Low mortgage interest rates caused home sales in the 7 county Denver metro soared this year according to the Denver MLS system, ReColorado
The demand for housing spiked last month to new records in most parts of the country accoding to local real estate blogs and MLS sources. Feeling a little like the Dutch Tulip Mania of 1637, many people wonder if another Denver price bubble night be starting to form. So, we can get some insight on this question with a look at what the drivers are behind the current and long-term demand for real estate.
There is no doubt that the low interest rates of the past several months drive current demand for homes. But, that demand is driven more by some of the lowest mortgage interest rates in history, than it is by the fundamentals of a long-term shortage of homes. The low mortgage interest rates caused the current frenzy of active buyers. However, with that said, there are several strong factors combining with low interest rates that will continue to create a shortage of homes for many years to come.
Millennials Cause More Demand on Real Estate
The biggest source of long-term demand is demographics. Because, more and more millennials turn 30 and start buying homes. Currently, the homeownership rate for people under 35 is only about 40% compared to 64% for adults aged 35-44. The peak buying years are 30 to 45 years old. Currently, the millennial generation is between the ages of 24 and 39. Over the next six years the youngest of the generation will be entering their first home purchase. In addition, the older half will focus on their first move-up purchase. As a result, the entire 15-year generation will be involved in their peak millennial home buying years.
Coupled with demographics is the new “relationship” we have with our homes. Because, more and more people now work from home, requiring more space, different layouts and broader functionality. This will continue to accelerate the need for not only millennials and all age groups to move out of rentals. Because, home ownership can better meet those specific needs.
Those three factors affect housing demand across the entire nation. Plus, here in Denver we are consistently in the top ten most popular cities for incoming residents. Since the 1930s, Denver has outpaced the national population growth rate. And, that trend does not appear to be ending any time soon! Our population in metro Denver is projected to add another 700,000 people in the next ten years. As a result, , the equity in your home will continue to rise.
The bottom line is that high demand for homes and low supply, to some degree, will continue to plague the Denver metro for many years to come. This scenario does not lend itself to a market bubble in real estate. I suspect if you invest in a primary residence or an investment property now, you will make a very nice profit on either over the next ten years. Many of the nation’s leading economists agree with this more than positive opinion of the future of real estate values.
Denver Real Estate Statistics From September
– 6,187 properties closed last month. This was a 25.3% increase from last September and an even larger increase of 44% from October 2018.
– Homeowners listed 6,439 new properties for sale last month, an increase of 8.8% from last year.
– Buyers placed 6,302 properties under contract last month, an increase of 28% from last September and 48% from September 2018, when mortgage rates were near 5%.
– We ended September with only 4,924 properties for sale or 0.79 months of inventory. A healthy market for both Buyer and Seller has about 4 to 5 months of inventory!
– Median days on the market was just 5 days for homes priced from $300,000 to$500,000.
– September was the 4th consecutive month with Months of Inventory of one month or less. WOW! This is why median, annualized price increases are accelerating from 4% in June, to 6.7% in July, to 8.3% in August, to 9.8% last month.
Only Weakness is Downtown Denver
Low interest rates continue to reduce the number of months of resale home inventory. But, Downtown Denver takes almost 5 times as long to sell and that’s with more price reductions.
In the 80202 zip code, which encompasses downtown Denver, there were 113 condo listings at the end of July. That’s up from 80 units a year ago. This puts months of inventory at 5.1 months. And, that’s an increase from 3.2 last year and 2.8 in 2018. According to the publication, Denver High-Rise Living, 28% of condos listed downtown saw price drops in the first 2 weeks of August with a median price reduction of 3.92%. This slowdown appears to be driven by the closures in the city of many of the things that draw people to an urban environment. There is also an increased fear of living in close quarters with residents sharing many common spaces such as elevators and lobbies that are part of condo living.
So yes, location in real estate still makes a difference. And so do these low mortgage interest rates. Rely on your Denver Realtor to guide to to the best areas for continued home value appreciation. Odds are, downtown Denver won’t be on that list for a while.
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