The questions I’m most often asked these days are variations on the following: “How long is this strong market going to last?” “Are we at the top of the market?” or “Is the market going to crash any time soon?” This month I’m going to give you my thoughts on where I think we are in the market. The short answer is we haven’t reached the top, and I expect the strong seller’s market to continue for quite some time, probably several more years. Here’s why:

Inventory of homes for sale

The metro Denver market has about 3.1 million residents. A community of this size will have a balanced market when it has an inventory of 16,000 – 18,000 properties on the market for sale. Presently, there are approximately only 3,900 properties on the market, which is why it’s such a strong seller’s market. There are simply more buyers than sellers out there, resulting in multiple offers and price increases. It’s not just recently that our inventory has gotten so low; it’s been falling steadily since 2007 when we peaked at over 31,000 properties on the market.

In my opinion, the inventory of homes for sale is the single best indicator of how strong the market is. With such a low inventory, our seller’s market will continue for the foreseeable future.

Interest rates

Interest rates rocketed upwards in the spring of 2013 and every real estate expert imaginable declared the era of low interest rates over. Well, they all got it wrong. Today, interest rates remain near 50-year lows with the par interest rate hovering just above 4%, continuing to make homes affordable. Many of the buyers who are taking advantage of these low rates have rented for the past several years and are finding it more affordable to purchase a home than continue to deal with rent increases. To see if you should consider buying a home check out this really cool calculator from Trulia and see what your best choice might be.

We still have lots of room for the market to grow and sell more homes. Your Castle Real Estate did an analysis looking at the housing market for the past 40 years in order to see how we are faring today. The dotted line on the chart is the number of home sales we would expect in any given year based on the population of metro Denver. As you would expect, during downturns fewer people buy homes and during upturns more people buy homes. Looking at the chart you see that we have had a fast rising number of sales the past few years but we do not appear to be anywhere near oversold given our increased population, like we were in 2004 for example.

Taken all together my reading of the tea leaves suggests that this strong market is not heading for a downturn any time soon. As long as the inventory remains low we will continue to see a strong seller’s market and a continuing rise in prices in the 6-8% range. And I don’t see any indication that the inventory will rise any time soon. Please give me a call if you want to discuss what matters most – what you’re looking to do in the market. I’d be glad to help!

Buyers

The great news for buyers is that interest rates have remained wonderfully low, defying all predictions from the so-called experts. Lower interest rates mean more house for your money, plain and simple. For the average homeowner a decrease of .25% in interest rate can equate to a gain of as much as $10,000 in buying power.  For example if you qualified for a $200,000 loan at a rate of 4.25% and then your rate decreases to 4.0% you may now qualify for a $210,000 loan.

Sellers

You’ve heard me say this for months (years!), but it bears repeating: the housing market is still on fire and I need homes to sell! I have lots of buyers out looking for a home but there are so few available it’s challenging to find them the right property.

What does it look like for a seller these days?

  • Metro Denver average home prices are up 11.4% in the past year
  • The inventory of homes on the market in metro Denver is near the lowest on record at 3,946 and shows no sign of increasing any time soon
  • The average Days on Market for a home is down 2.9% in the past year, at 34 days. A normal market would show 90 Days on Market
  • Most deals I work on have multiple offers, whether I’m the buyer’s agent or the seller’s agent

Add it all up and you get an amazing seller’s market. Sellers are reacting by hiking prices and testing the limits of the market. And you can too. Call me if you want to discuss what your home is worth in this seller’s market and how best to take advantage of it!

Investors

A lot of investors think that investing in rental properties only works in low-end neighborhoods with houses that need a lot of work and financially risky tenants that are hard on the properties. Nothing could be further from the truth!

Your Castle has done a great deal of research lately and found that buying and holding properties in quality locations like The Spire can yield tremendous returns down the road. Using very realistic numbers, a two-bedroom condo in The Spire has a CAP Rate of about 6%. An investor in a combined marginal tax bracket of 40% can yield an average annual return of 15%. Try making that in your savings account! As long as interest rates stay low (which cannot last forever), high quality buildings will generate enough rent to cover most or all of their direct costs.

Mortgages

The mortgage market is staying hot with interest rates near historic lows.  If you haven’t reviewed your options lately it may be a great time to take a look at trading up to a bigger home with a manageable payment. But before applying for your new mortgage make sure that you’re in good shape with the four items needed for a new loan:

  1. Income – Make sure your income is remaining consistent and your tax returns are reflecting your total annual income
  2. Credit – For the very best rates you want to have a credit score of 740 or greater. There are loan options for clients all the way down to a 620 score, but as your credit score goes down your rate goes up, so it is to your benefit to have your credit cleared up
  3. Assets – You will need to have funds in the bank for your down payment and to show you have two months of savings. Make sure you are depositing all earnings and keeping good records of your bank statements
  4. Collateral – The property you are borrowing against (your current home or your new property) needs to be in good shape and not have any “safety or soundness” issues.  Make sure there are no broken windows, plumbing leaks, lead based paint, etc.

By taking care of these four critical areas you can be confident that you will qualify for a new loan and be able to refinance or buy a new home.