#1 Most Wanted…Homes!

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#1 Most Wanted…Homes!

LIV Sotheby’s International Realty downtown managing broker, Steve BlankWorking in the real estate industry, I find that people regularly ask questions such as: How’s the market, what are interest rates doing, is it a good time to buy or sell, what options might be available? Over the past few years, questions about available inventory for sale have become a part of every conversation. Housing shortages have become the rule in most states and there is little reason to expect much change in 2016.

The old economic rules of supply and demand play an important role in understanding our current real estate market. Simply stated, the low supply of inventory combined with a high buyer demand to purchase is creating a market where values will continue to increase.

According to a report from the National Association of Realtors (NAR), our country experienced an average price appreciation in home values of 5.4% in 2015. That is very substantial when you consider the consumer price index rose by only 0.4% suggesting inflation was fairly flat. Denver continues as one of the stronger cities in the nation when talking about economic growth, population growth and a healthy real estate climate. Denver has home price appreciation averaging approximately 10% per year from 2012-2015, meaning that Denver metro values are currently about 20% above “pre-recession” prices.

Using MLS statistics to determine the absorption rate, or how many months’ supply of inventory is currently on the market, we look at a recent average of 53 metro areas across the country. In February, there was 4 months’ supply of home available for sale, as compared to a 4.7 months’ supply in February 2015. A 6-month supply of available homes indicates a market more balanced between buyers and sellers. Seven metro areas had a supply of homes less than 2 months, including Denver, Seattle, San Francisco and Dallas. The three markets with the lowest inventory supply were San Francisco (35 days), Denver (38 days) and Seattle at 48 days. The highest were Des Moines at 114 days and Chicago at 115 days.

The obvious question becomes “why is there so little inventory in most areas?” There are several good explanations depending on the city, the price range, and the regional economic environment.

  1. There are still locations in the country that have not seen home values rising above pre-recession (2008-2011) levels. According to NAR, nearly 1 in 5 homeowners (with a mortgage) may not have enough equity to sell, particularly in areas of Arizona, Florida and Nevada, where they experienced 20-35% annual appreciation that had bubbled and burst.
  2. Investors who bought homes during the recession (lower to middle price ranges) have not started selling their investment homes as they are making good money from rents and realizing home price appreciation.
  3. Baby Boomers are moving but not yet at the anticipated pace. Everything from later retirement, better health, drops in their stock market portfolios, and accommodating kids and parents that may be living with them.
  4. From 2005 to 2014, there has been a decrease in new home construction, impacting buyers’ choices in all price ranges. According to the U.S. Census Bureau, housing starts were up 7.2% in 2015 for single family homes, which looks to be a positive trend.
  5. Understanding the need. NAR’s chief economist Lawrence Yur, explained that from 2009 to today, new construction of homes, condominiums, and apartments totaled 5.6 million. Over that period, 1.7 million housing units were demolished or removed from the market. There have been 17.3 million additional people living in the U.S. over the same time period. 5.6 million, less 1.7 million is only 3.9 million units built, leaving the country short about 3 million needed housing units. This helps explain why rental rates have increased and vacancies are low.
  6. Plenty of pent-up desire to move, but there is a perception and concern regarding where they would relocate. As a seller today you are in more of the driver’s seat. You can likely achieve a price on the “high side of reasonable” while directing a closing date, (60-90 days out) leaving time to locate your new home. You can also close (money in hand) and rent back for another 30 days or so unless of course you find something faster.

So where are all the buyers coming from?

  1. LOW interest rates saving buyers thousands of dollars every year on payments.
  2. Renters who are tired of paying high rent.
  3. “Comeback or Boomerang” buyers who have repaired their credit (takes 2-7 years) from losing their homes in the recession.
  4. 1st time buyers (primarily Millennials) who will make up over 30% of all home sales.
  5. Strong job and wage growth. Substantially improved and great for encouraging home investments.
  6. And of course there are always needs based on getting married, babies, divorce, empty-nests, retirement, co-investing, etc.

Denver is a great place to live and offers a very healthy real estate climate, on the other hand, it’s kind of like the lottery…you can’t win unless you buy a ticket.

For more information, contact LIV SIR downtown managing broker, Steve Blank, at 303.520.5558. To service all of your real estate needs visit www.livsothebysrealty.com

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