As we begin the new year, it’s a great time to review what the real estate market experienced in 2019 and where we think it’ll head in 2020. Overall, we’re extremely pleased with what we’ve experienced in the past 12 months and remain bullish on the future.
We expect the economy to continue to improve and our metro Denver housing market to stay strong but, critically, not overheat in the foreseeable future. Here are a few different metrics we use to evaluate the market and help you understand it better. For each, we’ll briefly describe what 2019 looked like and where we think we’re headed.
2019 was a strong seller’s market (as was 2012 – 2018!). It wasn’t as strong as it had been in the past when the bottom dropped out of our inventory and multiple offers were the norm, not the exception. We still expect 2020 to continue to be a seller’s market, as we see no sign of a major imbalance that could lead to any sort of ugly peak and crash.
We have had a little more inventory than the past couple of years but until we have THOUSANDS of more listings 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 better economy means even fewer distressed properties. The additional supply will eventually come from homeowners who finally decide to put their home up for sale and move. When this will happen is anyone’s guess.
The rental market remains strong. The vacancy rate for properties is still under 6 percent. Rents are rising faster than ever – over 40 percent in the past seven years! As a result of the rising rents, we are seeing some renters deciding to buy instead of suffering through additional rent increases and tougher rental application processes. In addition, more and more homeowners who experienced hardships during the downturn (who lost their homes and have been renting ever since) are now able to purchase a home again as their ability to finance a purchase recovers. This dynamic should continue to support the housing market, lead to more sales in 2020, and continue to support our seller’s market.
No one knows exactly what interest rates will do in the future, but our best guess is that they may rise a little in 2020, but only a little. Remember, it’s an election year. Also remember that the Federal Reserve has control over only short-term, not long-term interest rates. Even if the Fed raises rates, that doesn’t directly affect the 30-year homebuyer interest rate you are most concerned with as a buyer or seller. Long-term interest rates are affected by the bond market (as bond prices decrease, interest rates increase), which, frankly, is not predictable. Understand, though, that interest rates are near 50-year lows so they are highly unlikely to fall much further. All we know for sure is that someday they will go up.
Let’s talk a bit more about the economy. The metro Denver economy is very strong, which has a lot to do with our fantastic real estate market. The unemployment rate is extremely low at 3 percent and inflation is expected to stay in the range of 1-2 percent. Our Denver population is rising at a rate of 40,000 people/year and consumer confidence continues to rise. Nothing can be better for the housing market than a strong and steady economy.
Sellers – Staging a Home makes sense
You’ve heard it before but it bears repeating: the most important thing you can do to prepare your home for sale is to get rid of clutter. One of the major contributors to a cluttered look is having too much furniture. When professional stagers descend on a home being prepped for market, they often whisk away as much as half of the owner’s furnishings to make the house looks much bigger. You don’t have to whittle down that drastically, but take a hard look at what you have and ask yourself what you can live without.
Other jobs, such as repainting rooms, more than pay for themselves in an increased sales price and reduced time on the market. One of the leading home staging firms found that houses that have been staged spend about a month less on the market than homes that haven’t been staged. This is the best return on investment you can make when selling a home.
Mortgages – Your FICO Score
The single most important number for a homebuyer is their credit FICO score. For the good or the bad of it your FICO plays a major role in your ability to finance your home purchase. Therefore, it’s critical you understand what it is and what you can do to improve it. In a nutshell, your credit score is a snapshot taken by the three leading credit bureaus, TransUnion, Equifax, and Experian, to help lenders determine what sort of credit risk you are. The higher the number, the lower the risk, and the better the terms you’ll have for your loan.
Your FICO is a number between 300 and 850 and is calculated by a complex algorithm assessing your past credit history. Most home lenders will consider a score over 700 to be excellent while scores below 600 are considered poor. The better the score the more credit will be extended, at better terms, with a lower interest rate. The best credit terms are extended to consumers with scores above 740. Therefore, it’s critical to understand what your FICO is and what you can do to improve your score. When we work with buyers we help them understand the factors affecting their scores so they can work to improve them. We can’t think of a better investment in your future than to spend a little time working on your FICO score. Here are a few tips we give our clients.
- Don’t max out your cards; even running high balances can severely impact your FICO.
- Continue paying your bills on time.
- Don’t apply for new credit or cancel an old card because length of credit helps.
- Pay down high balances.
- Dispute and resolve any inaccurate items in your credit report.
Have real estate goals for 2020 (or beyond)? Don’t hesitate to reach out!