End of Summer Market Update

End of Summer Market Update


Coming into the fourth quarter of 2017 the state of the metro Denver real estate market remains strong. Prices are up (year over year!), inventory remains low, days on market are at rock bottom and there continues to be much more demand than supply in all but the high-end, luxury market.

 

The median single-family home price fell 2.4 percent from July to August and inventory has fallen. However, this is nothing to be alarmed at as all you have to do is go back a couple of years and see the exact same trend happened in the summers of 2015 and 2016. In 2015, single-family home prices fell 2 percent from July to August. In 2016, single-family home prices fell 3 percent from July to August. Yet both years ended with large price increases as the market continued to climb. There is every reason to believe same thing will happen again this year.

 

Let’s look at our metro Denver housing market for the past 45 years and see how it has developed over time. In the graph, you see metro Denver home prices from 1971 to present day. Prices rose from 1971 into the mid 80s, at which point they flattened out for several years during a downturn in our economy and record-high interest rates. Then in 1991 they started rising again and continued rising for 15 years. We peaked in 2006 and had a dramatic 25 percent drop in prices through 2009. By 2013 prices got back to their previous 2006 highs and have shown no sign of slowing since.

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Every week my clients ask if the market is overheated and headed for a crash. Over and over my response has been that the underlying market fundamentals remain strong and I see only continued gains in the market for the foreseeable future.  So far in 2017 prices have continued to rise, up another 7.8 percent in the past 12 months. Our job is to watch these fundamentals closely to give us warning of an impending downturn. Here are only a few of the many reasons why I’m still optimistic that prices will continue to rise:

 

  1. Current inventory of homes – Inventory remains near record lows. In a normal market, we’d expect to have about 18,000 properties available for sale. Today we have about 7,000. It’s a simple supply/demand equation. If there’s limited supply the demand pushes prices up.

 

  1. Upcoming supply of homes – Speaking of supply, it has just not kept up with demand. Many sellers are afraid to put their house on the market for fear they won’t be able to find a replacement home. The result being that our supply of homes for sale continues to be restricted. In addition, builders are not building nearly enough homes to meet the current demand, never mind the additional 50,000 resident’s metro Denver is adding to its population each year. Back to the Economics 101 supply/demand curve, lots of demand and constricted supply makes for a strong housing market.

 

  1. Soaring consumer confidence – The housing market tracks very closely to consumer confidence. Up to 2007 consumer confidence was very high but plummeted between 2007 and 2010, dragging the housing market down with it. It bottomed out in 2010 and has been rising ever since, just like our housing market. As consumers remain confident, the housing market will continue to rise.

 

  1. Low interest rates – Interest rates remain near all-time lows making metro Denver homes still relatively affordable. Yes, prices have risen a lot the past seven years but since interest rates are so low, buyers monthly mortgage payments remain affordable, especially compared to rental rates.

 

  1. High rental rates – Every day, more and more renters are realizing it’s cheaper for them to buy a home than continue to rent, further increasing the demand for housing purchases.

 

  1. Low unemployment – A strong metro Denver economy with record-low 2.7% unemployment and a growing population further strengthening our housing market.

 

Feel free to call me if you’d like to discuss what the markets doing, where the markets going, and what you can do to take full advantage of this terrific housing market.

 

 

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