What to Expect!
It is no secret that the Denver real estate market has been hot. Everyone has heard stories of multiple offers over listing price and people promising anything to get their offer accepted. The questions for many are: will it continue, for how long, and how will potentially rising interest rates impact the Denver market?
Not too bubbly
The sharp rise in prices over the past couple of years has many people yelling ‘bubble.’ This fear is understandable after the last economic crisis, but the conditions that caused the recent rise and continue to do so are much different. I have listed some of the most substantial differences that have happened and make then much different than now, and why, I believe, the Denver residential real estate market will stay strong for years to come:
There is less speculation happening
The last seven years have seen some of the tightest lending standards in recent history. The new rules for lenders require verifying the borrower’s ability to pay, meaning that borrowing on speculation of price increases has been severely restricted;
A stronger labor pool and low unemployment
Colorado has one of the lowest unemployment rates in the nation and strong job growth. The Colorado unemployment rate hit 3.6% in November, which is well below the national level of 5% according to the US Bureau of Labor Statistics. (The Denver Post article – “Colorado’s population jumped by 101,000 in 12 months”.)
We compete well for talent
For those of us who have lived in Denver for a long time, the prices are ‘crazy’, but many companies are moving here for the strong business environment, highly educated work force, quality of life and, yes, still affordable real estate. Compared to cities like San Francisco, Los Angeles, New York and others, Denver has a lot to offer.
There is low inventory and rents are on the rise
The end of 2015 has been slower than the rest of the year for Denver real estate, but inventory levels in the seven major Denver area counties are still similar to last year at this time. (See Chart 1 – source: Denver Metrolist)
What to Expect When Diving In a return of multiple offers
A slower end of the year is typical in Denver, but the spring buying season started much earlier in 2015. Expect the same in 2016. Multiple offers still happen every day, but it has been less frequent in the last few months. Low inventory, an increasing population and rising rents will cause a return to seeing more homes in many price ranges receiving multiple offers;
Interest rate concerns
The Fed’s decision to raise rates for the first time in eight years has many on edge. That may increase mortgage rates, but they do not necessarily mirror each other. Mortgage rates may rise, but it will likely be small and have fluctuations up and down as well. The rising rates are more likely to cause an increase in Denver real estate prices, as many scramble to escape high rents and lock in low rates;
Prices will continue to rise. It may be lower than the previous two years, but in some areas it will still be substantial;
Less cumbersome to get a loan
Loans are easier to obtain than most people think. In many cases, buying an upscale home in Denver truly can be cheaper than renting, and many people can qualify for a loan much more easily than they think possible. Look for more loan availability and easier qualifying standards to continue;
Prices start increasing on higher priced product
Many buyers in this bracket have been more cautious and worried about a bubble, but expect price increases to accelerate. As many people lock in low rates and use their relatively higher equity to buy their dream home, these prices will begin to rise more quickly. Below is a chart that shows the average sales price for homes priced between 0 and $500,000 versus the average sales price of homes $500,000 to $1 million over the last two years in the seven major Denver metro counties. Notice the higher bracket has experienced little or very small percentage increases in average sales price while the homes under $500,000 average sales prices have risen significantly. This means that many people with homes priced under $500,000 have gained much more equity and financial leverage to purchase a larger long term home. (See Chart 2, Sales Price Averages – Data Source: Denver Metrolist)
Denver Luxury Home market strengthens
In many markets you can get a good sense of the economic strength by the looking at the luxury home market. Denver luxury real estate (homes over $1 million) has experienced shorter times on market and increasing prices over the last 3 years. This should continue in 2016 and beyond.
How to Make A Move In 2016
Have a strategy & be prepared
The average time on the market is low these days, but contrary to popular belief, every home does not sell the first weekend. A host of factors—from price range and area of town to specific features—will have a huge impact on your strategy. Get an analysis of your current home, if you need to sell. What changes can be made to get a higher price, what is or is not worth doing—find out how to make the best features of your home stand out. Little changes can make the difference between getting the best price in the shortest time and sitting on the market. Having someone who looks at properties every day and knows what buyer’s expect is critical to success.
Informed decisions win!
While this market may seem like a dream situation for a seller, it can be very stressful. Make sure you price correctly, have a plan, and consider the terms of each offer carefully.
Don’t just buy any home, buy the right home! Make sure you have a plan and know what it takes to put you in the lead. There is a difference between feeling pressured and being informed. The informed buyer will be more comfortable with expectations of sellers and know when they find the right home.
Take advantage of your equity
Homes priced under $500,000 have seen the greatest price increases over the last three years. (That may be higher or lower depending on where in the Denver area your home is located.) That large increase has not been the same in the upper price ranges (see Chart 2). This gives you an opportunity to use that equity to buy your dream home at a great price. Price per square foot is not the best measure – What does your price range, general area, neighborhood and recent comparable sales have to offer? Many features and styles of homes can command more than others. Price per square foot can be a guide, but there can be large fluctuations based on the particular details of a given home. No two homes (even the same models) are exactly alike. Views, finishes, upgrades, and style of home all make a difference; and that difference will be specific to that part of the Denver metro area where your home is located. How to value features like a view or kitchen upgrades requires knowledge and an understanding of the market. Without it, you could leave money on the table or price your home too high.
Know what you want!
The best real estate decisions are based on knowledge and patience. The longer you own your home, the better; so start exploring your options to make sure you get a home you love and will keep longer. Many people think they know what they want until they actually get into some homes. Get into a variety of homes and look at different neighborhoods so you know what you really want and what will best fit your lifestyle and needs. Once you see the choices and options up close, you will be prepared to wait for the best home for you and make a decision quickly—as is often required in this market.