The Denver real estate market has been a wild ride for the last few years. There have been times when demand was so high that buyers were flat out frustrated. Offer after offer, rejection after rejection, home buyers faced what seemed to be insurmountable competition.
In early 2018 the trend continued with ultra low levels of available homes on the market and rapidly rising prices. But in April, the market took a subtle yet undeniable shift. While competition is still high for properties in sought after areas, there is no doubt the demand from buyers has softened. Days on Market, the number of days between a property being listed and going under contract, went from 6 days in May to 13 in September. There is a typical uptick this time of year, but it is still higher than the same time last year.
What’s Driving the Change?
Real estate in many ways follows the basic laws of supply and demand, yet there are many factors that play into both sides of the equation. Supply has been bottle necked the last few years by sellers not willing to let go of their homes for fear of not finding a replacement, and new home builders being unprepared for the sudden wave of buyers. Fewer properties for sale created higher demands pushed costs up at a record pace.
Home builders are clearly caching up to the pent-up demand. In 2015, new homes listed in RE Colorado, Denver’s MLS, were 4.6% of the total number of homes listed that year. As of September 2018, the number of new builds listed is 7.1%, a two and a half percent increase in available new construction. Keep in mind only a portion of new homes are ever listed in the MLS, so the actual percentage is almost assuredly higher.
Population Growth Subsides
In terms of percentages, the population growth in Colorado hasn’t set records, but the is no question we have seen net gains in new residents for several years. Denver suburbs have seen massive growth with some areas doubling in population since 2000.
The legalization of recreational marijuana created the “green rush”, which brought people to the area, but the actual population impact is difficult to quantify. More likely, overall job growth, quality of life and Colorado’s enviable climate have been the major factors in attracting new residents.
The influx of new residents has slowed with high home prices and cost of living being a primary deterrent. The number of people leaving the state has increased for the same reasons. However, as long as there is still a net gain in population, housing demand will remain relatively steady.
Are Home Price Still Going Up?
Reports continue to show home prices on the rise. It certainly seems counter-intuitive at the outset, that a shift in the real estate market would see continued price increases. In theory, if demand subsides, so should price.
Looking at the statistics over the last five years, the pattern each year is the same. In January, the new year brings a big jump in home prices, which then continue to rise until July. Around September prices begin to fall off through the end of the year, but never dropping below the level set in January. Starting the new year, prices jump again and the pattern continues.
In 2018 we have followed the same start to the year, setting the next level of higher home costs. But this year we are seeing a new trend. Typically there would be a drop in inventory heading into the 4th quarter, but this year new inventory continues to rise. The influx of additional homes gives buyers more choice and more buying power, meaning prices should stabilize.
There are variety of factors coming together that will likely change the current Denver real estate market. The combination of builders catching up to demand, the influx of new residents slowing with more residents leaving, and the increase of sellers putting their homes on the market means demand decreases and prices must level out.