Robust and bold are great descriptions of a fine wine, but not necessarily true for describing the current real estate market.
Denver and Colorado have been enjoying a growing and healthy real estate market over the last several years. Above-average price appreciation in metro Denver has ranged between 8.5% and 10.9% in 2015. The news is quite good, as the numbers have been steady from 2012 through 2015, and the outlook for 2016 remains optimistic and poised for a healthy future. Even nationally there appears to be more cause for optimism than for concern.
There is a renewed resolution by first-time buyers to stop renting and begin investing in their future. As rental prices significantly increase and as millennials marry and start to have families, the prospect of buying a home of their own becomes appealing and economically sensible. Of course, landlords are smiling as a result of increased property values, low vacancy rates (around 4%), and good long-term job prospects, ranking Denver the 4th best rental market in the U.S., reported in the “Rental Ranking Report” by All Property Management in Seattle.
Nationally, and particularly in Denver, available housing inventory is increasing, thus helping supply meet demand, creating a better, more balanced, market. This increased inventory has been developing due to a variety of reasons. New construction home-starts have not kept up with demand, however builders are carefully increasing production with 2015 to have grown 14.9% over 2014 while 2016 is estimated to rise 16.7% over last year. During the recession and beyond, investors bought up millions of homes and condos, significantly diminishing the available homes for sale and primarily affecting the first-time buyers’ market. Essentially they were competing with these hopeful new buyers. Now, prices have risen enough for the investors to realize the profit they sought, motivating them to sell and putting their properties back on the market. Many move-up homeowners are also selling, then moving, and ultimately adding more housing inventory.
Rising values have also encouraged the Baby Boomers (born 1946-1964) to consider “freeing up” their “built-up” home equity. For a variety of reasons, many delayed selling their homes due to economic considerations, older children and parents living with them, and the postponement of retirement. More and more, Boomers are wanting to downsize or choose homes of similar size in a different location that offers a preferred lifestyle and architectural change. And most are choosing to have close proximity to their kids, grandkids, and friends. Both urban and resort communities are on their radar. First-time buyers will make up over 30% of all real estate activity in the foreseeable future. However by 2019, the Boomer demographic will head approximately 45% of all U.S. households.
Average home values have annually appreciated +/- 10% over the past 4 years in metro-Denver. That may or may not continue at that strong rate, but according to Zillow (sometimes accurate), the average rent in November was $1,952 which was up 9.7% from a year ago. I would not expect rents to rise much higher with all the new apartment construction, but do not anticipate rents going down either. Colorado added 101,000 people (from July 2014 – July 2015) and had the 2nd fastest rate of population growth, according to the Census Bureau.
Whether you may be looking to purchase your first home, move-up, or move down, please keep in mind: interest rates and prices are expected to climb in the next year. Making a home purchase decision is, of course, inherently personal as one considers such factors as upcoming life events, job and investment security, and relative timing. It is prudent to analyze the impact of owning vs. renting a home, and perhaps try weighing the lost opportunity costs of waiting two or three years. The cost of delaying home ownership can be substantial due to price appreciation, higher rents, and rising interest rates. For instance, on a $400,000 mortgage, the simple difference between the current 4% rate and say 5.5%, is $364/mo., for a principle and interest cost. Current market conditions can offer buyers the opportunity to build significant net worth in the long-term compared with renting, buying later and even “moving up” in the price range.
To access current market reports visit www.coloradomarketreports.com. For more information, contact downtown managing broker, Steve Blank, of LIV Sotheby’s International Realty at 303.520.5558. To service all of your real estate needs visit www.livsothebysrealty.com.