One of the most common questions we are asked is, “Where are Denver home prices headed? Are we in another dangerous run-up of prices?”
Because the Case-Shiller Home Price Index increased 16.6% across the country from May 2020 to May 2021, this is an understandable question.
In Denver, we are up 16.2%. That’s in line with the national average. Phoenix, San Diego and Seattle have each saw appreciation rates of 23% or higher!
No Crash for Denver Homes Prices
With this huge upward push on prices, it is natural to wonder if we are headed for a crash like we saw 12 years ago. We can look at several facts and comparisons of today’s market, versus 12 years ago. These comparisons show that this feared crash is actually very unlikely.
In the previous run-up of prices, we saw immense speculative demand. “Investors” were buying brand new homes and flipping them quickly in hopes of making a quick buck. Today, there is almost NO speculation when it comes to buyers. Instead, the buyers of today need a home to live in, not multiple homes for investments.
That speculative demand led to the creation of exotic mortgages to find ways to approve these investment buyers. Twelve years ago we had Option ARMS, many interest-only loans, 100% financing down to a 540 Fico score, no income, no job and no asset verification loans.
Home Loans More Difficult To Obtain
In contrast, for the last 10 years conventional loans on average have had Fico scores more than 740 with full income verification, asset verification and over 95% of all mortgages have fixed rates. The delinquency rates on these loans have been miniscule. Adding to this strength, the last 8 years of bidding wars were won by buyers with stellar credit, large amounts of money down, and low debt-to-income ratios. An amazing 30% of transactions nationwide have been cash in the last 4 months! Yet, investor purchases are barely up during the same time period. This shows that very little of the demand is coming from investors who own multiple properties and present higher risk.
We are currently witnessing the greatest generational housing demand since the 1950’s. Over 4 million Millennials will turn 30 every year for the next 3 to 4 years. In 2005, 25% fewer people were hitting this magic “house buying age”. The current demand for primary residence housing is dominating the market and will for many years to come.
Let’s define “Months of Inventory”. It’s the number of months it would take to sell all the currently available homes if no other homes were to come on the market. Nationally, from 2006 to 2011, months of inventory was between 4 and 6 months with a high of 10.4 months in 2008. Today, months of inventory is about 2.5 months nationally. In Denver, months of inventory is barely 3 weeks in most price ranges.
So, overall, the outlook for Denver home prices still seems rosy. No signs here of a crash anytime soon.