Where Did The Houses Go?LIV Sotheby's
Since 2012, real estate continues to fuel economic development across the nation and is specifically quite healthy in certain metropolitan cities like Denver. Recently, the Federal Housing Finance Agency (FHFA) announced that January became the 36th consecutive month of year-over-year growth and over that 3 year period, prices rose nationally 20%. During that time period Metro Denver housing prices appreciated 28%-30%. Fannie Mae (Federal National Mortgage Association) polled senior mortgage executives across the nation finding that 62% expect housing prices to rise over the next year. At the same time 33% anticipate prices to remain about the same, with only 3% expecting prices to fall.
Of course rising prices would be a fantastic story if everyone already owned a home (approximately 65% currently do). Lawrence Yun, chief economist for the National Realtor Association (NAR), says:
“the disparity between rent and income growth has widened and is making it harder for renters to become homeowners. In the past five years, a typical rent rose 15% while the income of renters grew by only 11%”.
Both rents and income have grown noticeably quicker in the Metro Denver area. Also, a typical homeowner’s net worth becomes stronger as home values rise and as their mortgage balances decline a little each month. The result is an unequal distribution of wealth as renters feel more of a pinch from increased housing costs. The top markets where rents have seen the highest increases since 2009 (NAR statistics) have been NYC (50.7%), Seattle (32.4%), San Jose (25.6%), Denver (24.1%), and St. Louis (22.3%), Yun also said that it is “critical to increase housing starts for entry-level buyers”.
Once again, the economic laws of supply and demand play an important role in understanding our real estate market. Simply stated, Denver (and much of the nation) has a very low supply of available homes for sale with a strong demand from buyers desiring to purchase and as a result, home values will rise.
This may likely remain the same for the foreseeable future because of a variety of conditions contributing to a lower inventory dynamic:
- Capital gains exclusion on a primary home. Before 1997 you could avoid paying taxes by buying a more expensive home within 2 years (with a few reasonable IRS strings attached). This rule helped create a steady supply and demand equilibrium that motivated homeowners to continually move up into bigger and better properties. When the Taxpayer Relief Act of 1997 became law, it did give relief to many homeowners (taking exclusions of a $250k for singles and $500k for married couples), but it also diminished the amount of move-up buyers, particularly in the higher priced markets that exceed the $250/$500k maximum amounts. Once a homeowner eclipses that threshold, their motivation to move up lessens as they may have to pay more in taxes.
- Low rates – Historically low rates are wonderful for buyers and have been equally great for homeowners that refinanced their mortgages over the past 5-7 years. The bad news is that the lower fixed payments have also diminished the homeowner’s desire or motivation to make a move.
- Recession purchases – If you purchased a home from 2008-2011, the price you paid was probably 30% to even 50% below the current values today. Add-in the amount of investor purchased properties (lower price levels), and it is easy to understand why there is very little reason to sell and a lot more reason to hold for a while.
- Where do you move? – What I hear the most from current homeowners is “I’d consider moving, but where can I find something”? As a seller today, you are in more of the driver’s seat. You can probably achieve a price on the “high side of reasonable” while directing a closing date, leaving time to facilitate locating your new home. You can extend the closing date for 60-90 days or perhaps close (money in hand) and rent-back for another month, and of course get lucky and find something quickly.
- New Home Development – Since 2005, there has been a prolonged decrease in new home construction. This has an impact on buyers choices in all price ranges. It is improving but remains a slave to the start-to finish process of planning, approvals, building and marketing to the public.
Despite varying circumstances, there are many ways to address your needs and desires both traditionally and creatively by gaining focus on what you would like to accomplish and by having a good real estate professional guide you to a happy ending. It’s not the problem itself, but the way you chose to deal with it.
LIV Sotheby’s International Realty compiles monthly, quarterly and year-end reports to help consumers make better real estate decisions, whether purchasing or selling a home.
To access current market reports visit www.coloradomarketreports.com. For more information, contact downtown managing broker, Steve Blank, of LIV Sotheby’s International Realty at 303.520.5558. To service all of your real estate needs visit www.livsothebysrealty.com.