The questions I’m asked most often these days are variations on the following:
“How long is this strong market going to last?”
“Are we at the top of the market?”
“Is the market going to crash any time soon?”
This month I wanted to give you a few thoughts on where we think we are in the market. The short answer is that we still haven’t reached the top, and we expect the strong seller’s market to last for a good long while- probably several more years barring any crazy economic disasters.
1) INVENTORY OF HOMES FOR SALE
The Denver Metro market has about 3.2 million residents. A metro area of this size will have a balanced market when it has an inventory of 16,000 – 18,000 properties for sale at any given time. Today we have about 7,200 properties available in the entire MLS which encompasses areas outside than the Denver metro area; this includes 5,100 Detached Single Family Homes and about 1,100 Attached Single Family Homes. This is exactly why we have such a strong seller’s market – there are simply more buyers than sellers right now, thus leading to continued price increases. Simple supply vs demand.
If you’ve been paying attention, you know that it’s not just recently our inventory has gotten so low. It’s been falling steadily since 2007 when we peaked at over 31,000 properties on the market. In our opinion, the inventory of homes for sale is the single best indicator of how strong the market is. With such low housing inventory, our seller’s market will continue for the foreseeable future. Even though we saw inventory numbers starting to climb in 2018 and 2019, it was still far off the numbers needed to bring the market to balance. Even more, we saw inventory drop year over year in December 2019 and January 2020, ending the trend of inventory gains. That doesn’t help relieve the upward pressure!
2) INTEREST RATES
Interest rates rocketed upwards in the spring of 2013, and every real estate expert imaginable declared the era of low interest rates over. Well… they definitely got that wrong. Today’s interest rates remain near 50-year lows with the par interest rate hovering just above 4%. Many of the buyers who are taking advantage of these low rates have rented for the past several years and are now finding it more affordable to purchase a home than continue to deal with rent increases. To see if you should consider buying a home, check out the calculator at Realtor.com; and see what your best choice might be. According to the calculator, buying is cheaper than renting in the Denver Metro after about 3 years. We used the average sold price for single-family homes ($484,142) from a previous market snapshot, as well as the most recent average monthly rent for single-family homes ($2,238) in the Denver metro from a recent property management’s Q4 Rental Press Release, to calculate.
An important thing to note about buying vs. renting is that when you buy, most likely you begin to build equity, will experience home value appreciation over the long term, and will have locked in your monthly payment. When you rent, most likely you will have not built any equity in a home, will not have experienced home value appreciation, and will possibly incur rent rate increases. Regardless, always do what is best for your particular situation based on your immediate 2-4 year plans.
3) ROOM TO GROW
There remains room for the market to grow (i.e. selling more homes to near a more balanced market). Your Castle Real Estate did an analysis looking at the housing market for the past 44 years in order to see how we are faring today. The dotted line on the graph below represents the number of home sales we would expect in any given year based on the population of the Denver Metro. The solid line shows how many houses actually sold every year. As you would expect, during downturns fewer people buy homes and during upturns more people buy homes.
By looking at the chart, you see that the number of home sales has settled down since in the last year or so, however, we appear to be far from oversold, like we were in 2004 for example, given our increased population. Long-term trends like these are often more important to consider than the short-term trends when it comes to real estate.
Supply Vs Demand
Supply remains low and demands high. That’s a recipe for price growth as we know. But what’s keeping the demand high?
As always, my team and I are here to help you determine the next move for your unique scenario. Don’t hesitate to reach out – we are passionate about all things real estate and would love to help you achieve your real estate goals!