Denver, CO
When falling housing prices are good news — and when they’re not
Home prices are falling in Denver and other areas around the nation.
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Scott Olson/Getty Images
A few weeks ago, we asked our readers for ideas and questions for future Planet Money newsletters and podcasts. We got a bunch of great submissions, including an intriguing one from Karl Baumgartner.
Baumgartner is a 29-year-old internal medicine resident in Denver, where home prices and rents have been falling. Depending on which data you look at, the Denver metro area is experiencing one of the steepest — if not the steepest — housing price declines in the nation. Home prices have fallen more than 2% year over year, according to the S&P Cotality Case-Shiller Home Price Index, and even more if you adjust for inflation. Rents have fallen even more dramatically.
“As a renter myself, I am ecstatic about the falling prices,” Baumgartner writes. In fact, he just moved “to a bigger apartment with nicer amenities that I previously couldn’t afford, but now can because rent has fallen.” One of his friends, meanwhile, recently renegotiated her lease for about $500 less per month by showing her landlord that comparable apartments in her area were now going for much less.
“With almost all of my friends being in a similar position at the beginning of our careers with plenty of debt, we are all very excited about the decrease,” Baumgartner says.
So, yeah, falling rents are obviously a win for Denver renters. But Baumgartner is wondering about the broader economic picture.
“We know that negative inflation is bad for the economy in general, and we try to shoot for 2% annual inflation in general. What about negative inflation in the housing market specifically? Are there any downsides to falling prices, or is this just a sign of the market working as it should, with supply finally catching up to demand?”
It’s a great question because economics doesn’t seem to provide a simple answer on whether falling housing prices are good or bad for the economy.
Obviously, falling home prices and rents have downsides for homeowners and landlords. But what about the broader economy?
Sometimes falling housing costs could be a sign that the economy is healthy and the free market is working as economists might hope. Higher prices encourage builders to construct more housing. More supply comes online. Supply comes closer to or may even surpass demand, and housing prices go down. It’s the basic logic behind the YIMBY movement — a pro-housing development effort whose name stands for “Yes In My Backyard” — which argues that housing restrictions have prevented this healthy market process from delivering plentiful and more affordable housing.
Other times falling prices are a symptom of — and sometimes a big contributor to — a community’s economic distress.
So how can we tell the difference?
When falling home prices are bad
Let’s start with a clear bad scenario of falling home prices: Detroit. After years of deindustrialization and socioeconomic problems, Detroit saw a massive drop in population. Between 1990 and 2010 alone, Detroit lost nearly a third of its residents.
Home prices fell by more than 80% during the housing bust of the 2000s.
This wasn’t affordability created by abundance. It was affordability created by economic collapse.
Detroit neighborhoods emptied out and fell into disrepair. At one point, in 2007, houses in Detroit were cheaper than cars. For over a decade, the city has had an official program to demolish abandoned homes and buildings. For many Detroit families, generational wealth evaporated.
TO GO WITH AFP STORY by Joe Szczesny, US-city-Detroit-auto-debt
Curtains flap outside the broken window of an abandoned home December 31, 2014 in Detroit, Michigan. After the largest municipal bankruptcy in US history, Detroit hopes outsiders will see the city’s potential not the history of racial conflict, financial crises and citizen flight that has cut its population in half since 1960. AFP PHOTO/JOSHUA LOTT (Photo credit should read Joshua LOTT/AFP via Getty Images)
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JOSHUA LOTT/AFP via Getty Images
Falling home prices can make homeowners feel poorer and cause them to spend less, a phenomenon economists call the wealth effect, says Daryl Fairweather, chief economist of Redfin.
Eric Zwick, an economist at the University of Chicago Booth School of Business, says the bigger danger from falling home prices comes from debt, as many of us painfully remember from the 2008 financial crisis. If home prices fall enough, many owners can end up “underwater” — owing more on their mortgages than their houses are actually worth.
It was a big contributor to the Great Recession. One reason the economic damage was so severe, Zwick says, was lax lending standards that preceded the crash. Many homeowners took on too much debt assuming prices would keep rising and when they didn’t, they were overstretched.
