Buyer's Market in Denver: Supply Outstripping Demand by a Large Margin

Executive Summary

In our most recent market update, published on September 16th, Denver was flagged as the largest net negative surprise in terms of supply-demand dynamics. In this report, we take a closer look at the data within the Denver MSA in an effort to provide more transparency on what specifically is driving weakness in the region.

Biggest Takeaways:

Supply growth has accelerated meaningfully starting in March of this year. In Q4 2023, supply growth was actually negative; however, it turned modestly positive in February of this year (+5% YoY) and has increased substantially each month since that time. In August, supply growth was over 60% YoY. Demand growth has remained in negative territory over the past year and in August was roughly -10%, implying the gap between supply (+60%+) and demand (-10%) is >70%. For context, this is the second largest gap among markets flagged by our national analysis, behind only Knoxville, TN. Note that these growth figures are based on year-over-year growth trends and therefore account for any seasonal effects. See Figure 2 for further details.

Where is the supply coming from? Everywhere, but the suburbs may have been overbuilt. Supply has come online across the entire region, though the highest growth areas are located in suburban or developing regions outside central Denver, which saw more net new construction post-pandemic. These areas were arguably overbuilt. As a result, new builds are absorbing demand and are competing with older inventory, driving the overall cost in these areas lower. Aurora and Brighton are among the sections of the MSA that have seen the largest increases in supply.

Not surprisingly, price cuts are also ahead of the national average. The percentage of inventory with price reductions in Denver, based on the most recent data (through October to date), is about 45% versus the national average of 35%. Price cuts dropped below the national trend briefly at the beginning of the year but have outpaced the national average since that point. Note that price cuts do have a seasonal component, but the net effect is that prices are decreasing faster than in the US market more broadly. Given the increase in supply, this is largely expected behavior as the market seeks equilibrium.

Net/Net, it's a buyer's market in Denver. The oversupply from new builds has already occurred and is now being absorbed, resulting in pricing pressure across the Denver MSA. At the same time, the easing mortgage rate environment may have unlocked additional resale supply. Given these dynamics, a buyer's market has emerged in Denver.

This analysis leverages the Parcl Labs API and is fully open-source. You can replicate, expand upon, and update this study in real-time, allowing for continuous monitoring of Denver's evolving market dynamics.

Introduction

In June 2024, Parcl Labs developed an open-source algorithm for identifying distressed housing markets. Our research based on this algorithm has made national news, most recently featured in the Wall Street Journal. Our latest report revealed a new hotspot of supply-demand imbalance: Denver. In this September analysis, Denver emerged with a striking 78.68% supply-demand gap, the second-highest among major U.S. metros identified as at-risk in our recent report. Denver was not flagged in our previous reports.

In response, we’ve developed an open-source follow-up analysis to explore the key factors driving Denver’s market dynamics. This deep dive marks the first in a monthly series, each focusing on a single market showing significant change surfaced in our monthly national analysis.

What's driving Denver's sudden market imbalance? Let's review the data.

Why Did Denver Flag? Weak Demand, Summer Surge of Supply, and Motivated Sellers

Denver’s Market Sees Supply Surge Amid Weak Demand

To understand Denver's sudden surprise appearance, we analyzed its YoY supply-demand dynamics, focusing on the evolution of these trends in the past year.

The data visualized in Figure 2 tells the story:

• Persistent Demand Weakness: Denver has experienced a prolonged period of declining demand. Since November 2023, the market has registered 10 consecutive months of YoY sales decreases.
• Summer Supply Surge: While demand remained tepid, the supply side tells a dramatically different story. The chart shows a sharp increase in inventory levels starting in April 2024. This surge accelerated through the summer months, with August 2024 recording a 66.44% YoY increase in available homes for sale.

This combination of weak demand and rapidly expanding supply triggered Denver's appearance in our algorithm. The sudden and sharp divergence between these two metrics, particularly evident from June to August 2024, explains why Denver did not surface in earlier analyses but now stands out as a market of concern.

Price Cuts Accelerate, Widening Gap with National Average

To flag as an at-risk market in our algorithm, a market needs both a supply-demand imbalance and significant price cutting activity. This combination indicates not just market imbalance, but also seller motivation to exit. Denver meets both criteria.

Figure 3 illustrates Denver's price cut trends. While price reductions show seasonal patterns, Denver's rate accelerated faster than the national average this spring and summer. The gap between Denver's price cut rate and the U.S. benchmark is now at its widest point since our analysis began in October 2022. Currently, nearly half of Denver’s for-sale inventory is experiencing price cuts.

Where Is Denver's Supply Surge Coming From?

The rapid increase in Denver's housing supply is perhaps the most interesting factor identified in the above analysis. This surge materialized quickly, raising an important question: What is the source of this new inventory?

To answer this, we leveraged the Parcl Labs API's granular data capabilities. Our API offers multiple ways to dissect supply trends, including detailed breakdowns by sub-markets and property types. To gain the most precise understanding of the units contributing to Denver's supply-demand dynamics over the past year, we leveraged our unit-level API. This allowed us to pinpoint exactly which types of properties and areas within Denver are driving the inventory surge.

Listings are Widespread Across Denver

Figure 4 displays active listings in Denver from August 2024 through the first week of October. The map highlights the surge in listings that contributed to the year-over-year inventory increase in August 2024.

