Since the start of the pandemic, the perfect storm of circumstances has sent home prices soaring. Record-low mortgage rates and the ability to work from home have spurred Americans to move, country-wide, and the Denver Metro has been no different. Now, even as we’re seeing interest rates begin an upward trend, housing inventory is at record lows, driving prices even higher.
Q1 saw the Denver housing market breaking new records. Back in February, there were only 4,193 new residential listings, making it the lowest February on record. March followed suit as the lowest March on record, breaking the previous standing of 2015 with 787 active listings.
So, with record-low inventory and interest rates creeping up, what do we expect to happen in the coming months?
Do you think the housing market will cool soon?
Current market signs show that it’s going to be a strong spring. With camping trips and summer vacations to look forward to, we might see summer activity dip a little, but we think we’ll be looking at the status quo in the months to come.
Why are prices increasing so rapidly?
Well, two things are driving Denver’s wild price hikes. One is costs (labor and materials.) The other is the lack of new housing supply. These factors combined mean spikes in existing prices. Denver remains a hot, desirable destination. When you compare us to LA, New York, or San Fransisco, Denver is still a “bargain” city for many incoming residents.
Are the current prices inflated because of the COVID-19 pandemic?
It’s hard to separate the pandemic from our current state of supply chain issues, material costs, and labor shortages. While the pandemic hasn’t made things any easier, we can’t say it’s the only factor, either. When employers decided to switch to more remote work environments, buyers gained more flexibility on where they could live. And as a result, suburban home prices increased. The last couple of years has created a perfect storm for why prices are higher. Nothing immediately solves inventory or supply or why people want to live in our beautiful state.
Will inventory increase to meet demand?
Most probably, but it will take time. Inventory can be slow to respond. Coupled with the supply chain and increased labor costs to build new homes, it will take time to catch up. Cities are still very behind on the permitting process. A single-family home in Denver can still take over a year to design and permit. It’s important to remember that even pre-pandemic, in certain areas of the city, inventory has never met demand. Access to more inventory sometimes means a further drive from a buyer’s target area.
Can we count on another market crash as we saw in 2008?
Unlikely. While there’s always a chance of some form of market shock, we wouldn’t suggest counting on a “crash.” Expect a slowdown, while buyers’ wages catch up with price points over time. In 2008, the bubble was caused more by bad lending practices and higher inventory. That’s nowhere near the same circumstances we’re experiencing now.
In the last decade, the median home price rose roughly 30%, while incomes only increased around 11%, according to a Bankrate analysis. The disparity over the last 50 years is even worse: After accounting for inflation, home prices have jumped 118%, while income only increased 11%. Some buyers can’t afford to purchase a home. Is there a solution?
Unfortunately, there is no one solution. A collection of things will need to happen to get some buyers into a property. It’s not a one-size-fits-all fix. Part of the equation could be government programs. Part of the solution is cooperation. They need to expand on existing programs and create other programs to fit different buyer needs. Sometimes, it’s just a matter of time for wages to catch up to the price increases on homes. You may have house prices surge for several years, (like we’ve seen in Denver,) and then slow down. It can take many years for wages to catch up to the same degree of affordability.
How accurate are Zillow’s Zestimates?
Short answer? They’re not. Even Zillow disclosed that a Zestimate shouldn’t be used as an appraisal because of accuracy concerns in the past. It’s a good starting point if you’re looking for properties that are sold in your market area and do some investigation on your own with the help of your agent.
Even fixer-uppers still seem to be selling at really high prices in Denver. Is that just a Denver problem? Is it because it’s so desirable to live here?
It’s both. It’s a national problem. Young couples, first-time buyers, for example, can only afford what the bank has told them is in their budget. So, they might be looking at a fixer-upper, just because the list price is in their budget. And then, you have all those who can pay a little more out of pocket, and they’re doing the same thing. They can put a little more down, and it can start a bidding war.
As for bidding wars, you can expect those to continue until the number of qualified and motivated buyers slows down. Economists are speculating that the interest rate movements will peak this fall. Rates may not fall, necessarily, but they probably won’t rise much in the coming years either.
What’s your advice to buyers in this market?
Be patient. Be realistic. Try to stay as close to your comfort level as possible, even though in this market, going outside your comfort zone is almost a prerequisite. Don’t get discouraged. Oh, and call us. Seriously. That last part will make the rest of it that much easier to navigate.