“ 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 says.
Wall Street amplified the problem by bundling risky mortgages into securities that spread losses throughout the financial system.
Because of the role that debt plays in the housing market, a big decline in home prices can hurt not just homeowners, but also “businesses that borrow and everybody else,” Zwick says.
Falling home prices can also hurt important economic sectors, like the construction industry. And they can be bad for a city’s tax revenue.
So, yes, falling home prices can have serious downsides, to answer our reader’s question.
When falling home prices are good
But falling housing prices may not always be bad. Just ask Denver renters!
The housing affordability problem has loomed especially large in cities with roaring economies and not much new development to accommodate growing demand to live there.
Economists have long worried that the lack of housing construction in these places has created a kind of economic traffic jam: when workers can’t afford to live where the best jobs are, they don’t move there, businesses struggle to hire, and the economy doesn’t grow as fast as it could.
The economists Chang-Tai Hsieh and Enrico Moretti published research in 2019, which estimated that “stringent housing restrictions” to build new housing in places like the San Francisco Bay Area prevented workers from moving to where they could be more productive. By their estimate, constraints on building new housing lowered U.S. economic growth by a staggering 36% between 1964 and 2009.
Zwick says subsequent research has found that Hsieh and Moretti overestimated the size of that effect on economic growth. Nonetheless, he says, the broader idea is persuasive: housing scarcity in productive areas slows economic growth.
Denver may be a good example. It’s been seeing solid economic growth and job creation, but as local housing advocate Kevin Matthews of Denver YIMBY sees it, the lack of affordable places to live in the city has been holding Denver’s economy back.
Matthews recalls a large Denver employer expressing concern about the lack of affordable housing. “Their business is growing really fast, and they are trying to attract workers,” Matthews says. “I think it has a big effect. If those workers can’t afford to live here, they’re gonna go elsewhere.”
And similar to how higher home values may encourage homeowners to spend and invest more, cheaper rents may encourage renters to spend and invest more.
“If I’m trying to steel man the case for why falling values can be good, it would be that you are freeing up people’s incomes to spend on other sources of investment in the economy,” says Misha Fisher, the chief economist of Zillow. “If people are spending 80% of their income on housing, that’s not leaving a lot left over to spend on other things.”
Cheaper housing could also nudge more people to make decisions that ultimately serve their community and the economy. For example, Zwick suggests cheaper housing might help encourage family formation. When people are less worried about the cost of an extra bedroom or finding enough space for a family, they may be willing to have more kids. Over the long run, that could mean more workers and more taxpayers, which can ultimately benefit the economy.
Researchers have also linked homeownership to higher rates of civic engagement, neighborhood investment, and other behaviors that can improve communities.
How can you tell when falling prices are good or bad?
So how can we tell when a decline in housing prices is good or bad? We talked to a bunch of economists, and we couldn’t find a simple rule, but we did cobble together some important things to consider.
First, why are prices falling? One potentially important distinction is whether the decline in prices is driven by an increase in supply or a decrease in demand. Put more simply: are prices falling primarily because fewer people want to live somewhere, or because more housing is being built?
Fisher, from Zillow, says demand-driven price declines are often a bad sign. “ That’s usually an indicator that something else has gone wrong,” he says. For example, that the economy is cratering, as was the case in Detroit, or that demand to live somewhere is falling for other reasons, like a rise in crime or natural catastrophes.
By contrast, if price declines are in response to an increase in housing supply, that’s “typically a healthier way to keep home prices in check,” Fisher says.
Fairweather, from Redfin, says land values can provide another important clue. “When a city’s economy is struggling and people are leaving, land typically becomes less valuable,” Fairweather says. “ So when Detroit was going through its recession, its downturn, the land value was dropping because Detroit overall as a city was becoming a less attractive place to live in, to do business in,” Fairweather says.
But imagine a different scenario. A city remains economically vibrant, demand to live there stays strong, but developers are allowed to build a ton of housing — including lots of big apartment buildings — to accommodate the growing demand to live there. In that case, land values might rise even as housing prices decline. Why? Because developers are squeezing more housing units onto each parcel of land.
