Is NYC Real Estate a Predictor for Denver

Early this morning the 3rd Q 2016 real estate market update for New York City provided by Douglas Elliman (and old line firm in conjunction with Miller Samuel Real Estate Appraisers) and the news is somewhat sobering.

The report noted in 2015 there were bidding wars concerning Manhattan real estate, recently the trend seems to have reversed. According to the report during the same period in 2015, 31% of listings sold for above the asking price, in 2016 the percentage has dropped to 17.4%. Yet more insightful is the listing discounts rising from 2.2% of listings during the 3rdQ of 2015 to 2.9% during Q3 of 2016. Add to this an 8.2% increase in inventory.

I am the first to advise (and being licensed in NY and CO) NYC is a unique market and much of the excess inventory is segregated in the high-end of the market with new construction, a general reluctance on the part of foreign buyers concerned about the world economy and new federal rules concerning disclosure and tracking of funds concerning purchases over $3M.

While the mean price of an apartment in Manhattan is $1M+ which would buy a very nice residence in Denver, we may be seeing trends in the Denver market a few months behind New York.

Listings above $468K in the Denver market seem to be sitting on the market for longer periods. Of note $468K is the conforming loan limit in Metro Denver. For sale signs in the tony neighborhoods of County Club, Cherry Creek and Washington Park seem to be growing exponentially coupled with continued new construction as cranes dominate the skyline in Cherry Creek North. While new listings continue to come on the market with what some consider inflated prices, older listings continue to see downward price adjustments especially pronounced in the Highlands where there has been a glut of upscale luxury developments and the absorption rate seems to have slowed.

A trend we are witnessing in NYC and I believe in Denver as well is movement to the suburbs and within Denver proper to the outlying neighborhoods away from the central business district. While one may suggest in Metro Denver the expansion of rail is partially the catalyst the reality is affordability. The NYC suburbs continue to boom as buyers who have been priced out of the city look to the suburbs for affordable options. A similar pattern is taking hold in Denver.

While I am not clairvoyant I am concerned about the activity in central Denver. While we may be heading into  seasonal slowing; with continued low interest rates sales should be continuing unabated.

Historically when interest rates rise, prices for houses falls inversely i.e. less affordability. Denver at present is at record highs concerning pricing (beyond the highs reached in 2007 even factoring in inflation). While an immediate rate hike may in fact spur transaction activity, the longer term trend may be more troubling i.e. if interest rates continue to rise to combat future inflation, houses prices may rise to match inflation however will probably not exceed and underlying affordability will be challenged in the higher interest rate environment.

 

 

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