Real Estate News
The questions I’m most often asked these days are variations on the following: “How long is this strong market going to last?” “Are we at the top of the market?” or “Is the market going to crash any time soon?”. This month I’m going to give you my thoughts on where I think we are in the market. The short answer is we haven’t reached the top and I expect the strong seller’s market to last for a good, long while, probably several more years. Here’s why:
- Inventory of homes for sale: The metro Denver market has about 3.1 million residents. A community of this size will have a balanced market when it has an inventory of 16,000 – 18,000 properties on the market for sale. Today we have about 3,900 properties on the market which is why it’s such a strong seller’s market. There simply are more buyers than sellers out there leading to multiple offers and price increases. And it’s not just recently our inventory has gotten so low, it’s been falling steadily since 2007 when we peaked at over 31,000 properties on the market. In my opinion, the inventory of homes for sale is the single best indicator of how strong the market is. With such a low inventory, our seller’s market will continue for the foreseeable future.
- Interest rates: Interest rates rocketed upwards in the spring of 2013 and every real estate expert imaginable declared the era of low interest rates over. Well, they all got it wrong. Today, interest rates remain near 50-year low with the par interest rate hovering just above 4%, continuing to make homes affordable. Many of the buyers who are taking advantage of these low rates have rented for the past several years and are finding it more affordable to purchase a home than continue to deal with rent increases. To see if you should consider buying a home check out this really cool calculator Trulia put together at http://www.trulia.com/rent_vs_buy and see what your best choice might be.
- We still have lots of room for the market to grow and sell more homes. Your Castle Real Estate did an analysis looking at the housing market for the past 40 years in order to see how we are faring today. The blue line on the chart is the number of home sales we would expect in any given year based on the population of metro Denver. As you would expect, during downturns fewer people buy homes and during upturns more people buy homes. Looking at the chart you see that we have had a fast rising number of sales the past few years but we do not appear to be anywhere near oversold given our increased population, like we were in 2004 for example.
Taken all together my reading of the tea leaves suggests that this strong market is not heading for a downturn any time soon. As long as the inventory remains low we will continue to see a strong seller’s market and a continuing rise in prices in the 6% – 8% range. And I don’t see any indication that the inventory will rise any time soon.
The great news for buyers is that interest rates have remained wonderfully low, defying all predictions from the so-called experts. Lower interest rates mean more house for your money, plain and simple. For the average homeowner a decrease of .25% in interest rate can equate to a gain of as much as $10,000 in buying power. For example if you qualified for a $200,000 loan at a rate of 4.25% and then your rate decreases to 4.0% you may now qualify for a $210,000 loan.
What does it look like for a seller these days?
- Metro Denver average home prices are up 11.4% in the past year.
- The inventory of homes on the market in metro Denver is near the lowest on record at 3,946 and shows no sign of increasing any time soon.
- The average Days on Market for a home is down 2.9% in the past year, at 34 days. A normal market would show 90 Days on Market.
- Most deals I work on have multiple offers, whether I’m the buyer’s agent or the seller’s agent.
Add it all up and you get an amazing seller’s market. Sellers are reacting by hiking prices and testing the limits of the market.