Has the Denver real estate market topped out? Is this a Denver housing bubble waiting for a pop? Buyers and Sellers want to know if this market is about to turn on them. Matthew Gardner, Economist with Windemere Economics presented his case today to the Colorado Association of Realtors Spring Leadership Summit. He expects slowly increasing mortgage rates and a modest leveling of the Colorado real estate market.
First of all, prices have basically doubled in most areas of Denver over the last 10 years. During that time, the number of sales increased. Finally, the number of homes for sale appears to have declined. Is that last point really true? Do we really have a housing inventory crisis?
Most Denver Realtors’ first inclination is to say “absolutely.” I say that it depends on your definition of actual home supply inventory.
Turns out, that most analysts of the Denver real estate market omit a very important fact about the supply of resale homes for sale, Namely, that the number of new listings coming onto the market every month has actually remained relatively consistent over the last 10 years. So, why then would the actual number of listings be declining year to year and often even month to month? Because homes are so selling so fast when they first come on the market that they are not counted in the listing statistics which are only measured on the last day of the month. The “good stuff” sells before it can be counted in the number of listings on the market at month’s end.
Low Housing Inventory or Too Much Demand?
In fact, we do not have a lack of supply as much as we have an increase in demand. More millennials than ever are now buying homes in the Denver area. Actually, over 59% of all homes sold with a FNMY mortgage in the Denver metro area sell to millennials. That’s right, the kids are coming out of the basement! So, they aren’t going to live upstairs with mom and dad. Instead, they are buying homes at record numbers. Because surveys now show that they perceive buying is home as the smartest financial move. Rent is not an investment in anyone’s financial future. At best, it can be a holding pattern for temporary circumstances.
We have a demand problem instead of a supply problem. Why? In addition to millennials now becoming homeowners are record numbers, this year interest rates are going up. I’ve sold homes consistently since 1978. I have lived through the surges in housing demand when interest rates first started to rise. Demand is “brought forward” as buyers jump off the fence and hurry into whatever home they can get.
Don’t worry. Demand for homes will wain as prices increase even more and home affordability declines. Will all this create the long-awaited “pop” in the Denver housing bubble? No one really knows because no one knows how much more prices and likely even interest rates will rise. At some point, home affordability will decline. How much? How long? There is no magic right answer.
Watch rising prices coupled with rising mortgage interest rates. That’s the best clue of decreasing “housing affordability“. As homes become less affordable, sales with slow, probably level of and possibly decline somewhat.
Should Buyers wait for the Denver Housing Bubble to Burst?
Problem is, rising interests will likely at least offset any decline in prices. Monthly housing expenses including the mortgage payments will likely continue to increase. Hopefully, the pace of pace will slow down. But, how much is anyone’s guess. Cash buyers might want to wait to buy a home and see what happens. That’s not my advice; that’s an individual decision. It might work for those downsizing but not for everyone.
Should Seller’s Sell?
Selling depends mostly on what is the potential replacement property. If someone is going to downsize or rent, selling might be a reasonable option. This market seems to have more price risk for a Denver housing bubble now than any time in the last ten years. Or, “will this time be different”? Eventually, Denver goes through price correction like it during the dramatic mortgage interest rate increase in the early 1980s. Interest rates went wild up to a high of 18%. That slowed the market dramatically. No one is calling for that scenario to repeat. Then again, no one knows how much inflation might drive mortgage interest rates up in the near future.
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