Let’s keep this (somewhat) short and simple… Everything you need to know about the Denver real estate market is contained in the following chart:
What you see are two lines, a solid purple one and a dotted blue one. The solid line shows the inventory (i.e., the number) of active homes for sale in metro Denver every month from January 2008 to January 2017. The dotted line shows the number of homes sold every month. You can see that the inventory peaked in May 2008 at 26,000 homes for sale. That was at the depth of our economic and housing downturn, when fear ruled our market, banks were being shut down, our local and national economies were in shambles, unemployment was rising, and consumer confidence hit new lows. The result, of course, was that people didn’t want to buy homes; they were afraid of the future and didn’t want to take on any risk. On the seller side of the equation, many homeowners were getting caught with rising monthly mortgage payments as their Option ARM mortgages adjusted upward, so suddenly they wanted to sell at the very worst time possible. The perfect storm.
It’s simple economics: if you have more supply than demand, prices fall and that is exactly what they did from 2007 to 2009. Then around 2010 and 2011 the market became roughly balanced with 18,000 to 20,000 homes on the market. But as you can see the market did not remain balanced for long because the supply continued falling for years.
Which brings us to today’s market. In January 2017, there were 3,974 homes on the market, nearly an all-time low for a January! This lack of inventory defines our current housing market.
The past several years have seen an incredibly strong real estate market in metro Denver and this chart explains exactly why. The supply of homes has vanished placing an imbalance in our market. No three-dimensional, super fancy, econometrics model can do a better job of explaining the imbalance in our market than this simple chart.
It’s interesting to see that while the solid purple inventory line has dropped dramatically the past seven years, the dotted blue line representing the number of sold properties has barely inched upward, even though our population continues to rise about 1.5 percent per year. This tells me that our demand for housing is going to stay very strong for the foreseeable future. No bubble.
If you own a home and are thinking of moving: It’s an incredible seller’s market and you can expect to get top dollar for your home. You’ll need to consider the purchase of your next home though, and make sure you have planned the process correctly so you find the right home and make the transition from your current to future home seamless.
If you’re considering buying rental property: There’s no better way to build wealth than owning rental properties for the long term. Home prices have risen, but so have rent prices, and interest rates remain near record lows. Smart investors don’t try to time the real estate market; it’s as difficult to do as timing the stock or bond market.
Our record-low vacancy rate is a big driver of why rental property has performed so well. First, the lower the vacancy rate the higher the demand for the property. More demand means landlords can be more choosey selecting their tenants and also can charge higher rental rates. Rent prices have skyrocketed the past few years because the vacancy rates have remained so low.
One of the reasons vacancy rates are so low is that many people cannot qualify for a loan. I don’t expect this to change for the foreseeable future. We’ve had a huge shakeout in the lending industry and lending guidelines are much stricter than they were in the past. Until lending standards ease up I expect vacancy rates to remain low.
MONTHLY MARKET SNAPSHOT
