Home Prices in Metro Denver Continue to Rise but…..

As a real estate broker and subscriber to our local Multilist service in Denver known as www.REColorado.com (and the site with the most accurate and up-to-date real-estate information) I am provided with information and overviews of the markets on a monthly and annual basis. Thus a year in review and a look back.

In 2017 the average home price in the 12-county metro area rose to $433,000.

For comparison, the average home price in the same area in 2015 was $362,000 and in 2016 was $400,000 or $61,000 and $33,000 gains respectively. Considering inflation has been marginal and barely measurable i.e. below the Federal Reserves target of 2%, the real-dollar gains continue to impress.

Home Sales Volumes: 2017 witnessed the highest number of actual home sales totaling 53,739 totaling $23.3B. In 2016 sales totaled 51,617 units at $20.6B and in 2015 51,510 units sold at $18.6B. Thus a small year over year increase coupled with limited new construction the trend could be considered steady with underlying values exceeding inflation. Of note historically until this past generation home prices nationally usually mirrored inflation with obvious regional anomalies.

As a broker based in Denver’s Cherry Creek Neighborhood and educated as an Urban Planner (graduate of CU Denver) I view the market activity within the City and County of Denver as the overall indicator of the metro area market as the City is the center of commerce, the largest most dense in the metro area, limited land for additional sprawl/growth and other factors.

Interestingly sales volume in Denver did not follow the trend of the overall metro area.

  • In 2017 13,043 homes sold in Denver for $6B. (- over previous two years)
  • In 2016, 13,265 homes sold for $5.6B (+ over previous year)
  • In 2015, 13,053 homes sold for $5.1B

While one may view the reduction in home sales year over year as troubling, I would suggest looking a little deeper. First statistically the actual physical number of homes sales year over year has been steady with almost no statistical variation. During the 3 years the amount of closed volume based on dollars went from $5.1B to $6B this is a major increase in both real dollars and by percentage.

Or in more simplistic terms, the number of homes sold in 2015 and 2017 was about even, a difference of 10 homes less in 2017 versus 2015 HOWEVER the difference in sales dollars during the two-year period went from $5.1B to $6B, a difference of $900M.

Thus, one could surmise values within the City and County of Denver continue to outpace the metro area and demand is outstripping supply. Yet there is an additional variable; Denver in general has more percentage of sales from non-traditional single-family homes i.e. condos and townhomes. Through November of 2017 within Denver 12,168 residential properties sold with 7,602 of transactions recorded in MLS as single-family homes and 4,566 belonging to condos or townhomes.

Over 1/3 of properties sold were in the multifamily space usually a less costly product versus the single-family home (and yes I am aware of multimillion dollar condos in downtown and Cherry Creek yet their volume is somewhat insignificant against the overall sales volume i.e. limited impact on actual sales dollar numbers).

The question or the BUT… in the title is? Can the City and County of Denver sustain this valuation increase or are we looking at a market that may in fact be over-heated and not-sustainable? I do not know the answer as only future activity can answer this question.

HOWEVER 1) If I were considering selling a residence, I would place it on the market sooner than later. 2) Interest rates are forecast to increase due to the stronger national economy thus placing potential pressure on sale prices and 3) reports of decreased in-migration and increased outmigration are troubling yet not surprising as the State has witnessed this in past business cycles i.e. late 1980’s energy bust, mid 1990’s expansion, late 1990’s plateau, mid 2000’s boom and later 2000’s Great Recession.

While I do not believe we are headed into a recession anytime in the immediate future, the growth in real-dollar values coupled with low-inflation is just not sustainable within traditional economic theory (coupled we have very short memories). While some suggest low interest rates have fueled the housing market as it has the equity market; unlike stocks, housing is not liquid. My advice and the future may prove me incorrect however I would suggest a “Yellow Light” proceed with caution and keep looking ahead for potential issues.

 

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