Our strong housing market is not going away anytime soon. The large pent-up demand for houses continues to gobble up any inventory that makes it onto the market and is one of the many reasons I believe demand for homes is going to stay strong for the foreseeable future. As long as demand stays strong and supply remains constricted (we are at a near record-low homes on the market) you can be sure home prices will continue to rise. Where is this large pent-up demand coming from? Here are just a few of the sources:
- Home formation (e.g., marriages) fell dramatically during the downturn while the economy crumbled. As the economy improves more people are getting married and creating households. For example, from 2003-2006 a total of 1.6 million households were formed in the U.S. But from 2007-2010, as young people jobs, moved in their and economic confidence to marry households, only 600,000 households were created. That number is now rising quickly. From 2013-2016, 1.4 million households were formed, these folks want to buy homes! In a recent survey by the Joint Center for Housing Studies of Harvard University, 94 percent of 22-25-year-olds said they expect to buy a home in the future.
- The population of metro Denver increases about 1.5 percent per year and will continue to do so for the foreseeable future. More people = more home sales.
- And speaking of population, here’s another important point. The inflow of immigrants from countries around the world, both legal and illegal, plummeted during the downturn because of the reduction in U.S. employment opportunities. As the economy has rebounded immigration is skyrocketing. These folks need a place to live.
- During the recession, about 5 million people lost their homes and had their credit destroyed. As their credit improves over time, more and more previous homeowners are becoming qualified to buy again. They were homeowners once and most want to be homeowners again as soon as they are able.
- Millions of others, especially young people, saw their friends and relatives lose their homes during the recession and swore to never buy a house. They learned the wrong lesson. These are a lot of the people who have been renting the past five years instead of buying, making the rental market historically strong. These are also the very people who lost out on the recovery and forfeited tens or hundreds of thousands of dollars in home equity because they didn’t buy when the market was soft and prices were low. As the housing market continues to improve the younger generation is moving strongly toward buying their first home.
- Related to #5, many renters have noticed how quickly prices are rising and feel they need to jump in now while homes are still relatively affordable. In the last 12 months the average sales price of a single-family detached home is up 8.1 percent. The more home prices rise, the greater incentive renters have to finally take the plunge and buy a home.
MONTHLY MARKET SNAPSHOT (STATS FROM MARCH 2017)
