One of the more popular questions for real estate agents this time of year is what does the next year look like? Is it finally going to be a good year for buyers? Have sellers missed the height of the market and lost their opportunity to sell for the highest price possible? Is the Denver real estate market heading for a change?
One Thing That IS Changing
One thing changing for sure in 2018 are interest rates. This year saw the gradual rise in rates from the Feds, and 2018 will continue on the same trajectory. Although the current rates are still remarkably low, there is a clear impact to home buyers.
For the buyer on the edge of qualifying, an uptick in the interest rate could very well put them out of the market altogether. An increase in the rate has a direct effect on the loan amount a borrower can qualify for. This means buyers in the higher price ranges can see their purchasing power diminish. An additional percentage point can push them out of a home or area they wanted to live in because they can no longer afford it.
Changes in Taxes
It looks like the new tax laws are going to pass the Senate by the end of this year, which will mean changes for homeowners. The doubling of the standard deduction will actually mean most homeowners will not find any additional benefit to itemize their deductions. For homeowners in the higher income brackets, the Senate’s version of the tax bill, does not change the deduction limit from the current $1 million. In the end, it may mean nothing really changes.
What is more concerning is the change in rules for capital gains. The new law will require a homeowner to occupy a property as their personal residence for 5 of the last 8 years in order to avoid paying a capital gains tax. This certainly affects people wanting to move from one home to another in less than a five year time span.
With less incentive to move in an already tough market, is it possible inventory in Denver could be even tighter than it already is? Will homeowners stop selling altogether? Probably not. While the law will affect people selling and moving in less than 5 years, the average Denver homeowner moves every seven years, which falls outside of the five-year limit. There will likely be some impact, but not enough to change the overall market.
Prices Increase … Again
Homeowners who didn’t sell last year will be happy to know they didn’t miss their opportunity to take advantage of the hot Denver real estate market. National Association of Realtors Chief Economist Lawrence Yun forecast in early November that national home sales would increase 3.7% in 2018. For Denver, it means we will see a repeat performance of the last three years.
But times could be changing. Even with low inventory and an ever increasing population, Colorado is now seeing more people leave the state than ever before. Skyrocketing living expenses, from record high rental rates to year over year increases in home prices, have people looking to other states for more reasonable costs.
Putting it all together, Denver is likely to see at least one more year of price increases and low inventory. Even with the migration of residents moving out of state, there are more people coming in than leaving, giving Colorado another year of net gains. Home builders have been catching up, creating some relief, but the demand for homes under $300,000 is still on fire.
Homes over the $500,000 price range slowed some in 2017, but the demand is still there. Taxes and interest rates will have some minor effects on the market, but nothing will change it significantly other than an increase in available inventory and a decrease in buyers.