The tremendous demand for houses continues to absorb any inventory that makes it onto the market and is one of the many reasons I believe demand for homes in Denver will remain strong for the foreseeable future. I’m seeing an incredibly competitive winter/spring real estate market with my current clients. As long as demand stays strong and supply remains constricted (we are at a near record-low number of homes on the market for sale) you can be sure home prices will continue to rise. Where is this large pent-up demand coming from? Here are just a few of the sources:
1. Home formation (e.g., marriages) fell dramatically during the financial crisis. As the economy continues to improve the number of newly married couples will increase, thereby increasing demand for housing. For example, from 2003-2006 a total of 1.6 million households were formed in the U.S. But from 2007-2010, as young people lost jobs, moved back in with their parents, and didn’t have the economic confidence to marry and create households, only 600,000 households were created. That number is now rising quickly. From 2013-2017, 1.7 million households were formed, and these people want to buy homes! In a recent survey by the Joint Center for Housing Studies of Harvard University, 94% of 22-25 year-olds said they expect to buy a home in the future. I’m seeing this as well – many of my clients have been first time buyers ready to make the leap into homeownership.
2. The population of metro Denver has increased about 1.5% per year. It is anticipated that this trend will continue to do so for years to come. Anyone who seriously believes that the Denver population is going to fall in the next 10 years should think again. According to Patti Silverstein, considered the preeminent demographer in Colorado, the population of metro Denver will rise from 3.05 million in 2016 to 3.5 million in 2025. More people = more home sales = continued long-term strength in our housing market.
3. And speaking of population, here’s another important point. The inflow of immigrants from countries around the world, both legal and illegal, plummeted during the downturn because of the reduction in U.S. employment opportunities. As the economy continues to grow at a robust pace, immigration will surely skyrocket. These new arrivals will need a place to live (hint…hint… investors and builders).
4. During the recession, about 5 million people lost their homes and had their credit destroyed. As their credit improves over time, more and more of them are becoming qualified to buy again. They were homeowners once and most want to be homeowners again as soon as they are able. These folks have been a big source of demand for housing the past few years and that will continue to boost the housing market.
5. Millions of others, especially young people, saw their friends and relatives lose their homes during the recession and were scared off from buying a home. These are a lot of the people who have been renting the past seven years instead of buying, making the rental market historically strong. These are also the very people who lost out on the recovery and 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. As the housing market continues to improve they’re looking seriously at buying their first home and building wealth through home ownership.
6. Related to #5, many renters have noticed how quickly prices are rising and feel they need to jump in now while homes are still relatively affordable given the historically low interest rates. In the last 12 months the average sales price of a single-family detached home rose another 12.6% in metro Denver. The more home prices rise, the greater incentive renters have to finally take the plunge and buy a home.
These are just some of the many reasons demand for homes remains strong. If you’re planning to buy a home in the coming year, be prepared! You’ll most likely encounter strong competition while in the hunt. If you plan to list your home, you’ll most likely reap the benefits of this strong competition. If you’re considering buying and/or selling a home this year, please contact me today. The sooner you can prepare, the better. Thanks for reading!