As we welcome in the New Year, it’s a great time to review what the real estate market experienced in 2017 and where we think it’ll head in 2018. For the foreseeable future, we expect the economy to continue to improve and our metro Denver housing market to remain unyielding. Below are a few different metrics we use to evaluate the market and help you understand it better. For each, I’ll briefly describe what 2017 looked like and where I think we’re headed.
2017 gave us an unwavering seller’s market (as did 2012 – 2016). The market strength peaked in the spring when the bottom dropped out from our inventory. Multiple offers were the norm, not the exception. I expect 2018 to continue to be a seller’s market with no sign of a major imbalance that could lead to any sort of crash.
For the past several years we have had record low inventory in metro Denver 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 short sales—our metro Denver economy is as strong as it’s ever been and a better economy means fewer distressed properties. The additional supply will eventually have to come from homeowners who finally decide to put their home up for sale and move. When this will happen, though, is anyone’s guess.
The rental market remains exceptionally strong. The vacancy rate for 1-4 unit properties is still under 4%. Rents are rising faster than ever—over 40% in the past five years! As a result of the rising rents, we are seeing some renters decide that it’s time to buy instead of suffering through additional rent increases and tougher application processes. In addition, more and more homeowners who lost their homes during the downturn (and have been renting since) are now able to look for a home again as their ability to finance a purchase recovers. This dynamic should continue to support the housing market, lead to more sales in 2018, and continue to support our seller’s market.
No one knows exactly what interest rates will do in the future, but the best guess is that they may rise in 2018, but just barely. Remember that the Federal Reserve has control only over short-term, not long-term interest rates. Even if the Fed raises rates, that doesn’t directly affect the 30-year homebuyer interest rate you are most concerned with as a buyer or seller. Long-term interest rates are affected by the bond market (as bond prices decrease, interest rates increase), which, frankly, is not predictable. Understand, though, that interest rates are at near 50-year lows so they are highly unlikely to dip any further.
Let’s expand more on the economy. The metro Denver economy is incredibly strong, which has a lot to do with our terrific real estate market. The unemployment rate is extremely low, below 3 percent. Inflation is expected to stay in the range of 1-2%, our population is rising at a rate of 50,000 people per year and consumer confidence continues to rise. Nothing can be better for the housing market than a strong and steady economy.
Buyers: It’s much cheaper to buy than rent
Real estate information website Trulia says that buying an average home in Denver is a whopping 36% cheaper than renting a home! For the average home, the interest rate would have to skyrocket to over 10% for renting to become cheaper than buying, meaning that it is currently much more affordable to buy than to rent. Thus, at current prices and current rents, interest rates would have to nearly triple to make renting more affordable than owning.
Sellers: Staging a home makes sense
You’ve heard it before but it bears repeating: the most important thing you can do to prepare your home for sale is to get rid of clutter. One of the major contributors to a cluttered look is having too much furniture. When professional stagers descend on a home being prepped for market, they often whisk away as much as half of the owner’s furnishings and the house looks much bigger for it. You don’t have to whittle down that drastically, but take a hard look at what you have and ask yourself what you can live without.
Other jobs, such as repainting rooms, more than pay for themselves in an increased sales price and reduced time on the market. One of the leading home staging firms found that houses that have been staged spend about a month less on the market than homes that haven’t been staged. This is the best return on investment you can make when selling a home.
Mortgages: Your FICO Score
The single most important number for a homebuyer is their credit FICO score. For the good or the bad of it, your FICO plays a major role in your ability to finance your home purchase. Therefore, it’s critical you understand what it is and what you can do to improve it. In a nutshell, your credit score is a snapshot taken by the three leading credit bureaus (TransUnion, Equifax and Experian) to help lenders determine what sort of credit risk you are. The lower the risk, the better the terms you’ll have for your loan.
Your FICO is a number between 300 and 850 and is calculated by a complex algorithm assessing your past credit history. Most home lenders will consider a score over 700 to be excellent while scores below 600 are considered poor. The better the score the more credit will be extended, at better terms, with a lower interest rate. The best credit terms are extended to consumers with scores above 740. Therefore, it’s critical to understand what your FICO is and what you can do to improve your score. When I work with buyers I help them understand the factors affecting their score so they can work to improve them. I can’t think of a better investment in your future than to spend a little time working on your FICO score. Here are a few tips I give my clients:
Don’t max out your cards. Even running high balances can severely impact your FICO.
- Continue paying your bills on time
- Don’t apply for new credit or cancel an old card (because length of credit helps)
- Pay down high balances
- Dispute and resolve any inaccurate items in your credit report