Happy New Year! Now that the holidays are over it’s time to put on my turban, dust off the crystal ball and see what the future holds for the year ahead. Unless you live under a rock, you know we’ve entered the deafening world of an election year, meaning the Chicken Little din will continue until November. Setting that aside, let’s focus on the beautiful little world of our humble burg and the Denver real estate market.
1. Average Home Price:In metro Denver the average home price leaped another 8 percent in 2015, hitting an all-time high above $407,000. The 6-8% price increase trend will continue in 2016 and here’s why: Our old friends Supply & Demand. They’re the number one driver of price change. In 2007 we had 31,000 properties on the market and prices DROPPED 14 percent, while in 2015 we averaged just 7,000 properties on the market so prices ROSE 8 percent. We’ve have had record low inventory in metro Denver for the past few years and there’s absolutely no sign of that changing, forcing tremendous upward pressure on prices as demand outstrips supply. Where will the new supply of home inventory come from? Well It won’t be bank-owned properties or shortsales. After five long years of downturn our economy is in full recovery and though everyone’s not riding the wave, there are just not that many distressed properties. Eventually supply will come from new construction (but that takes time) and lucky homeowners who realize what a great market it is and decide to put their home up for sale. Many potential sellers look at the market and think they can’t find their next home because of the lack of inventory, so they don’t sell their homes which perpetuates the lack of inventory. It’s a Catch-22, isn’t it? Low inventory and rising prices are here to stay for the foreseeable future. I believe that there’s super-power which drives real estate no matter what the market and that is change. Life change. As long as people marry, procreate, divorce, age and die the real estate market will move. Of course there are other things like promotions, relocations, graduations and investments that bring good things into the mix as well.
2. Number of Homes Sold: The increase in the number of single family homes sold rose only 1 percent (year over year) simply because there was so little inventory on the market to buy. So prices rose, but the number of sales was nearly flat, what’s up with that? Any buyers out there been in a bidding war? As much as we dread it, and it has calmed down some, I’m not seeing
any dramatic change in 2016. Expect a 3-4 percent price increase in home sales over last year, because our Denver metro population is rising 1.5 percent per year and those damn Californians need to live somewhere! (I can say that, I’m one of them, but 20 years in Denver qualifies me as a pseudo-native.)
3. The Condo Market: Wanna hear something crazy? The condo market did even better than single-family homes in 2015 with an average price increase of 16%! Usually the condo market is the last to rise and first to fall but we’ve turned that logic sideways. Still… not seeing evidence that our current condo trend will change any time soon.
4. The Investor Market: Here’s the tricky one. I think the real estate investor market will remain strong, for all of the reasons listed in 1-3. The fix and flip market will continue to be profitable for those who can find underpriced homes to flip. They’re out there but it takes patience, tools, a good Realtor and legwork to find them. Once fixed, the selling is the easy. For you buy-and-hold types, the market will continue to be extremely generous for long-term investors. Interest rates and vacancy rates are still at record lows, while rents continue to skyrocket. It’s not difficult to buy a rental property in today’s environment and put it on the path to be paid off in 12-15 years. For building long-term wealth it’s tough to compete with rental property ownership; that’s the one thing that never ch-ch-ch-ch-changes.
Our good friends at ZILLOW predict that Denver will be the hottest housing market in 2016. Ever notice how we have a love/hate relationship with Zillow?
Lots of buzz about corporations investing in affordable housing, Google for one. That’s great news for the Boulder rental market… doesn’t help the buyer much.
And for you true real estate geeks, the Colorado Association of Realtors releases its Housing Report for December 2015 and a Market Snapshot with the charts and graphs for you visual/spacial learners. Oh, and have you seen “The Big Short“? Excellent film, important story, but you’ll want to shower when you get home.