The Market Here Remains Strong!
Good things are happening on the real estate front! Coming into the fourth quarter of 2016 the state of the metro Denver real estate market remains strong. Prices are up, 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.
Taking a look at the Denver housing market over the past eight years, we can see how it has been developing over time. In the graph below you see metro Denver home prices from 2008 to present day. 2008 (lowest purple line) was at the depths of the national economic crisis. Top Wall Street companies were failing on a weekly basis, the Federal Reserve was debating how to step in to avoid a complete calamity, and the Consumer Confidence Index was trending at 30-year lows. Everything looked bad, nothing looked good, people stopped buying homes, and the housing market crashed. Average home prices fell from $266,000 in June 2008 to $219,000 by November.
The market did start to make a come back. It turned out that the Nov. 2008 prices were the bottom of the market and by May 2009, average home prices were already back above $260,000. What’s more, prices have continued rising ever since, up over 80 percent since the dark days of Nov. 2008.
More recently, we see that prices have continued to surge year after year. Everyone is wondering if the market is overheated and headed for a crash, but we are still seeing that the underlying market fundamentals remain strong. For the foreseeable future, we expect to only see continued gains in the market.
Market fundamentals are strong and we are 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 some of the reasons of why we don’t think the market is headed for a crash:
- 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 fewer than 6,000. It’s a simple supply/demand equation. If there’s limited supply the demand pushes prices up.
- Upcoming supply of homes – Speaking of supply, it has just not kept up with demand. Many sellers are afraid to put their house on the market for fear they won’t be able to find a replacement home. The result being that 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.
- Consumer confidence soaring – 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 risen a lot the past seven years but since interest rates are so low, buyer’s monthly mortgage payments remain affordable, especially compared to rental rates.
- High rental rates – Because rental prices continue to skyrocket! 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 low unemployment and a growing population further propels our housing market.
And these are just a few of the many dynamics that continue to strengthen our market. Feel free to call 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 of this terrific housing market.
