of the rolling three-month average of median price per square foot depicts the seasonal leveling and infers a slight decline will likely follow in the second half of 2022.
Buyers gain bargaining power with increasing inventory
For the past year and a half, sellers have dominated the market, recording a peak a median percent of close price to list price of 106.2% earlier this year. Since that peak, a sharp decline has occurred in that metric, as more inventory comes to market, providing buyers with more negotiating power. In June, the median percent of close to list price was 101.5%, and will likely continue to decrease to settle in the normal range of 99%-101% later this year. Active listings in June 2022 were significantly higher than their level in June 2021, increasing 32.9% YoY.
Inventory, however, remains at extremely low levels compared to the pre-pandemic landscape.
Denver rents keep climbing
For the fifth consecutive month, average rents in Denver increased climbing 1.7% MoM to $1,740 in June. The pace of rent growth has slowed considerably compared to last year. The rolling three-month average monthly percent change in overall rents in June 2022 was 1.64%, compared to 2.45% in June 2021.
My outlook
As Federal Reserve Chairman Jerome Powell said in a speech last week: home buyers need a reset. The 20%+ YoY price appreciation in Denver Metro markets is unsustainable over significant periods of time, and with interest rates rising, it was only a matter of time before post-stimulus, cash-heavy Americans ran out of steam. As we close out the second half of 2022, three words come to my mind when thinking ahead to the rest of the year and beyond: relax, reset, and recover.