While most areas of the country are seeing moderate housing markets, select areas in the US are experiencing a robust population growth leading to housing shortages. Seattle, Austin, Portland and Denver, to name a few, are in the midst of seller’s market with rising costs and little relief in sight.
Why Are We Here?
Part of the issue is the lack of new homes being built to accommodate the influx of residents. According to National Association of Realtors® (NAR) Chief Economist Lawrence Yun, single family home starts are grossly inadequate to keep up with rising demand. Even with home builders increasing production, building levels have remained almost flat since 2010. New home starts are about one-third the levels seen in 2006.
The increase in new building helps relieve some of the pent-up demand, but new home prices are out of range of the first and second-time home buyer. The lack of affordable housing is providing little relief to the buyer with a budget under $300,000. On the horizon, the growing Millennial population represents a tremendous wave in first-time home buyers, looking for entry level prices. To further compound their struggles, increasing student loan debt could potentially add several years to their entry into the market.
A Slight Shift
A slight shift in the market occurred in May with some homes sitting on the market for more than a few days, or even weeks, rather than going under contract within hours of listing. Part of this is due to the typical influx of new inventory we see each Spring, providing buyers with more options.
The shift could also be response to the record high prices in April. The subtle slow-down in sales pushed sellers to reconsider their asking price. Upwards of one-fifth of the single family homes on the market, across all price ranges, had a price decrease after being listed.
In May there was a slight price decrease in the median price of homes in the Denver market. What we are seeing is a downward adjustment in the listed price, which has been driven up by sellers taking advantage of the low inventory. However, the final sales price continues to trend upward, coming in higher than the previous month.
In essence, sellers have begun to price their homes too high, causing properties to sit longer and forcing sellers to reduce their price, while buyers are still showing a willingness to pay top dollar for a limited number of homes.
Prices Continue to Rise
Looking ahead, NAR forecasts a continuation in rising home prices, but at a slower pace. Denver saw a 9.7% increase in home prices over the last year and should expect to see an annual increase of 3-5% over the next two years. New housing starts will still continue to struggle to keep up with demand, and there is little indication there will be an increase in building more affordable homes in the future.
Following the typical annual sales cycle, Denver home buyers can expect to see more inventory come on the market over the summer months, some price stabilization and more buying opportunities going into the fall. Continuing interest rate increases will help pull prices back, but won’t necessarily make it more affordable for the buyer. Although we won’t see big deceases in price, the pace will slow and buyers will see an improved ability to purchase Denver real estate.
Jim Brown is a Realtor® and Success Leader at Private Label Realty in Denver, Colorado. He advises, assists and mentors agents at all levels to help them succeed and grow their real estate business. He routinely performs his own stunts and writes crazy amounts of content. www.JimBrown.me