Home prices are declining in Denver and several other metropolitan areas across the nation, creating a complex economic picture that defies simple categorization as either positive or negative. According to the S&P CoreLogic Case-Shiller Home Price Index, home prices in the Denver metro area have fallen more than 2% year over year, with rents dropping even more dramatically when adjusted for inflation.
The divergent outcomes illustrate a fundamental tension in housing economics: falling prices can represent either a healthy market correction or a symptom of economic distress. The distinction matters enormously for policymakers, homeowners, renters, and local governments trying to assess what declining values mean for their communities.
What the Right Is Saying
Conservative economists and market analysts warn that declining home values can trigger broader economic damage through what is known as the wealth effect. Daryl Fairweather, chief economist at Redfin, said falling prices make homeowners feel poorer and cause them to reduce spending.
"When a city's economy is struggling and people are leaving, land typically becomes less valuable," Fairweather said, noting that Detroit's experience illustrates how declining values can compound economic problems rather than solve them.
Zwick emphasized the dangers posed by mortgage debt. "That created a kind of cascade of forced sales, further price declines, more people defaulting potentially, and then spillovers into the financial system, which then affected everybody," Zwick said, referring to the dynamics that contributed to the 2008 financial crisis.
The concern is particularly acute for recent buyers who may find themselves underwater on their mortgages, owing more than their homes are worth. Falling values also reduce property tax revenues for local governments and can devastate construction-related industries that employ millions of workers.
What the Left Is Saying
Progressive economists and housing advocates argue that falling prices driven by increased supply represent exactly the kind of market adjustment that should be welcomed rather than feared. Kevin Matthews of Denver YIMBY, a pro-housing development organization, said an employer in the city recently expressed concern about attracting workers who could not afford to live nearby.
"Their business is growing really fast, and they are trying to attract workers," Matthews said. "I think it has a big effect. If those workers can't afford to live here, they're gonna go elsewhere."
Progressive economists point to research by Chang-Tai Hsieh and Enrico Moretti published in 2019, which estimated that housing restrictions in productive cities like the San Francisco Bay Area prevented workers from relocating to areas where they could be more productive. Their work suggested these constraints lowered U.S. economic growth by an estimated 36% between 1964 and 2009.
Misha Fisher, chief economist at Zillow, argued that cheaper housing can free up income for other economic activity. "If people are spending 80% of their income on housing, that's not leaving a lot left over to spend on other things," Fisher said.
Eric Zwick, an economist at the University of Chicago Booth School of Business, suggested falling prices might help encourage family formation when people feel less burdened by housing costs and more willing to have children, potentially increasing the workforce over time.
What the Numbers Show
Denver home prices have declined approximately 2% year over year according to the S&P CoreLogic Case-Shiller Home Price Index, with steeper declines when adjusted for inflation.
Detroit lost nearly a third of its residents between 1990 and 2010 as deindustrialization accelerated population decline. Home prices fell more than 80% during the housing bust of the 2000s.
The Hsieh-Moretti research estimated that housing restrictions lowered U.S. economic growth by approximately 36% over four decades, though Zwick noted subsequent research has found this figure was likely overestimated.
Most Denver homeowners have accumulated considerable equity gains in recent years, and economists interviewed for this story agreed the current price decline is not dramatic enough to push most homeowners underwater on their mortgages.
The Bottom Line
The distinction between supply-driven and demand-driven price declines appears to be the key indicator of whether falling prices represent a positive or negative development. When prices fall because builders are adding housing units to meet demand, economists generally view this as healthy market adjustment. When prices decline because workers and families are leaving an area due to economic distress, that signals problems requiring policy intervention.
Denver's situation appears to be primarily supply-driven, with the city building significant numbers of new apartment units in recent years, though some analysts note in-migration has slowed while out-migration has increased. Economists generally do not view what is happening in Denver as cause for alarm, describing it as closer to the version of falling housing costs that markets produce when functioning well.
The broader lesson from economists may be that the least disruptive path to housing affordability involves home values rising more slowly than wages and inflation rather than experiencing sharp declines. This allows housing to become more affordable without the financial distress that can accompany sudden drops in property values, protecting both homeowners and the broader economy.
Questions remain about whether Denver's adjustment will continue smoothly or whether cooling demand will interact with increased supply in ways that create additional economic stress for the region.