Allot has changed in the last six months. Interest rates have skyrocketed, appreciation has continued, and inflation continues to roar. How does this impact my prior Colorado real estate predictions? Where does Colorado real estate go in 2022? Will the staggering appreciation continue?
Changes since my last update
- Inflation continues to run hot: As I have mentioned in tons of blog posts, inflation was never transitory, the federal reserve has finally figured out what the market has known. Inflation looks to continue at lofty levels throughout 2022
- Mortgage rates skyrocketed: I predicted mortgage rates would rise, but I am even surprised at the swiftness. Rates have topped 5.7%; that is over double the low of 2.5%, rates look to continue to go even higher.
- Q1 remained crazy in real estate: Even with rates and inflation skyrocketing, the first quarter was still gangbusters throughout Colorado with limited inventory and prices continuing higher. Do not look for this trend to continue the remainder of the year.
Residential throughout Colorado
Front range/Denver 2022 real estate predictions mid year updates
Denver and the front range have continued running hot in the first quarter even as interest rates began to rise. Unfortunately, every party must eventually come to an end. We are already seeing a change along the front range. Inventory is up and there has been a change in sentiment.
Remainder of 2022: I see modest appreciation maybe in the 5% range or flat as interest rates begin to drastically bite into affordability. Furthermore, as inflation continues to outrun wages this will further cool expensive markets like Denver. I don’t see a correction in Denver real estate in 2022, just a large slowdown from the 20% plus of prior years.
Ski towns (Steamboat, Breckenridge, Vail, Aspen, Winter Park, Telluride) 2022 real estate predictions
The ski towns will continue to appreciate as demand far outpaces supply. High net worth buyers will continue to flock to Colorado ski towns for various lifestyle reasons. Lack of inventory and extremely high building/remodeling costs will continue in 2022. Furthermore, appreciation should continue in the range of around 10-15% in the Colorado resort communities as demand continues and supply remains constrained. I see this cooling substantially to basically flat early 2023
Other/rural/smaller markets in Colorado real estate predictions
I think the flight to the exurbs/rural areas will be a passing phenomenon in 2022 as people get back into the office and we continue to learn to live with Covid. These areas should be flat at best to a decline of 5-10% in 23. These are the areas that make me most nervous as people and businesses fall back into old habits.
2022 Colorado commercial real estate predictions:
I don’t see any huge changes to my prior predictions
Office: A space will do well in 2022, B/C space will struggle but I don’t think the bottom will fall out on office as more companies relocate to Cities like Denver, CO Springs, etc…
Multifamily: This sector should continue to excel with rising rents. The big upside will be in lower priced B/C units where there is no new construction and tons of demand at the lower price points.
Industrial: This sector will continue to increase in 2022 as warehousing/distribution/onshoring continue to play out. Colorado will continue to be a hub for the intermountain west.
Retail: Class A retail will do fine, big box/lower tiered retail will struggle as Covid continues to disrupt traditional buying patterns.
Summary
Residential and most commercial real estate in Colorado will continue a bit higher in the first half of 2022 as the state remains a desirable alternative to more dense coastal markets. Furthermore, the mountain towns will continue to attract high net worth buyers due to their amenities/lifestyles.
Unfortunately, there have already been some surprises in 2022 with inflation continuing to run hotter, mortgage rates almost doubling, and Colorado real estate starting to show some cracks with the euphoria fading and inventory starting to creep up.
The second half of 2022 will feel drastically different than the first half as higher rates, lower affordability, and higher inflation begin to bite prospective buyers. Real estate throughout Colorado will radically slow compared to the last several years. The biggest risk will be the exurbs and rural areas. I don’t see a correction in 2022.
2023 looks to be a big transition year with substantial risk. The federal reserve looks to be way behind the curve on fighting inflation which will likely force them to tighten more/faster to engineer a slow down to balance supply with demand. This will in turn push mortgage rates over 6% and increase the likelihood of a reset in Colorado real estate but the bottom doesn’t look to fall out in 22. Allot of questions remain for 2023 that I’ll firm up later this year.
Additional Reading/Resources
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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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