What Do Big Increases in (Most) Colorado Home Prices Mean for You?

October 20, 2016

Over the past five years Colorado home prices have soared. Low mortgage rates, a strong local economy, and an inflow of new residents seeking the Colorado lifestyle have driven home prices up faster than other areas of the country. This has been great if you already own a home, but it has been a financial challenge for folks looking to buy a home.

In July, the summer buying season and a lack of supply of new homes pushed Denver prices up by 13% since May of this year and 9.4% over last summer. This rapid rate of increase makes Denver the third strongest housing market in the country behind only Portland and Seattle. Historically high-priced markets like New York and San Francisco are up only 1.74% and 6.01% over last year, respectively.

As you can see in the chart below, Denver home prices have rebounded from the 2006 housing crisis much faster than the rest of the country. From the previous peak in August 2006, home prices in the Metro Area are now 25% higher. Elsewhere, even after five years of growth, the rest of the country is still 8% below its previous peak. So clearly while the home price recession may be a distant memory for Coloradans, many people in other parts of the country are still underwater on their mortgages.

Colorado Home Prices Home prices have been steadily rising in Colorado since the housing downturn in 2006 (source: Case Shiller)

According to online real estate database giant Zillow, the median home price in Denver is $353,300.  That means a home purchased ten years ago at the peak of the market in 2006 for $272,800 would now be worth $341,000. Most of that year-over-year appreciation has been in at double digit rates over the past five years.

However, the home price appreciation has not been uniform across all Colorado cities, as you can see below.

Colorado home prices The Metro Area has seen the biggest gains, but other parts of the state have recovered nicely (source: Federal Housing Finance Agency)

Using the Federal Housing Finance Agency data we can see Denver has led the state in home price inflation, followed by Fort Collins and Greeley. This reflects the rapid population growth along the Front Range and the increase in high paid energy and technology workers. The rest of the state has started to recover, but the pace of home price inflation is significantly slower.

So where are the great housing values now? Using Zillow median price data, there are still affordable areas to live in the state. While the median price of a home in Denver or Fort Collins is north of $300,000, prices in other cities are much lower. Colorado Springs offers the amenities of a big city, is about the same drive time to the ski areas, and has a median home price of $235,000. Further south in Pueblo, the median price is $130,600. If you want to enjoy the sunshine of the western slope the median home price in Grand Junction is $195,400.

If you plan to avoid a mortgage altogether, renting in the Denver area isn’t going to be cheap either. Over the summer, the average monthly rent for a metro area apartment rose to an all-time high of $1,371—that’s if you’re lucky enough to find a place to rent, as vacancy rates sat at a relatively low 5.4% in July. And unlike home owners who can deduct a significant portion of their mortgage interest from their federal taxable income, renters are left with no tax benefits whatsoever. As with home purchasing, if you’re looking for a better deal, then you may want to consider Colorado Spring—where rents are about 25% lower than Denver.