Despite a drop in home prices in the second half of 2022 because of a surge in mortgage rates, the value of all homes in the U.S. rose by $2.6 trillion over the past year, according to Zillow.
Metro Denver, however, remains on the negative side of the ledger, with the local market losing an estimated $5 billion in housing value over the same period, a Zillow analysis found.
That $5 billion loss the past year is minimal when compared to the 41.6% gain the market has seen since the pandemic began in early 2020 and the overall valuation of $598 billion that Zillow places on the metro Denver housing market.
Nationally, home values are up 49% over the same time, and are now worth a record $52 trillion.
Although some of the national gain comes from a 1.3% rise in average home values over the past year, the bulk is attributable to a surge in new construction, said Orphe Divounguy, a Zillow senior economist, in comments included with the report.
Metro Denver is lagging behind the nation because of a lower level of affordability combined with less robust new home construction.
“The rapid increase in home values during the pandemic combined with higher mortgage rates caused housing affordability to fall to an all-time low in the Denver metro area. Housing now takes roughly 51% of the income of a typical homebuyer and that has disqualified many prospective homebuyers,” he said in an email.
A large decline in local demand combined with higher costs for builders has caused construction to pull back, with permits in the metro area down roughly 17%, he said. Nationally, builders provided a steady flow of new homes through the spring and summer, helping ease the inventory deficit.
Looking at all of Colorado, the value of the housing market, not including apartments, peaked on May 1, 2022, at $1.33 trillion before falling to $1.2 trillion at the start of the year. Values have since recovered to $1.27 trillion.
The S&P Case Shiller Home Price Indices for July has U.S. home prices up 1% the past year, with metro Denver home prices down 2.9%. The gain between June and July in Denver was 0.47%.
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The housing market faces a test in the months ahead as the gale-force winds of higher mortgage rates intensify. The Mortgage Bankers Association reported last week that mortgage rates are now at their highest level in more than two decades.
“The 30-year fixed mortgage rate increased to 7.41%, the highest rate since December 2000, and the 30-year fixed jumbo mortgage rate increased to 7.34%, the highest rate in the history of the jumbo rate series dating back to 2011,” said Joel Kan, MBA’s deputy chief economist in a news release.
Higher rates have pushed down mortgage activity, with applications for loans to purchase homes down 27% over the past year. Refinancing activity is down 20% from a year earlier.
And yet enough desperate buyers are pushing to get into a home in a constrained market, which allows prices to rise when they normally should be falling.
“Even with existing home sales testing 13-year lows, enough buyers appear to be vying for scant listings to give sellers the upper hand. This risks reheating shelter costs and undermining the Fed’s ability to pull off a soft landing for the economy,” said Sal Guatieri, a senior economist at BMO, in a research note Tuesday.
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