While the statistics represent the height of the summer season and before the recent downturn within the stock market, overall the news is positive for the real estate marketplace. San Francisco and Denver have both registered the greatest increase in pricing on a year-over-year basis.
Specifically for Denver the home price index rose 0.71% for the month, 3.16% for three months and 10.26% on a year-over-year basis as mentioned above (San Francisco registered a 10.41% year-over-year gain). Yet as a real estate broker and one who not only considers home ownership not only a lifestyle choice but also as part of a diversified investment portfolio.
Thus I went digging into the numbers concerning the annualized returns for Denver as follows:
The above statistics while some would consider bleak makes one step back and consider timing one’s purchase. I for one have been concerned with the low interest rate environment which I believe in turn has pushed housing prices up i.e. purchasers are making decisions based on the monthly payment and not underlying value. Yes, appraisals can be viewed as a safety valve but the reality is an appraisal takes a 6-month look back and does not predict future returns.
Yet I find the statistics above actually quite positive. First, those who purchased within the last 3-5 years have enjoyed an increase in valuations from the lows of the last recession. Yet even those who purchased within the last decade i.e. during the height of the market, values are still positive and technically continues to outpace inflation. Coupled with tax advantages and a roof over one’s head regardless of statistics for many home ownership is a positive option.
What is the take-away? While I am concerned about double-digit annualized growth, most would agree such gains is just not sustainable over the long-term. Assuming the Federal Reserve does raise interest rates during the 4th quarter of 2015, while the actual increase may be minimal the psychological effect may impact home purchases. While interest rates will remain historically low the perception of higher interest rates in the future may impact sales prices with downward pressure as an inverse to higher borrowing costs.
As I have mentioned in past blogs, inventory is moving assuming it is priced accordingly. For those homes with above market prices activity is slower. Yet if priced correctly and if buyers can see a potential upside in 5+ years those homes are moving quickly.
I will be watching the index measurements for August and September to see if my anecdotal view of a slight slow turn translates into actual statistical validation.