Denver ties Detroit in a top 10 list      

It is not very frequently Denver and Detroit get lumped together for anything.  But both cities unfortunately have a few things in common now.  In this case Denver and Detroit take top honors as top 10 states in a Redfin study where more people are looking to leave than come in. Four reasons why more people are looking to leave Denver.  Is this a new trend or just a blip?

 

What was in the Redfin data on moves?

Nearly 26% of property search queries on online real estate brokerage Redfin.com are for cities where potential homebuyers don’t live, based on data for the three months ending June 2023. That’s the highest percentage since 2017, when Redfin first started tracking migration data.

Redfin measured the number of search queries interested in leaving a metro area minus the number of search queries about moving to that same city.  Below are the results.

1. San Francisco: 28,100
2. New York City: 24,200
3. Los Angeles: 20,900
4. Washington, D.C.: 15,700
5. Chicago: 4,900
6. Boston: 4,400
7. Seattle: 3,900
8. Hartford, Connecticut: 3,500
9. Denver: 2,300
10. Detroit: 2,300

Why are Denver and Detroit tied for net migration out?

It is never good to be lumped with Detroit on any list which is why I was a bit surprised to see that Denver and Detroit were both on the same list of top places to leave. For years Detroit has consistently been a “top performer” for net migration out due to crime, lack of city services, etc…  This has been going on for years so to see Denver now lumped in with Detroit shows that something has drastically changed in Denver.

The reasons for the huge jump in Denver’s net migration out is a bit different than Detroit.  Detroit’s primary driver is crime while Denver’s primary driver is pricing.

Why are people looking to leave Denver?

Denver recently was a top Covid destination for workers now free to work from anywhere.  It is amazing how quickly the tides have changed and now Denver is the opposite of the in destination and a top ten leader of people leaving.   Below are the top four drivers of moves out of Denver, Colorado.

1. House prices: This is the number one factor driving Denver’s migration pattern. The city has gotten expensive.  The average home price is almost 650k, as interest rates have skyrocketed, this has led many to consider other cheaper markets.
2. Taxes/Expenses: Property taxes have jumped almost 50% for many properties.  Add on a 30% increase in insurance premiums and now Denver is getting lumped in with expensive larger markets.
3. Crime: Denver’s crime has increased substantially. The average monthly crime rate in Denver has risen by 75% from 5.14 per 1,000 residents in 2018 to 9.01 in 2022.
4. Schools: Along with crime, prospective buyers are finding better schools in Suburban locations.

 

Furthermore the work from home movement has enabled many to live a little further away from the office and trade high house prices, taxes, crime, and under performing schools for suburban locations.

Is net migration out of Denver a trend or blip?

We are starting to see a clear trend here with several quarters showing a net decline in Denver’s population.  The fundamental drivers are house prices, taxes/expenses, crime, and schools.  This is reminiscent of the 80s flight to suburban areas.  It took 20 years to reverse the trend so it is going to be a while before the items above can be fully addressed.

The sky is not falling on Denver real estate

Although, overall, the numbers look bad for Denver the bottom is not dropping out of the metro area.  There is still limited supply and building prices are high which should temper the downside.  Furthermore, suburban and other front range markets are attracting a larger share of relocations.  For example we are still seeing growth in Ft Collins, CO Springs, Jefferson county, Boulder, etc…    Essentially the heart of Denver is struggling while the surrounding areas continue to gain residents as they are less expensive.

 

Summary:

I was surprised to see Denver and Detroit lumped together.  Unfortunately both cities are now losing residents but for a little different reason.  Denver’s primary culprit is housing prices compounded with higher taxes/insurance.  The high prices are further enhanced with a doubling of interest rates and salaries in the area have not been able to keep up with the steep jump in housing expenses.  This has led to a flight out of Denver into Suburban and other front range markets.

If the 80s are an indication of what is to come, it is going to take a while to reverse the current trends impacting Denver.  In the meantime, it is important from a real estate perspective to be cognizant of the long term demographic shifts as values in parts of Denver will ultimately need to adjust lower for the new paradigm.

 

Additional Reading/Resources

1. https://www.redfin.com/news/housing-migration-trends-q2-2023/
2. https://www.cnbc.com/2023/07/30/1-in-4-us-homebuyers-want-to-move-to-a-new-city.html

 

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Written by Glen Weinberg, Owner Fairview Commercial Lending.  Glen has been published as an expert in hard money lending, real estate valuation, financing, and various other real estate topics in Bloomberg, Businessweek ,the Colorado Real Estate Journal, National Association of Realtors Magazine,  The Real Deal real estate news, the CO Biz Magazine, The Denver Post, The Scotsman mortgage broker guide, Mortgage Professional America and various other national publications.

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