Many of our clients ask if we are headed for another housing crash like the one the nation experienced in 2008? Along with most housing economists, I believe Denver home prices are not likely to fall. Here is how this real estate market differs from the last down cycle in Denver.
- The labor market remains strong. In the last major housing downturn, there were 8 million job losses nationally in a single year. Though there have been layoffs in the technology and mortgage industries with more expected across the broader economy, the net job loss in 2023/2024 is expected to stay relatively low.
- Less risky loans. Subprime loans that were prevalent during the 2008/09 housing downturn are basically nonexistent today.
- Low delinquency. About 10% of all mortgage borrowers were delinquent on their loans in 2008/09. The mortgage delinquency rate is now at 3.6%, holding at historical lows.
- Ultra-low foreclosure rates. In 2008, homes in foreclosure reached a rate of 4.6%, as homeowners who saw their property values plunge walked away from their loans. Today, the percentage of homes in foreclosure is 0.6%—also at historical lows.
- Low inventory of homes. This may be the key indicator, as any of the above numbers can increase and likely will to some extent, but the low inventory of homes appears to be with us to stay. This persistently low inventory is the overarching reason for the low likelihood of meaningful losses in home values.
Low Number of Homes for Sale
In the previous downturn, there were about 4 million homes on the market, nationwide. Currently, there are just about 1 million homes on the market for a national population that has grown by 12% in the last 15 years. Adding to the continued low inventory, 70% of soon to retire homeowners say they plan to stay in their current home. And, 90% of current homeowners have an interest rate considerably lower than currently available rates. That further deters the sale of existing homes.
- Additionally, new home builders are experiencing such a shortage of workers that they are unable to build at the pace they need to in order to alleviate the low inventory.
Overall, the fundamental parameters of the housing market do not appear to be operating similarly to the previous down cycle in real estate. Sales were slowing, allowing more people to purchase without bidding against multiple competing offers. But even just this month sales began to pick up. That’s significant because we are about to enter the busiest 4 months of the year in the Denver real estate market.
- The current interest rates are very similar to 2014, when people were not hesitating to buy homes at a historic pace.
Where is the opportunity in the Denver real estate market?
- If you have solid equity in your home that would carry to your next purchase, you might be ready for a downsize or lifestyle change. These higher interest rates are much less of a factor for a small loan. In addition, you are less likely to need to bid against others to secure a home. Furthermore, your choice of homes has increased considerably.
- If you do not own a home, or not yet built a lot of equity, the current lack of bidding in the market is a great opportunity. When Denver interest rates drop, the bidding cycle will likely begin all over again. Denver mortgage interest rates are expected to drop over the next 6 to 24 months. Then, people who purchase now will be able to refinance their loans to a lower rate.
I’ve be writing about it over over a year. This Denver real estate market is still not likely to crash.
- Are You Considering the Sale or Purchase of a Home or Know Someone Who Is? Then, please Contact Us Early in the Process to Maximize Profits and Minimize Costs! Just use this form to get in touch with us.