As we welcome in the New Year, we’ll continue to review what the real estate market experienced in 2018 and where we think it’ll head in 2019. Here are some more metrics we use to evaluate the market in addition to the ones we discussed last month:
- Average Home Price: According to recolorado.com, the average price of a home (single-family, condo, and townhome) in metro Denver increased 4.0 percent in 2018, finishing the year at $454,248. I believe 2019 will be a similar year for our housing market with an average price increase of 4-7 percent. As we often discuss, the number one driver of home price change is the amount of inventory on the market, and inventory continues to remain historically low.
Let’s look back over time to get a better perspective and learn from our history. In 2007 during our last downturn we had a peak of 31,000 properties on the market leading prices to DROP 14 percent. In 2017 we averaged about 7,000 active listings/month, while in 2018 we averaged about 11,000 listings/month. Even with this increased inventory, prices managed to rise 4 percent from 2017 to 2018!
There is a very clear slow down to the strong price appreciation Denver has been experiencing, but prices are still climbing. It is simple supply/demand: unless the supply continues to increase at a quicker rate, there will continue to be 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 strong economy means few properties on the market. The additional supply will eventually come from homeowners who finally decide to start moving again. When this will happen is anyone’s guess.
Part of the issue is an interesting Catch 22. Many potential sellers evaluate the market and think they can’t find their dream home because of the lack of inventory – therefore they don’t put their homes on the market – thereby contributing to the very lack of inventory that stopped them from moving in the first place.
- Number of Homes Sold: There was a very small decrease of just 2.4 percent in the total number of single-family homes sold in 2018 vs. 2017. So while prices rose strongly, the number of sales decreased, this is likely due to the Denver’s slower rate of population growth this year (only 1.4 percent!). I don’t foresee any dramatic change in 2019. I expect a 2-3 percent increase in 2019 home sales, if only because our Denver metro population still rising over 1 percent per year and all these people need to live somewhere!
- The Investor Market: I think the real estate investor market will remain strong with very little change in the outlook. The fix and flip market will continue to be profitable for those who can find underpriced homes to buy and repair. They are out there but it takes tools, patience, and work to find them. Once you get one fixed up, selling is the easy part due to the lack of competing inventory.
The buy-and-hold market will continue to be extremely generous to long-term investors. Vacancy rates are still near record lows and rents continue to increase, up over 40 percent in the past 5 years! It’s not difficult to buy a rental property in today’s environment and put it on the path to be paid off in 12-13 years. For building long-term wealth it’s tough to compete with rental property ownership. That’s the one thing that never changes!