Prices are up 9% in the prior 12 months vs historical 6%. Inventories are tighter than last year, especially for small, lower priced homes. In 2017, we expect 8-9% appreciation, flat unit sales volume increases, and continued tight inventories.
Prices grew 9% in 2014, 11% in 2015 and 9% in 2016. Our historical appreciation rate from 1971 to 2016 averaged 6% per year. Much of the above-average gain is due to the severe shortage of small (affordable) homes available to sell. The mix has shifted to higher end properties. In our view, smaller size segment appreciation will continue to outpace larger home categories in 2017-18.
MOI has been stable to declining for 48 months. On 4/1/17 it was 1.0 months, about unchanged from 1/1/17. The smallest 50% of market (homes up to 1745 sq. feet) have approximately 0.4 MOI – a very strong seller’s market. The luxury market (largest 10%) was a little more balanced at 3.4 MOI. Denver will remain a strong sellers market at lower price points for at least another 12-18 months. There was slight oversupply of luxury homes in the summer/fall ‘16. We expect more luxury inventory in 2Q17.
Showings are a good leading indicator for UC… which predicts sales. Showings in 1Q17 were about the same as 1Q15 and 1Q16. Since 2013, “desirable” homes in good condition under $350K that are priced accurately usually sell rapidly with many showings, sometimes with multiple offers (though not as often as Spring 2015/2016). This is true at all but the highest price points. Overall the market is “as hot” as it was in the winter of 2014, 2015 and 2016. Not as crazy as 2016 so far.
UC is a good leading indicator of sales. At the end of 1Q17, the number of homes UC was -1% vs 1Q16.
Inventory levels continue to stay historically low, especially for smaller homes. This will continue to drive big price increases on the low end. Supply and Demand 101 predict inventories should have increased in 2013… we’re still waiting. In our view, inventory for the smallest 50% of homes will remain tight – or get even tighter – in 2017. While it’s difficult to buy, do it now if you can. It could be more difficult in 2018.
In 2014 unit sales declined -7% vs. 2013. 2015 volume was flat from 2014. 2016 unit volume was -2% vs. 2015. No sales bubble here! Price increases have not (yet) brought extra inventory in the market. It’s inevitable that increased prices will increase inventory, but it is impossible to know when. 2017 may see slight increases in unit sales volume. 1Q17 was up +4%.
MONTHLY READS AND RANTS
- Rents in Denver are on the upswing again. At least two national apartment rental reports show Denver rents are substantially up from last year, and rose in the last month as well.
- Americans refinancing their mortgages are taking cash out in the process at levels not seen since the financial crisis.