“ You’re making better use of the land,” Fairweather says. “You’re getting the most economic value out of the land. That’s overall a good thing.”
Matthews, the representative from Denver YIMBY, suggested another metric to consider: the “price to income” ratio. This compares the typical cost of housing to the typical income that can be earned in an area. If the cost of housing is falling, but so are incomes in an area, that’s likely a bad sign. But if prices are falling while incomes are rising, that’s a good sign. It means the economy is doing well while housing is becoming more affordable.
Finally, the size and speed of the price decline matters. Most homeowners can handle small or gradual drops. But a sharp, sudden decline can trigger widespread economic distress, foreclosures, and unleash a cycle that can lead to a recession.
Several YIMBYs we’ve spoken to over the years have suggested the least economically disruptive path to housing affordability is for housing prices to fall in real terms, but not necessarily in nominal terms. That means that home values rise more slowly than wages and inflation, allowing housing to become more affordable without requiring a sharp drop in the sticker price of homes that can cause financial distress to homeowners.
We were curious what our sources thought about Denver’s falling housing prices. Many suggested that it’s been driven primarily by an increase in supply. The city has built a ton of new housing units, especially new apartments, in recent years. That is probably a good sign. Although some did mention the in-migration into Denver has slowed while out-migration has picked up steam, suggesting demand to live in Denver has also cooled.
The downtown Denver skyline is seen from the air.
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But none of our sources suggested what was happening in Denver is any cause for alarm. Most Denver homeowners have seen considerable growth in their home values in recent years, and all our sources agreed that the price fall isn’t dramatic enough to push many of them underwater. This is not a Detroit-style housing crash.
Plus, the fall in prices is providing financial relief to Denver renters, like our reader. Denver may represent something close to the version of falling housing costs that economists hope for: housing becoming more affordable without a broader economic downturn.
Congrats, Karl, on that nice, new apartment.
And for the rest of our readers: Have other questions you want us to answer? Send us an email: planetmoney@npr.org
For most food manufacturers, it makes more financial sense to bake, brew, cook or create their product somewhere where the square footage is a little less expensive, like a business park, and to sell it where the rent – and the foot traffic – is higher.
Kent Beidel, who owns a string of mountain-town ice cream parlors called Sundae, did the opposite when he opened his newest and, by far, his biggest location in downtown Denver.
“We wanted to be right in front of people and hear them say, ‘Oh my god, they make the ice cream right here,’” he explained. “It’s backward … it’s hard. But it’s unique, and it’s really cool.”
Sundae opened in early June in a 5,100-square-foot space that includes a retail shop, a waffle cone-making “theater” where people can watch the staff turn out fresh cones, a pint-mixing classroom and a commercial kitchen – visible to customers on three sides through glass windows – that could one day supply multiple stores around Denver.
Beidel is betting those attributes will help the business stand apart from the competition in Denver, where there are already several big names making and selling scoops in multiple locations.
But that’s not the only gamble he took. Sundae is located on Sixteenth Street, the 44-year-old pedestrian mall that has become both a symbol of the city’s urban decay since the pandemic and a beacon of hope for its future after a $175 million renovation.
“Sixteenth Street is interesting,” said Beidel, who has watched it change over the past year since he first signed his lease at 1600 Glenarm Place. “It’s coming back. It still has a way to go, but we are seeing momentum start to build. Even in the last month, the foot traffic and the feeling downtown has perked up. … We are getting great feedback.”
To help, the Denver Downtown Development Authority — as part of a much larger business incentive plan — loaned Sundae $750,000. “It’s a loan,” he said. “We have to pay it back. … But we couldn’t have done this location without that support.”
Beidel has been in the food business for 22 years. Before ice cream, he was the founder of Loaded Joe’s, a restaurant and coffee shop staple in Vail. But in 2016, he sold Loaded Joe’s and took over two former Marble Slab Creamery locations in Vail and Edwards, rebranding them as Sundae. In 2020, he opened a third shop in Glenwood Springs.
