Happy New Year! Now that the holidays are over it’s the perfect time to forecast the 2018 real estate market, so let’s jump right in.
Average Home Price
The average price of a home (single-family, condo, and townhome) in metro Denver increased another 8.8% in 2017, finishing the year at $443,520. I believe 2018 will be another great year for our housing market, continuing the average price increase of 6-8%. The number one driver of home price change is the amount of inventory on the market, and inventory remains historically low.
Let’s look back over time to get a better perspective and learn from our history. In 2007 during our last downturn, we had a peak of 31,000 properties on the market so prices dropped 14%, while in 2017 we averaged fewer than 7,000 properties on the market so prices rose 8.8%. It’s simple supply/demand. For the past several years we have had record low inventory with absolutely no sign of it increasing. Until it does there will continue to be tremendous upward pressure on prices as demand continues to outstrip supply.
Where will the new supply of home inventory come from? It won’t be bank-owned properties or shortsales—our metro Denver economy is as strong as it’s ever been, and a strong economy means few properties on the market. The additional supply will eventually come from homeowners who finally decide to start moving again. When this will happen is anyone’s guess.
Part of the issue is an interesting Catch 22. Many potential sellers evaluate the market and think they can’t find their dream home because of the lack of inventory. Therefore, they don’t put their homes on the market—thereby contributing to the very lack of inventory that stopped them from moving in the first place. I frankly don’t see any reason to think this will change any time soon. Low inventory and rising prices are here to stay for the foreseeable future.
Number of Homes Sold
There was a very small increase of just 3% in the number of single-family homes sold in 2017 vs. 2016. So while prices rose strongly, the number of sales barely budged because there was so little inventory on the market to buy. I don’t foresee any dramatic change in 2018. I expect a 3-4% increase in 2018 home sales, if only because our Denver metro population is rising over 1% per year and all these people need to live somewhere!
The Investor Market
I think the real estate investor market will remain strong with very little change in the outlook. The fix and flip market will continue to be profitable for those who can find underpriced homes to buy and repair. They are out there but it takes tools, patience, and work to find them. Once you get one fixed up, selling is the easy part due to the lack of competing inventory.
The buy-and-hold market will continue to be extremely generous to long-term investors. Vacancy rates are still near record lows and rents continue to increase, up over 40% in the past 5 years! It’s not difficult to buy a rental property in today’s environment and put it on the path to be paid off in 12-13 years. For building long-term wealth it’s tough to compete with rental property ownership. That’s the one thing that never changes!