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 wondering, will the Denver housing market crash? 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? They got the numbers right, but were missing some important context.
By looking back at month over month data, we’re able to build a long-term picture of the Denver real estate. This approach is as opposed to using month-over-month data, which can be misleading. All you have to do is go back a couple of years and see that the exact same thing happened in the summers of 2015 and 2016 to understand that the summer slide referred to by The Denver Post happens just about every year. 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 the same thing will happen again this year. So, although numbers did slump from July to August, the market remains strong. In fact, the same exact thing happened the past two years and clearly it did not signal a market top. So, quell your fears about will the Denver housing market crash?
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,” seeming to imply these numbers as a sign of a weakening market. It’s understandable that this data would be interpreted as such. However, 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, a trend which marches forward to this day.
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, “will the Denver housing market crash?” 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.
This 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.