As the first full week of the new year is underway, it’s the perfect time to peer into our crystal ball and forecast the 2019 real estate market. At the end 2018, we saw more than one statistic saying the market is beginning to slow down. What does that mean for 2019, and how do we feel about the future of the real estate market?
Average Home Price:
The average price of a home (single-family, condo, and townhome) in metro Denver increased another 4.0 percent in 2018, finishing the year at $454,248. We predict 2019 will show a slower year for our housing market with an average price increase of 4-7 percent. This is because the number one driver of home price change is the amount of inventory on the market, and current inventory remains historically low.
In 2007, during the last downturn we had a peak of 31,000 properties on the market so prices DROPPED 14 percent, while in 2018 we averaged fewer than 11,000 properties on the market so prices ROSE 4.0 percent. While inventory numbers are still historically low, this increase (up about 4,000 from 2017) is still enough to slow the strong price appreciation Denver has been experiencing.
It’s simple supply/demand. Unless the supply continues to increase at a quicker rate, there will continue to be upward pressure on prices as demand continues to outstrip supply. Where will the new supply of home inventory come from?
It won’t be bank-owned properties or short sales – our metro Denver economy is as strong as it’s ever been and a strong economy means almost no properties on the market. The additional supply will eventually come from homeowners who finally decide to start moving again. However, when this will happen is anyone’s guess.
Part of the issue is an interesting Catch 22 where many potential sellers evaluate the market and think they can’t find their dream home because of the lack of inventory – therefore they don’t put their homes on the market – thereby contributing to the very lack of inventory that stopped them from moving in the first place. As new builds and housing units continue to increase, we expect house price appreciation to slow down just a little bit in the next year.
Number of Homes Sold:
There was a very small decrease in the number of single-family homes sold in 2018 vs. 2017 of just -2.4 percent. So while prices rose strongly, the number of sales decreased, likely due to the Denver’s slower rate of population growth this year (only 1.4 percent!) .
We do not foresee any dramatic change in 2019. Expect a 2-3 percent increase in 2019 home sales, if only because the Denver metro population still rising over one percent per year and all these people need to live somewhere!
The Investor Market:
The real estate investor market will remain strong with very little change in the outlook.
The fix and flip market will continue to be profitable for those who can find underpriced homes to buy and repair. They are out there but it takes tools, patience, and work to find them. Once you get a house fixed up, selling is the easy part due to the lack of competing inventory.
The buy-and-hold market will continue to be extremely generous to long-term investors. Vacancy rates are still near record lows and rents continue to increase, up over 40 percent in the past 5 years! It’s not difficult to buy a rental property in today’s environment and put it on the path to be paid off in 12-13 years.
For building long-term wealth it’s tough to compete with rental property ownership. That’s the one thing that never changes!
What do you predict will happen in 2019? What trends have you seen that might be different in 2019 than in past years? What do you hope will happen in 2019? Let us know!
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