The map reveals a metro-wide increase in listings . Single-family homes, which make up the majority of Denver's housing stock, dominate the landscape and are widely distributed throughout the metropolitan area. Condo listings concentrate heavily in the urban cores, particularly in downtown Denver, Lakewood, and Aurora. This widespread distribution across property types and locations underscores the breadth of Denver's current supply.

Impact of Geography on Supply Within Denver

While Figure 4 illustrates the widespread nature of listings across Denver, segmenting by zip code and analyzing YoY trends provides more useful insights into the supply surge dynamics.We identified the top 10 zip codes in Denver by absolute increase in supply from August 2023 to August 2024. Notably, the majority of these high-growth areas are located in suburban or developing regions outside central Denver:

1. 80019 (Aurora/Denver International Airport area): This northeast region near the airport saw the largest increase, with 239 active listings in August 2024 compared to 97 a year prior - a 146.4% surge.
2. 80013 (Aurora - Central/East): This established suburban area southeast of downtown Denver experienced a 74% increase, from 169 to 294 listings.
3. 80601 (Brighton): Located north of Denver, this growing suburban area saw a 62.2% rise, from 185 to 300 listings.

Denver's supply surge mirrors patterns seen in other hot pandemic markets like Austin. As demand outpaced supply during the pandemic, buyer interest (and supply in response) shifted towards suburban and developing areas.

Impact of Property Type on Supply Within Denver

Building on our geographic analysis, we examined property type-specific data for Denver to understand how different housing categories contribute to the supply surge. This approach previously helped us identify the condo crisis driving supply-demand imbalances in Florida markets.

In Denver, the story is nuanced:

Single-family homes remain the dominant property type in Denver's housing inventory, but their share is decreasing. Condos and townhouses are slowly gaining a larger portion of the market. As of September 30, 2024, single-family homes represent approximately 52% of the inventory, down from about 72% in October 2022 (Figure 5).

Contextualizing this with our geographic findings:

Despite the overall decline in single-family home share, suburban areas are still contributing heavily to new listings. This suggests a geographic shift in single-family supply towards outer areas, aligning with our zip code analysis showing significant inventory increases in the Denver suburbs.

Our earlier geographic analysis highlighted significant condo listings concentrated in downtown Denver, Lakewood, and Aurora. With condo share remaining relatively consistent (around 14-15%), this suggests urban areas are maintaining steady condo development and inventory.

The key takeaway is that, unlike Florida’s condo-driven imbalance, Denver’s trend arises from a mix of factors across submarkets and property types.

Contribution of New Construction to Denver's Supply Surge

Our above analysis implied that new construction could be contributing to Denver’s supply surge. To investigate this further, we analyzed the contribution of new construction to overall supply, broken down by property type.

Single-Family Homes (Figure 6):

• Single-family new construction's contribution to inventory has ranged from 10% to over 25%.
• A clear downward trend is evident since mid-2023, indicating that while new builds remain significant, their relative share is declining as inventory grows from other sources.

Condos (Figure 7)

• New construction accounts for approximately 5-7% of overall condo inventory.
• Peaks in early 2023 and mid-2024 suggest periodic bursts of condo developments entering the market. This indicates a steady but relatively small contribution of new construction to condo supply.

What is the implication? Denver's housing market is undergoing a shift. The declining share of new single-family construction (Figure 6) amid overall inventory growth (Figure 2) points to increased resale competition. Simultaneously, steady new condo construction rates indicate sustained urban core development.

With single-family homes making up the majority of supply but new construction (as %) waning, the supply surge likely stems from increased resale activity. Recent mortgage rate declines may be accelerating this trend, potentially motivating existing homeowners to sell.

These dynamics reveal a market in transition, with supply sources shifting from new construction to resale properties, particularly in the single-family sector. This trend, coupled with consistent condo development, suggests a rebalancing across property types and geographic areas.

Where Price Cuts Are Occurring in Denver

Our analysis reveals that price reductions are widespread across Denver. The heat map in Figure 8 illustrates this trend:

• Widespread Cuts: Price reductions are evident throughout the Denver metro area, from the urban core to suburban regions.
• Suburban Intensity: Larger price cuts (indicated by blue/red colors) are more prevalent in suburban and outlying areas. This aligns with our earlier observations of increased inventory in these regions. The more aggressive price cuts in these regions suggest that higher inventory levels are compelling sellers to adjust prices more significantly to attract buyers.

Conclusion: How Have Denver’s Supply-Demand Dynamics Impacted Price Performance

Denver's price trends directly reflect the supply-demand dynamics and price reduction patterns we've observed. Figure 9 illustrates Denver's price performance compared to the national price benchmark since the pandemic's onset, revealing a telling story of market correction.

Denver's prices peaked in mid-2023 at about 40% above pre-pandemic levels but have since corrected significantly. As of October 2024, Denver's prices are only 25% above pre-pandemic levels, compared to the national benchmark of 46%. This price trend aligns closely with our supply-demand findings. The surge in supply, particularly in Spring-Summer 2024, corresponds with Denver's price stagnation.

These price trends validate our algorithm's identification of Denver as a market at risk of correction. The combination of surging supply, shifting demand patterns, and widespread price reductions has materialized in tangible price impacts.

For real-time insights into Denver's evolving market dynamics and to track similar trends in other markets, leverage the Parcl Labs API.