After rising higher and higher during the pandemic, the Denver metro area housing market began to lose height in the second half of last year. Heading into 2023, forecasters disagree on whether the market will emerge from its steep decline and level off or be forced into a hard landing that could wipe out billions of dollars in real estate equity.

“Overall, my biggest prediction for the market in 2023 is stability,” said Nicole Rueth, a senior vice president at The Rueth Team in Englewood, which is affiliated with One Trust Home Loans. “The first quarter will still have slower demand, fewer new listings, and lower inventory. The second quarter will see the transition to lower fees, more demand, and more new listings.”

The Federal Reserve’s efforts to stifle rising prices will shape much of what happens in the housing market this year. And keep an eye on labor markets, which have proven resilient so far. If people start losing their jobs in large numbers, prepare for oxygen masks to drop.

Annual consumer inflation rose 6.5% in December, down from 7.1% in November, according to an update Thursday from the US Bureau of Labor Statistics. Mortgage rates for 30-year loans averaged 6 .42% last week compared to a rate of 3.5% a year earlier, according to the Mortgage Bankers Association.

Lawrence Yun and Nadia Evangelou, economists at the National Association of Realtors, also predict a stabilizing market, saying they expect mortgage rates to settle in the 6% range. While that’s much higher than where they started in 2022, having stability in borrowing costs, combined with better affordability, should allow homebuying activity to strengthen, which was down 20% last year in the Denver metropolitan area.

Nationwide, the pair is forecasting a flat year for home prices, with about half of metro areas seeing small price increases and the other half seeing small price decreases.

“As one of the most expensive areas, the Denver metro area may experience some small price drops during the second quarter of the year,” Evangelou and Yun wrote in a forecast released by the Denver Metro Association of Realtors.

Rueth predicts that increased competition during the peak spring sales season could push prices up slightly. More normal fall patterns will emerge in the second half as buyers take advantage of additional homes on the market. One of the reasons for his optimism is that the suit was delayed, not destroyed.

“The biggest age group is 31 today – those buyers didn’t leave. They were discounted, then feared and now they are ready,” he said.

Evangelou and Yun point out that the Denver metro area continues to be undersupplied with housing. Builders should provide two new single-family homes for every job created, but for the past 12 months, the pace in the Denver metro area has been closer to one home for every six new jobs. And the sharp rise in interest rates has caused many builders to back off.

Zillow, the real estate portal and research firm, estimates that home values ​​will decline 1.9% in the Denver metro area this year, or nearly three times the 0.7% decline it forecasts nationally. . That would represent the biggest drop in home values ​​the Denver metro area has seen since the 2.1% drop in 2011. As a point of reference, the worst drop in the Zillow index came in 2008, when the value of homes fell 5.7% in the Denver metropolitan area.

“Without a significant boost to inventory, mortgage rates are the key to unlocking more activity. We have seen some optimistic signs that inflation is under control and mortgage rates have come down a bit in response. Still, shoppers are far from out of the woods when it comes to affordability challenges and it’s unlikely much relief is on the way in 2023,” said Nicole Bachaud, senior economist at Zillow.

One sign of how angry Zillow has become with Denver’s prospects is its annual ranking of the “hottest” housing markets. Metro Denver is ranked 40th out of 43 metropolitan areas in 2023.

Some forecasts point to more turbulence

Goldman Sachs credit analysts take a bleaker view. While they also expect 30-year mortgage rates to stay in the 6% range this year and next, they call for national home prices to fall around 10% from last year’s high. In the most overheated western markets, the drop could exceed 25% from the peak.

The median price of a home sold in the Denver metro area, including condos, hit an all-time high of $616,500 in April and dipped to $554,990 in December, according to DMAR. That represents a 10% decrease.

A 25% decline from the peak would bring the median home sales price down to $461,625, a 20% decline would bring it to $492,400, and a 15% decline would bring the median or median home price down to $523,175 Just as buyers had to deal with the shock of rapidly rising mortgage rates last year, sellers will have to deal with realizing they missed the top of the market.

Glen Weinberg, owner of Fairview Commercial Lending in Evergreen, sees an additional 10% decline in home prices in the Denver metro area in its best case scenario this year. Based on the direction of interest rates, he warns that the drop could be as much as 20% and that Denver would be hit harder than its surrounding low-cost suburbs.

“In the past, Denver has always been one of the best places to move to, but things have changed quickly. Now Denver is commonly on the list of best places to move. The number one driver is cost. Denver has gotten expensive, and as the rates have doubled, it’s gotten even more expensive,” he said.

Available listing inventory, which increased more than 222% in December year-over-year, could see another big spike in the spring as sellers try to time the rush of peak season, he said. And the houses that come on the market take much longer to sell.

Similarly, David Bitton, co-founder of DoorLoop, a property management software company, forecasts that national home prices are headed for a 10% drop this year, with a 20% higher chance if produces a recession.

“Due to rising inflation rates and a weaker job market, fewer people can afford to buy new homes now. Many buyers were driven out of the market,” she said. “Sellers will begin to feel the brunt of this phenomenon in 2023, as high prices and mortgage rates continue to limit the pool of qualified homebuyers.”

However, even with a 20% decline this year, Denver home prices will still rise 30% since the pandemic buying spree began, Weinberg said. And Construction Coverage, an online guide service, said that since 2000, the median home price in the Denver metro area has risen 220%, one of the largest gains of any metro area.

A period of falling house prices might invite comparison with the housing crash of the 2000s, but the two periods are very different. Between 2006 and 2009, US home prices fell 28%, causing 11 million homes to fall below the underlying mortgage value, according to CoreLogic. The result was a massive wave of defaults and foreclosures, bringing the entire financial system to the brink of collapse.

Back then, mortgage loans accounted for 71.3% of a home’s value on average, and some loan products issued actually increased loan balances by adding unpaid interest back to principal. Many loans were issued with little or no down payments. But in the third quarter of 2022, that loan-to-value ratio was closer to 43.6%, leaving plenty of leeway for most homeowners.

“Today’s homeowners are in a much better position to weather the current housing slowdown and a potential recession than they were 12 years ago,” said Selma Hepp, acting chief economist at CoreLogic, in a research note.

To create the same levels of underwater mortgages seen 15 years ago, home prices would have to fall 40-45%, according to CoreLogic. That would represent an accident.

“The housing market in general is in a catastrophic state for a while, but we are not going to see a recurrence of the systemic crisis that we had in 2012,” Susan Wachter, a Wharton professor of finance and real estate, said in an interview. recent.

Buyers should expect a more stable market than in 2022 with less competition, giving them more bargaining power and more time to make decisions, predicts Bachaud, the Zillow economist. Sellers will compete for the buyer’s attention and can no longer sit back and wait to make the decisions.

“Valuing a home correctly is very important in a market like this, where sellers are the ones competing for the buyer’s attention and not the other way around. And more time to make decisions with additional inventory coming on the market will help give today’s buyers the edge they need,” he said.

Bitton is not calling for a buyer’s market yet, saying 2023 could look more “neutral.”

“In short, if you do not have a defined date in mind to buy a new house, it is best to wait. The best time to buy a home for each potential buyer is unique, and the ideal time to buy a home is not the same for everyone. It’s important to look at your finances and know how buying a new home will affect your monthly bottom line,” he advised.

Get more real estate and business news by signing up for our weekly newsletter, On the Block.