Metro Denver home prices are way higher than they would have been absent the pandemic, and while the premium is wide, it isn’t as extreme as it is in many other places, according to a monthly study from Florida Atlantic University and Florida International University.

Metro Denver ranks 37th out of the 100 largest metros in April with home values 38.5% above what would be expected based on the long-term trend, according to the study. The expected value for Denver is at $461,734 based on trends in the Zillow Home Value Index going back to 1996. Instead, it is at $639,316.

Colorado Springs’ gap is even higher at 45.9%, with an expected price of $333,261 and an actual home price index value of $486,182. That ranked as the 23rd highest premium.

In 15 metros, home prices are 50% or more above the level that would be expected given historical trends. Boise, Idaho, is the most overvalued metro at 72.6%, followed by Austin, Texas, at 67.7% and Ogden, Utah, at 64.7%. Las Vegas, Atlanta and Phoenix were the next three most overvalued markets.

Home values tend to cycle between periods of overvaluation and undervaluation, but eventually, move back toward long-term trends. During the housing bubble in the early ’00s, overvaluation approached 20% in metro Denver. From 2008 to 2016, home values in metro Denver ran at a discount to the trend. Smaller premiums came back in 2016, but those started to tighten again in 2019 and 2020.

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Everything changed with the pandemic, which set off a wave of home buying as people searched for more living space. Historically low mortgage rates boosted affordability. Listings were in short supply and prices surged.

“A reckoning is due. Home prices and rents can’t separate as significantly as they have from their long-term fundamental trends without major issues arising in the marketplace,” said Ken Johnson, an economist at Florida Atlantic University, in an analysis. “Few markets, if any, will escape unscathed.”

The S&P CoreLogic Case-Shiller Indices, released on Tuesday, reported that home prices nationally are up 20.6% year-over-year in March. In metro Denver, they are up 23.7%, while in Tampa, the market with the biggest increase, they were up 34.8%.

Zillow Economic Data Analyst Dan Handy said demand for homes this spring has remained stubbornly strong despite rising home prices and mortgage rates at a 10-year high. But there are signs that the market might be nearing an inflection point.

“Mortgage costs are more than 50% higher than they were a year ago and prospective buyers will likely start to rethink what they can afford. Sellers may already be responding, with the rate of price cuts now on the rise, to meet buyers where they are. Price growth will likely begin to come back towards earth as many buyers are priced out and inventory rises,” Handy said in a commentary on the Case-Shiller numbers.

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