Our hot housing market isn’t cooling off any time soon. The ever-increasing demand for houses continues to consume any inventory that makes it onto the market. This is the primary reason I believe demand for homes is going to stay strong for the foreseeable future. As long as demand remains high and supply remains low (we are at a near record-low homes on the market) you can anticipate home prices will continue to rise. Where is this steep demand coming from? Here are a few of the examples:
- Home-formation (e.g., marriages) fell dramatically during the economic downturn. For example, from 2003-2006, a total of 1.6 million households were formed in the U.S. Yet from 2007-2010, only 600,000 households were created. During this time, it was very difficult for young people to find employment and many of them had to move back in with their parents. Hence they lacked the economic confidence to get married and thus create households. Today however, home-formations are quickly rising. From 2013-2016, 1.4 million households were formed. As the economy continues to improve, more people are getting married and creating households, thus needing homes. In a recent survey by the Joint Center for Housing Studies of Harvard University, 94 percent of 22-25 year olds said they expect to buy a home in the future!
- The population of the Denver metro area has increased about 1.5 percent per year and will continue to do so for the foreseeable future. More people = more home sales.
- During the recession, about 5 million people lost their homes and had their credit greatly damaged. As their credit has come to improve over time, more and more of these people are becoming qualified to buy again. They were once homeowners and many of them expect to be homeowners again as soon as they are able.
- Millions of others, specifically young people, saw thousands lose their homes during the downturn. This frightening scenario prevented young people from buying houses of their own. The aforementioned make up many of the people who have been renting the past five years instead of buying which has made the rental market historically high. These are also the very people who lost out on the recovery and thus forfeited tens or hundreds of thousands of dollars in home equity because they didn’t buy when the market was soft and prices were low. Despite this, as the housing market continues to improve they’re moving strongly toward buying their first home.
- Related to #4, many renters have noticed how quickly prices are rising and feel they need to buy now while homes are still relatively affordable. In the last 12 months, the average sales price of a single-family detached home is up 8.1 percent. The more home prices rise, the greater incentive renters have to finally take the plunge and buy a home.
These are just a few of the many examples that demonstrate why demand for homes remains high. If you’re interested in discussing what you should do in this real estate market, let’s talk!