Entry-level home prices are falling the fastest in Denver, study finds

Denver Sees Biggest Drop in Starter Home Prices Among Major Metro Areas

Entry-level homes have been scarce in metro Denver since 2014. Despite the ongoing shortage, the Denver region experienced the largest decrease in starter home prices compared to other major metro areas in the past year, according to a home price index from First American Data & Analytics.

Nationally, single-family home prices rose in 39 states out of 50, with an average increase of 0.4%. Colorado, however, was among the 11 states that saw declines, with a 2.9% drop marking the fourth-largest decrease along with Nevada.

Mark Fleming, the chief economist at First American Financial Corp., stated in the report that the subdued house price appreciation seen in January indicates a stable market for buyers. With slower price growth and rising household incomes, affordability is gradually improving.

First American’s index revealed price declines in 23 out of 30 “core-based statistical areas” monitored. In the Denver area, single-family home prices dropped by 4.5%, with only Oakland experiencing a slightly larger decline at 4.6%.

Starter homes, which represent the lowest-priced segment, saw a 6% decrease in value in Denver. Meanwhile, mid-tier homes dropped by 4.3%, and luxury homes by 2.3%. Denver witnessed the most significant price declines in the starter home category among all regions.

The drop in prices in the starter home segment can be attributed to a rise in supply and reduced demand. Odeta Kushi, the deputy chief economist at First American Financial Corp., explained that higher inventory levels lead to increased competition among sellers, resulting in slower price growth or declines.

Kushi highlighted that the inventory of homes for sale in Denver is now higher than pre-pandemic levels. As supply increases and first-time buyers, who are most interested in starter homes, face affordability challenges, prices are falling.

Existing homeowners, on the other hand, can leverage their equity to move up the property ladder, providing support for the middle and upper tiers of the market. Rising insurance premiums in Denver are also contributing to affordability issues for entry-level buyers.

The First American home price index focuses on single-family homes and does not include condos and townhomes. These property types are experiencing even more significant downward price pressures in Denver due to aging housing stock and rising HOA fees.

If mortgage rates continue to decline, affordability could improve, especially if home prices continue to drop. Zillow estimates that a median-income household in Denver can now afford a $456,000 home, representing a $42,000 increase from the previous year.

Redfin reports that sellers outnumbered buyers in Denver by about 40% in January, reflecting a trend seen across the U.S. The average age of a first-time homebuyer decreased last year, indicating a market that is becoming more accessible to younger adults.

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