Housing Prices: Still Strong, Though Moderating
It is no secret that housing prices in the U.S. have recovered substantially since the 2008 financial crisis. In the Denver metro area, and across many metro areas, housing prices are now well above their prior 2007 peak. And this is largely a good thing, as a robust real estate recovery has created jobs, strengthened consumer balance sheets and improved the lending portfolio of most major banks.
According to the S&P Case-Shiller Home Price Index, U.S. housing prices are up nationally 5.9% year-over-year in the latest results. Denver housing prices are up 8% over the same time frame. The Denver housing market has been particularly robust over the past few years, competing with Seattle and the Bay Area as one of the hottest real estate markets in the U.S.
We do see signs of slowing growth in the Denver market, however. According to a report by the Denver Metro Association of Realtors, the number of homes sold in the metro area declined by 8.5% in July, year-over-year. The median price of a single-family home in Denver in July was $450,000, a 0.3% decline compared to June. While we aren’t seeing the signs of a recession, or even much of a correction, we are witnessing the flattening of housing prices.
Over the long-term, housing prices are tied to income growth. Workers and their families can only afford a house so long as it fits within their monthly spending budget. When housing prices go up too far and too fast, they stretch the budget for what is affordable. When the disconnect becomes too great, the natural consequence is that housing prices begin to suffer.
A moderation in U.S. and Denver housing prices would be a welcome development. Indeed, the pace of housing price growth has far exceeded wage growth over the past five years. A flattening price environment will allow wages to catch up to housing prices, and ultimately lead to a more sustainable economic environment.
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