Metro Denver’s housing market is among those more vulnerable during an economic downturn, but it doesn’t rank among the frothiest markets in the country, according to an analysis by Seattle-based brokerage firm Redfin.
With interest rates up, home sales down, and the home price gains peaking, Redfin examined a variety of measures to assign a “risk” score to major U.S. metro areas.
“Recession fears are escalating, mostly because the Fed has signaled it will continue to raise interest rates to tame inflation and cool consumer demand. Higher interest rates led to surging mortgage rates, which have already cooled down the housing market,” said Redfin Senior Economist Sheharyar Bokhari, in a release accompanying the study.
If the country does enter a recession, assuming it is not already in one, a housing market crash like the kind seen in the Great Recession is unlikely, Bokhari predicted. But that doesn’t mean some areas won’t be hit harder than others or that home prices won’t start falling.
“First, what goes up must come down. Home prices soared at an unsustainable rate in many pandemic homebuying hotspots. Additionally, places where people tend to have high debt compared with their income and home equity are vulnerable because their residents are more likely to foreclose or sell at a loss,” he said.
Among the risk factors that Redfin looked at were the average ratio of home mortgages to home values; the share of home sales that were flipped; how quickly a given housing market has cooled in the first half of this year; how much migration, in or out, an area is seeing; a market’s share of sales of second homes, and annual home price gains.
With a risk score of 84, Riverside, Calif., has the highest chance of a housing downturn of the 98 metro areas examined. It was followed by Boise, Idaho, and Cape Coral and North Port in Florida. Las Vegas, known for its boom and bust cycles, was also up there with a score of 74.
Denver ranked 34th out of the 98 metros studied with a score of 53.8, while Colorado Springs was right behind it with a score of 53.7.
Metro Denver ranked 11th highest in the country for the share of homes flipped, a measure of speculative activity, at 7.9%. It ranked seventh for how quickly its housing market is cooling this year. A separate study out Friday from real estate research firm Black Knight also put metro Denver among the U.S. metros with the fastest deacceleration in its annual rate of home price appreciation, which has fallen from 23% to 15%.
High rates of home appreciation have kept metro Denver out of the ranks of the most leveraged market. It had a home loan to home value ratio of 82% last year, which was in the bottom half of the cities where enough data was available. Colorado Springs had a debt-to-value ratio of 87%, putting it at a higher risk if prices start falling.
Among the metro areas facing the smallest risk of a housing downturn were places like Akron, Ohio; Philadelphia; El Paso, Texas; Cleveland; Cincinnati; Boston and Buffalo, N.Y., according to the Redfin study.