Denver Real Estate Trends

FEBRUARY 2017
“How’s the market?”  The answer to my favorite question can be answered many ways, so what part of the question do you want to talk about?
1. Rising home prices
2. Overwhelming consumer demand
3. Lack of inventory for sale
4. New construction not keeping up with housing demand
5. Rental prices skyrocketing
6. The effect of gas and oil prices
7. How the marijuana industry has affected our market
8. What parts of town are the next to pop
9. How low interest rates are continuing to make housing relatively affordable
10. Are we in a bubble?
These are all great topics of conversation for a party or a phone call, but let’s keep it simple here with some good old charts and graphs. Because… who doesn’t like a good chart?
 Everything you need to know about our current real estate market is contained in this chart. The solid line shows the number of homes for sale in metro Denver each month from January 2008 to January 2017. The broken line shows the number of homes that sold each month through the same time period. You can see that the inventory peaked between April and May 2008 at 26,000 homes for sale. That was at the depth of our economic and housing downturn, when fear ruled our market, banks were being shut down, our local and national economies were in shambles, unemployment was rising, and consumer confidence hit new lows. The result was that people didn’t want to buy homes; they were afraid of the future and didn’t want to take on any risk. On the seller side of the equation, many homeowners were getting caught with rising monthly mortgage payments as their Option ARM mortgages adjusted upward, so suddenly they wanted to sell at the very worst time possible. The perfect storm. It’s simple economics: if you have more supply than demand, prices fall and that is exactly what they did from 2007 to 2009. Then around 2010 and 2011 the market became roughly balanced with 18,000 to 20,000 homes on the market. But as you can see the market did not remain balanced for long because the supply continued falling through the years as demand rose.
Today’s market: In January 2017, there were 3,974 homes on the market, nearly an all-time low for a January! This lack of inventory defines our current housing market. The past several years have seen an incredibly strong real estate market in metro Denver and this chart explains exactly why. The supply of homes has vanished placing an imbalance in our market. No three dimensional, super-fancy, econometric model can do a better job of explaining the imbalance in our market than this simple chart.
It’s interesting to see that while the solid inventory line has dropped dramatically the past seven years, the broken line representing the number of sold properties has barely inched upward, even though our population continues to rise about 1.5 percent per year. This tells me that our demand for housing is going to stay very strong for the foreseeable future.
So, how do you use this information? It depends, of course, on who you are and what you’d like to do.
If you own a home and are thinking of moving: It’s an incredible seller’s market and you can expect to get top dollar for your home. You’ll need to consider the purchase of your next home though, and make sure you have planned the process correctly so you find the home of your dreams and make the transition from your current to future home seamless.
If you are renting: Rents continue to zoom upward to all-time highs so you might want to get out of the rental rat race and buy a home. Inventory is low so you’ll need to make sure you’re pre-qualified to buy a home and come across as a serious buyer, otherwise sellers won’t even consider your offer. But because inventory is still so low we expect prices to continue to move up for several years, at least until the inventory balances with the demand. So you can expect appreciation in your home purchase for the next several years.
If you’re considering buying rental property: There’s no better way to build wealth than owning rental properties for the long term. Home prices have risen, but so have rent prices, and interest rates remain near record lows. Smart investors don’t try to time the real estate market; it’s as difficult to do as timing the stock or bond market. The vast majority of Americans who have built wealth as real estate investors have done it buying rental property and having their tenants pay the mortgage off for them over time. It’s not complicated and it works. Of course, everyone’s situation is unique. If you want to talk about how best to take advantage of our real estate market and see what it can do for you please give me a call.
I love talking about the real estate market!
Sellers
We have been discussing the incredible strength in our housing market month after month in this newsletter; good news if you’re looking to sell your home. The inventory of homes on the market is at an all-time low and prices are up. Call me and I’ll be happy to run a Comparative Market Analysis on your home to let you know what it’s worth in today’s market. Whether you’re selling or not, it’s great to keep track of your biggest investment, and costs you nothing!
Investors
For years our clients have been buying rental properties in metro Denver to build their long-termwealth. Our record-low vacancy rate is a big driver of why rental property has performed so well. First, the lower the vacancy rate the higher the demand for the property. More demand means landlords can be more choosy selecting their tenants and also can charge higher rental rates.
Rent prices have skyrocketed the past few years because the vacancy rates have remained so low.One of the reasons vacancy rates are so low is that many people cannot qualify for a loan. I don’t expect this to change for the foreseeable future. We’ve had a huge shakeout in the lending industry and lending guidelines are much stricter than they were in the past. Until lending standards ease up I expect vacancy rates to remain low and keep my investor clients happy. If you’ve ever thought of investing in a condo or house as a rental property call me and I can show you what the numbers look like and what options you have.