Interest Rates are Going Up and Denver's Housing Shortage Crisis Continues
Spring has sprung and the housing market is finally starting to blossom. This March has seen historically low inventory, which has come as somewhat of a surprise to those in the industry. Typically with such a warm start to spring we see homes coming on the market sooner, but people seem to be hesitant to jump into the spring buying season this year. There is plenty of speculation in the industry as to why this may be, the political climate, increasing interest rates, or a wait and see kind of attitude. Whatever the reason for the lack of inventory the fact remains that our demand for housing has not changed. Homes that are priced right are moving quickly, especially in the $400,000 and below market.
So if you are thinking of selling what are your reasons for waiting? What I have heard from client’s and from others in the industry has to do with the continued speculation on what this year will bring. Our markets have been hitting all-time highs and with new policies being put forward there seems to be a lot of big question marks for the coming year. Many times people seem to hope that as a real estate agent we have some crystal ball that allows us to look into the future and tell you what the market will do. Unfortunately, I do not have the ability to see the future and I don’t know anyone else in the industry that can. What I can do is look at the current trends and facts. This information can at least give me a good idea of what may happen.
Some of the trends that I look at are job growth, population increases, availability of funds, inventory, and demand.
As far as job growth goes the Denver Metro area continues to attract companies that are expanding or relocating here. These companies include York Space Systems, CapTech Consulting, Xero, J.M. Smuckers Company, and the well-known Amazon.com to name a couple. The CU Leeds School of Business predicts 63,000 new jobs will be added in 2017 in the Denver Metro Area. The continued creation of jobs and the diversified fields of work available to people is a leading indicator of growth for the real estate market. These jobs will provide work for current residents but it will also attract people from out of state as well. All of these jobs also mean the addition of people who are able to get approved for loans and buy homes in this market.
The population of the Denver Metro area is forecasted for continued growth over the coming years. As I mentioned in the previous newsletter, the forecast from the Colorado Demography Office, was that Colorado’s populations is going to reach 7 million by 2030. Currently there are 5.5 million people in the state. Colorado is ranked the seventh fastest growing state behind Utah, Nevada, Idaho, Washington, and Oregon. The state of Colorado added 91,726 people in 2016 according to a recent Denver Business Journal article. All signs point to increase growth and increased pressure from new home buyers and renters entering the Denver Metro Real Estate Market.
The availability of funds and the ability for people to get access to loans is another huge driver of the market. The ability for individuals to get loans is a good indication of how healthy our market is. The qualification requirements for individuals to get approved for a loan are still very tight. This is actually a good indication that the housing market is strong and not falsely inflated as in years past. This is how we know that we are not in another housing bubble. The prediction of interest rates increasing this year will have the effect of making it that much more difficult for some buyers to enter the market and attain funds. This should knock some buyers out of the market but there are plenty of more qualified individuals ready to take their place, with the availability of higher paying jobs. The real thing driving price increases is a lack of inventory not an overabundance of lending.
That brings us to inventory, according to REColorado the number of active listings for the month of February was only 4,922 which leaves us with less than a month of inventory. In a balanced market you would see around 6 months of inventory to meet the current demand.
This leads us into demand, with the record low inventory, increased populations growth, and job growth, Colorado is poised for a perfect storm for demand. This is what is really driving our prices up in the Denver Metro area. As more and more buyers and renters enter the market place and builders struggle to bring things online to meet these demands, we are seeing bidding wars and price increases. While the predicted interest rate hikes should act to slow some of this demand in the coming year due to the loss in buying power, it will most likely only push some buyers down into an already saturated lower price bracket. This means that if you are thinking of selling this may be the year to list your home before rates increase more.
To summarize the Denver Metro Housing market looks to have another strong year, however we will see some leveling off in prices due mainly to interest rate increases. If you are thinking about buying or selling I would highly recommend you consider doing this while interest rates are low. For buyers even slight interest rate increases means you have less buying power. For sellers as buying power decreases prices should start leveling off, this may be the year to get that house listed and also the best time to get into another home yourself.
As always if you have questions about the housing market and want to talk pros and cons, I am happy to sit down with you discuss your options 720-204-8793.
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