At the beginning of every year Realtors try to predict what will happen in the Denver economy and metro housing markets. The Denver housing market has been red hot since 2011 and the question remains whether the double digit growth can continue or if we are approaching the top of the market? It is important to look at what drives sales numbers to strive to intelligently understand the housing market and to hopefully predict the direction of the market.
FACTORS THAT DRIVE THE HOUSING MARKET:
1. The Economy. Denver continues to have a strong economy. Our unemployment rate is 2.9% and according to the Economic Forecast done by the Leeds School of Business at CU, there is a predicted 1.8% job and economic growth expected for this year. This follows on the heels of a strong 2.2% growth in 2017.
2. Supply and Demand - Colorado is expected to add over 90,000 new residents in 2018. While they are not all moving to Denver, many are as Denver continues to add jobs and major employers. As people move here, there is an on-going need for housing and we continue to see a low inventory of homes available. A balanced market has a six month supply of homes available. Denver currently has a one month supply of homes. This means that Seller's are still in control of the market and can continue to demand premium prices for their homes. Many potential Seller's are choosing to keep their homes and are using them as rentals instead of selling them.
3. Rental Prices - Denver rent prices have soared along with housing prices. The median price for a one bedroom apartment in Denver is $1400 per month. This high rent poses a dilemma for both buyers and sellers. Many sellers are choosing to hang on to homes they might have normally sold because they can rent their homes for a higher payment than their mortgage and make passive income. Renters also have a dilemma because rents are as high as many mortgages, so there is an incentive to own versus rent. However many younger buyers have high student loan debt and are struggling to save enough of a down payment to purchase a home.
CURRENT TRENDS THAT WILL IMPACT DENVER:
1. Housing Starts -At the end of 2017, Denver saw an increase in Housing starts and a higher than normal focus on Condo starts. If you drive around town you will see many condos and town homes coming online for purchase. This will help those looking to get into the market at a lower price point and could help to ease the pressure on low inventory. If builders can keep up, then this trend will help lower the upper pressure on rent prices and could help the market to balance.
2. Increase in Apartment Inventory - Approximately 17,000 new apartment units were added in 2017 in Denver and it is anticipated that another 17,400 units will be brought online in 2018. As new buildings are opening, we will see prices start to stall. More rentals available, means there are more deals to be had. This may be the year we start to see rents slowly decrease which could move Seller's to start off loading properties if they sense the market is starting to top out. If rental prices slip significantly, I think more rental houses will come up for sale.
3. The new tax law. I wrote about this in depth in an earlier blog. The tax law will hit the luxury market but should not have a significant impact on home owners that have homes under $750,000. The increase in standard deductions should give most of us a little bit more money in our pay checks, but not a huge amount.
4. Interest Rates - The Fed has three planned interest rate increases scheduled for 2018. I think we will see small increases in interest, but if you are looking to buy - earlier this year may be a safer bet in terms of getting the best loan rate.
Unknowns: There is always the wild card factor and this is where things can get very uncertain in terms of how housing will do in 2018.
1. Amazon - at the time of this post, Denver is still in the running to be home to HQ2 for Amazon. If Denver gets the nod, then I believe you will see home prices continue to rise. Amazon is expecting to bring in an additional 50,000 jobs and many of those will be in the six figures. If that happens our market will go up as money and people pour into our region.
2. Trump - This has proven to be an unpredictable administration. At the moment, the economy, the markets and our safety are relatively stable. We sincerely hope nothing changes on this front.
As we look out over the beginning of a new year, we believe it will be another strong year for increased value for Denver properties. Values should continue to increase but perhaps more slowly than the double digits of the past. Interest rates are still really low and the economy in Colorado is strong. It is a great time to buy or sell. If we can help you start looking for your dream home or if you are thinking of Selling, we would love to have the chance to earn your business. Please give us a call today: 303-495-8363. Our greatest passion is helping you home!