Over the past five years, central Denver luxury homes (priced at the top fifth of the market) have appreciated faster than the median price. In 2018, the median price of a central Denver home stood at $640,000. Fast forward to today, and that figure has soared to $900,000, representing a remarkable 41% increase. Contrast this with homes in the top fifth of the market, which commenced at $993,000 in 2018 and now boasts a starting point of $1,689,000, marking a staggering 70% surge.
Driving Forces: New Construction and Supply Dynamics
One key driver behind this discrepancy is the significant new construction among the top 20% priced homes. Last year, 24% of homes sold in this segment were constructed after 2020, a sharp contrast to the mere 1.4% in the rest of the market. The uptick in material costs and construction labor has notably impacted the pricing of these newly built homes, while the scarcity of available in-fill homesites has propelled land costs.
However, it’s crucial to note that the majority of homes, 76% to be exact, were not new construction. Existing homes still dominate the market, and factors beyond new builds are pivotal in shaping their values.
Interest Rates: A Game-Changer
Interest rates emerge as another influential factor in the divergence of appreciation rates. Since 2022 interest rates began their ascent, luxury homes have witnessed a doubling in their appreciation rate compared to the broader market. Wealthier buyers, armed with various financing options, have navigated this terrain more adeptly than those reliant solely on mortgages.
Looking Ahead: A Shift in Dynamics
As we anticipate a decline in inflation and interest rates, we project a deceleration in the rate of appreciation for the top 20%. However, the luxury market is poised to continue outpacing the market as a whole. The interplay of construction trends, supply dynamics, and financial landscapes is set to shape the real estate terrain in the coming months.