Real News or Fake News?
On Sept. 7, 2017, the Denver Post published an article titled “Metro Denver housing market’s summer slide extends into August,” which would leave the casual reader thinking the market is finally at the top and is going to start cooling off. They point out that the median single-family home price fell 2.4 percent from July to August and that inventory has fallen as well. I received several calls from clients and friends asking what I thought of this. My answer? This is exactly what folks who don’t understand anything about real estate would write in order to get a sexy, above-the-fold headline published. Bad journalism to say the least.
The Denver Post got it wrong and here’s why. They are using irrelevant, short-term, month-over-month data instead of year-over-year data, specifically to mislead their readers into believing the Post has some unique insight into the market that others don’t. The problem is all you have to do is go back a couple of years and see the exact same thing happened in the summers of 2015 and 2016 to understand their error! In 2015 single-family home prices fell 2 percent from July to August. In 2016 single-family home prices fell 3 percent from July to August. Yet both years ended with large price increases as the market continued to climb. There is every reason to believe same thing will happen again this year. So for the Post to say that prices went down July to August of this year and suggest the market is finally cooling is just plain unprofessional. The same exact thing happened the past two years and clearly it did not signal a market top.
The Post also reported “the number of single-family homes sold fell 8.7 percent month over month and is down 10.6 percent from a year ago.” What they imply is this is a sign of a weakening market when exactly the opposite is true! The reason the number of homes sold fell is we have so little inventory on the market to choose from. The housing market has remained strong precisely because we have more buyers than sellers, but unfortunately the Post does not understand basic economics. Alas.
So here’s what we think the market looks like. Coming into the fourth quarter of 2017 the state of the metro Denver real estate market remains strong. Prices are up (year over year!), inventory remains low, days on market are at rock bottom and there continues to be much more demand than supply in all but the high-end, luxury market.
Let’s look at our metro Denver housing market for the past 45 years and see how it has developed over time. In the graph you see metro Denver home prices from 1971 to present day. Prices rose from 1971 into the mid ‘80s, at which point they flattened out for several years during a downturn in our economy and record-high interest rates. Then in 1991 they started rising again and continued rising for 15 years. We peaked in 2006 and had a dramatic 25 percent drop in prices through 2009. By 2013 prices got back to their previous 2006 highs and have shown no sign of slowing since.
Every week my clients ask if the market is overheated and headed for a crash, most recently brought on by the Denver Post article. Over and over my response has been that the underlying market fundamentals remain strong and I see only continued gains in the market for the foreseeable future.
So far in 2017 prices have continued to rise, up another 7.8 percent in the past 12 months. If you were to ask me the same question today, “Are we in an overheated market heading for a crash?” my answer would remain the same: Market fundamentals are strong and I’m confident on the near to midterm horizon. Our job is to watch these fundamentals closely to give us warning of an impending downturn. On page three are only a few of the many reasons why I’m still bullish:
- Current inventory of homes – Inventory remains near record lows. In a normal market we’d expect to have about 18,000 properties available for sale. Today we have about 7,000. It’s a simple supply/demand equation. If there’s limited supply the demand pushes prices up.
- Upcoming supply of homes – Speaking of supply, it has just not kept up with demand. Many sellers are afraid to put their house on the market for fear they won’t be able to find a replacement home. The result being that our supply of homes for sale continues to be restricted. In addition, builders are not building nearly enough homes to meet the current demand, never mind the additional 50,000 residents metro Denver is adding to its population each year. Back to the Economics 101 supply/demand curve, lots of demand and constricted supply makes for a strong housing market.
- Soaring consumer confidence – The housing market tracks very closely to consumer confidence. Up to 2007 consumer confidence was very high but plummeted between 2007 and 2010, dragging the housing market down with it. It bottomed out in 2010 and has been rising ever since, just like our housing market. As long as consumers remain confident, the housing market will continue to rise.
- Low interest rates – Interest rates remain near all-time lows making metro Denver homes still relatively affordable. Yes, prices have risen a lot the past seven years but since interest rates are so low, buyer’s monthly mortgage payments remain affordable, especially compared to rental rates.
- High rental rates – Every day, more and more renters are realizing it’s cheaper for them to buy a home than continue to rent, further increasing the demand for housing purchases.
- Low unemployment – A strong metro Denver economy with record-low 2.7% unemployment and a growing population further propels our housing market.
And these are just a few of the many dynamics that continue to strengthen our market. Feel free to call me if you’d like to discuss what the market’s doing, where the market’s going, and what you can do to take full advantage of this terrific housing market.[/vc_column_text][vc_single_image image=”3736″ img_size=”full” alignment=”center” onclick=”img_link_large”][vc_column_text]We have been discussing the incredible strength in our housing market. If you’re looking to sell your home this should be very welcome news! The inventory of homes on the market is near an all-time low and prices are up. Call me and I’ll be happy to run a complimentary Comparative Market Analysis on your home to let you know what it might be worth. It’s great information and costs you nothing.
For years our clients have been buying rental properties in metro Denver to build their long-term wealth. Our record-low vacancy rate is a big driver of why rental property has performed so well. First, the lower the vacancy rate the higher the demand for the property. Increased demand means landlords can be more selective with their prospective tenants and charge higher rental rates. Rents have skyrocketed the past few years because the vacancy rates have remained so low.
One of the reasons vacancy rates are so low is that many people cannot qualify for a loan. I don’t expect this to change for the foreseeable future. We’ve had a huge shakeout in the lending industry and lending guidelines are much tighter than they were before the downturn. Until lending standards ease up I expect vacancy rates to remain low and keep my investor clients happy. If you’ve ever thought of investing in a condo or a house as a rental property call me and I can show you what the numbers look like and what options you might have.[/vc_column_text][vc_single_image image=”3735″ img_size=”full” alignment=”center” onclick=”img_link_large”][/vc_column][/vc_row]