Late last week I posted a screenshot of the November 2018 sales statistics for Metro Denver. While the state economists today suggested 2019 should be a positive year for Colorado’s economy concerning job and wage growth across all sectors with a mild slowing; the housing market may be advising differently.
Let me preface we have headwinds. While Denver may trail Seattle, San Francisco and Las Vegas concerning year-over-year price appreciation in percentage terms let us face the following realities locally and regionally:
- Our housing market did not go into a free-fall unlike Las Vegas and Phoenix.
- We have been in a 5+-year expansion concerning housing prices.
- Wages are not keeping up with housing costs in Metro Denver.
- New construction did not keep up with demand over the last 5 years.
- Our economy is not Seattle and San Francisco nor is our population as noted below or geography i.e. available hinterlands versus coastal (Statistics from varied sources including Federal and Regional Census Data):
- Metro Population: San Francisco–Oakland–Hayward MSA: 4,335,400
- San Jose–Sunnyvale–Santa Clara MSA: 1,837,000
- Average Income: $96,600 / $110,000
- Metro Population: Seattle–Tacoma–Bellevue, WA MSA: 3,867,000
- Average Income: $78,612
- The 12-county Denver-Aurora-Boulder Combined SA: .3,150,000
- Average Income: $71,926
In general housing costs in San Francisco and Seattle are more expensive then Denver HOWEVER their average incomes are higher and by geography their ability to expand and build outward is limited.
While housing prices in metro Denver were on what seemed like an exponential trajectory I have suggested prior and statistics may be validating we peaked a few months back. While sales prices continue to climb, inventory is increasing, days on market are increasing and eventually prices may begin to adjust downward or keep with inflation and not show oversized gains.
The November 2018 #’s are interesting and showing an impressive gain on a year-to-year basis and while month-over-month does not show a trend I suggest the real estate market is looking outward and showing some hesitation similar to how the stock market projects out 6-12 months.
What will be interesting in to see what November 2019 stats show. My gut is we will see prices either static or lower. Inventory will be higher and days on market will also increase.
This is not necessarily negative, as markets should over time trend back towards normalcy. For too many years we have been in a seller market and it is time to move back to equilibrium of sorts. In high-end neighborhoods there seems to be a glut of expensive homes waiting a buyer or rental signs as owners wait our the market conditions. While there continues to be some blockbuster sales they are more of an anomaly versus weekly updates. Two recent high profiles sales in Cherry Creek North and Belcaro were to out-of-state buyers relocating as part of VF Corp. relocation to Denver.
My concern is for our local and regional population of move up and move down buyers. At present 1sttime homebuyers continue to be challenged in the market and even as prices may be stabilizing; interest rate increases negate the opportunity of lower pricing.
Move-up buyers are being challenged in finding suitable inventory. This is worrisome as families outgrow their first home or desire more space find inventory challenged in central Denver and will migrate to the suburbs/exurbs or worse leave the state. Move-down buyers those who may be downsizing can take advantage of the sellers market HOWEVER again their inventory for replacement is challenged and thus may consider regional relocation or out of state.
As a 20+year broker in Denver as mentioned prior I have been through these cycles including:
- 1987-89: Downturn
- 1991-1995: Upswing
- 1996-2001: Pricing matching inflation
- 2002-2006: Irrational Exuberance
- 2007-2012: Downturn, depths of Great Recession and Foreclosure Crisis
- 2013-Present: Upswing potential leveling off
While I am not predicting a severe downtown I would not be surprised to see a 5%-10% correct concerning housing prices over the next year across Metro Denver. I believe there are segments i.e. the luxury housing niche i.e. $750K and above that will see more severe adjustments.
Let’s just use this blog posting as an opportunity to revisit in one year.