On Sept. 7, 2017, the Denver Post published an article titled “Metro Denver housing market’s summer slide extends into August,” which would leave the casual reader thinking the market is finally starting to cool off. The Post points out that the median single-family home price fell 2.4% from July to August and that inventory has fallen as well. Their implication that the market is slowing down is wrong and here’s why: They are using irrelevant, short-term, month-over-month data instead of year-over-year data, specifically to mislead their readers into believing the Post has some unique insight into the market that others don’t.
To see their error, all you have to do is look back a couple of years. You will find the same thing happened in the summers of 2015 and 2016! In 2015 single-family home prices fell 2% from July to August. In 2016 single-family home prices fell 3% from July to August. Yet both years ended with large price increases as the market continued to climb. There is every reason to believe the same thing will happen again this year.
The Post also reported “the number of single-family homes sold fell 8.7% month over month and is down 10.6% from a year ago.” They again imply that this is a sign of a weakening market when exactly the opposite is true! The reason the number of homes sold fell is because we have so little inventory on the market to choose from. The housing market has in fact remained strong precisely because we have more buyers than sellers!
So, what does the market actually look like?
Coming into the fourth quarter of 2017 the state of the metro Denver real estate market remains strong. Prices are up (year over year!), inventory remains low, days on market are at rock bottom and there continues to be much more demand than supply in all but the high-end, luxury market.
Let’s look at our metro Denver housing market for the past 45 years and see how it has developed over time. In the graph below, you see metro Denver home prices from 1971 to present day. Prices rose from 1971 into the mid ‘80s, at which point they flattened out for several years during a downturn in our economy and record-high interest rates. Then in 1991, they started rising again and continued to rise for 15 years. We peaked in 2006 and had a dramatic 25 percent drop in prices through 2009. By 2013 prices got back to their previous 2006 highs and have shown no sign of slowing since.
Market fundamentals are strong and I’m confident on the near to midterm horizon. Our job is to watch these fundamentals closely to give us warning of an impending downturn. Here are only a few of the many reasons why I’m confident:
Current inventory of homes: Inventory remains near record lows. In a normal market we’d expect to have about 18,000 properties available for sale. Today we have about 7,000. It’s a simple supply/demand equation. If there’s limited supply, the demand pushes prices up. Many sellers are afraid to put their house on the market for fear they won’t be able to find a replacement home, so our supply of homes for sale continues to be restricted. In addition, builders are not building nearly enough homes to meet the current demand, never mind the additional 50,000 residents metro Denver is adding to its population each year. Back to the Economics 101 supply/demand curve, lots of demand and constricted supply makes for a strong housing market.
Soaring consumer confidence: The housing market tracks very closely to consumer confidence. Up to 2007 consumer confidence was very high but plummeted between 2007 and 2010, dragging the housing market down with it. It bottomed out in 2010 and has been rising ever since, just like our housing market. As long as consumers remain confident, the housing market will continue to rise.
Low interest rates: Interest rates remain near all-time lows making metro Denver homes still relatively affordable. Yes, prices have increased a lot the past seven years, but because interest rates are so low, buyer’s monthly mortgage payments remain affordable, especially compared to rental rates.
High rental rates: Every day, more and more renters are realizing it’s cheaper for them to buy a home than continue to rent, further increasing the demand for housing purchases.
Low unemployment: A strong metro Denver economy with record-low 2.7% unemployment and a growing population further propels our housing market.
These are just a few of the many dynamics that continue to strengthen our market. Feel free to get in touch with me if you’d like to discuss what the market’s doing, where the market’s going, and what you can do to take full advantage!
If You’re a Seller:
We have been discussing the incredible strength in our housing market. If you’re looking to sell your home this should be very welcome news! The inventory of homes on the market is near an all-time low and prices are up. Call me and I’ll be happy to run a complimentary Comparative Market Analysis on your home to let you know what it might be worth. It’s great information and costs you nothing.
If You’re an Investor:
For years our clients have been buying rental properties in metro Denver to build their long-term wealth. 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. Increased demand means landlords can be more selective with their prospective tenants and charge higher rental rates. Rents have skyrocketed the past few years because the vacancy rates have remained so low.
One of the reasons vacancy rates are so low is because many people cannot qualify for a loan to buy their own home. 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 tighter than they were before the downturn. Until lending standards ease up, I expect vacancy rates to remain low. If you’ve ever thought of investing in a condo or a house as a rental property, call me and I can show you what those numbers look like and what options you might have.