“That was our first chance to build from scratch and decide what it should look like,” he explained, adding that Glenwood, which includes a kitchen, eventually began making ice cream for Sundae’s next two locations in Basalt and Snowmass.
To make the ice cream, Beidel said he employs five pastry chefs to create recipes. So, rather than using cheesecake flavoring, for instance, for cheesecake ice cream, Sundae uses all the same ingredients you would use to make real cheesecake.
The cheesecake, by the way, is among Beidel’s favorite flavors, but Salted Cookies & Cream and Caramelized Banana are two of the most popular with customers. Classic chocolate, vanilla, and strawberry are also top sellers – “and always will be,” he added.
Next month, Beidel hopes to open the classroom, where people can learn how to make ice cream and then whip up some of their own flavors to take home. And down the road, he plans to open more locations.
But in the meantime, he’s focused on downtown. “Let’s say Denver does really become vibrant again. We have a great product and a great following in the mountains. So, it’s just a matter of time down here.”
Subscribe to our new food newsletter, Stuffed, to get Denver food and drink news sent straight to your inbox.
Denver, CO
Denver Country Club caddie earns full-ride Evans Scholarship, becomes first in family to attend college
DENVER — What started as a summer job has turned into a life-changing opportunity for Denver-area student Vanessa Olivar.
The 18-year-old Denver Country Club caddie has earned the prestigious Evans Scholarship, a full tuition and housing scholarship awarded by the Western Golf Association to caddies who demonstrate strong character, academic achievement, financial need and a strong caddie record.
Watch Bradey King’s story on how Olivar persevered to nab this scholarship in the video below.
Denver Country Club caddie earns full-ride Evans Scholarship
Olivar is one of 15 students from Colorado to receive the scholarship this year and will attend the University of Colorado Boulder this fall.
When she first heard about caddying through her high school’s assistant principal, Olivar said she wasn’t sure it was the right fit.
“I didn’t know anything about the game of golf,” she said. “At first, I was a little doubtful and nervous, but I thought it would be a great summer job. I quickly found out that it was more than just carrying a golfer’s bag.”
Over the past three years, Olivar learned the responsibilities that come with the job, from carrying clubs and providing yardages to building relationships with members and fellow caddies.
“I learned a strong work ethic, and the relationships that I built through caddying have really shaped who I am today,” she said.
Her dedication paid off when she received the news that she had earned the Evans Scholarship.
“I got that flag saying, ‘Congratulations,’ and I was so excited,” Olivar said. “Words couldn’t express how excited my family and I were for this great opportunity that I worked so hard for over three years.”
The scholarship carries even greater significance because Olivar will become the first person in her family to attend college.
“I’m a first-generation college student,” she said. “Coming from immigrant parents, I kind of had to navigate this world by myself.”
Her parents immigrated to the United States when they were 18, and Olivar said their sacrifices inspired her to pursue higher education.
“Being able to tell my parents they don’t have to pay for my college takes that weight off their shoulders, but also mine,” she said.
Western Golf Association officials say Olivar exemplifies the qualities the Evans Scholarship is designed to recognize.
“The scholarship is based upon four principles: Their caddie record, their academic record, their financial need, but really what’s most important is their character,” said Brian Wilkinson, the Western Golf Association Director at Denver Country Club. “Vanessa expresses the great character and leadership that we’re looking for in young women and men.”
At CU Boulder, Olivar plans to major in public health with a minor in business before pursuing dental school.
She said the opportunity has changed the trajectory of her future.
“I knew I wanted to go to college, and I wanted to have a further education,” Olivar said. “I just didn’t know how I was going to do that. I didn’t know caddying was eventually going to change that for me. It’s a scholarship that has changed my life forever.
Denver7
Denver7 | Your Voice: Get in touch with Bradey King
Denver7’s Bradey King reports on the entire sports landscape in Colorado, including Denver’s pro teams, but is always looking for stories off the field and in the non-professional ranks. If you’d like to get in touch with Bradey, fill out the form below to send her an email.
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