Is The Real Estate Market In Denver About to Hit a High Plateau?
Posted on Sep 08, 2016Is the real estate market in Denver on the verge of hitting a high plateau? According to a recent article in the Denver Post, the double-digit increases in housing prices the Denver metro area has experienced over the last two years may be coming to an end. Mark Boud, an economist at Real Estate Economics, an Orange County, California-based real estate analysis firm, predicts median home prices will rise by just 5.4 percent during the second half of 2016. In 2017, prices should rise by an additional 2.8 percent followed by a 1.8 percent increase in 2018. For comparison, metro area home values rose by 24.4 percent in June of 2016 alone.
However, Bould is not predicting the type of housing slump the metro-area experienced between 2007 and 2009. As long as the economy in the region continues to grow, he believes housing prices will continue to rise over time, but after the unprecedented growth the Denver area has experienced over the last few years, many buyers are likely to feel as though their homes are barely holding their value. In fact, Anthony Rael, a member of the Metro Association of Realtors, predicts that, if home appreciation drops below 5 percent, many buyers will panic and begin to fear the housing market will collapse.
However, not all analysts agree with Boud's predictions. Gary Beauer, a Denver housing broker and expert in the market, agrees that double-digit gains are a thing of the past. However, he predicts housing appreciation to remain in the "5 percent range" for the foreseeable future as long the economy remains strong.
The unprecedented appreciation Denver's real estate market has experienced over the past few decades was caused by a low supply of available housing coupled with an increased demand. Historically, Denver builders constructed one new home for every 1.2 jobs added in the area. However, many builders were hit hard by the Great Recession. As a result many builders have been reluctant to develop new housing stock and have instead focused their energies on developing high-end apartments and luxury homes. These segments of the market offer a higher return on investment and are less susceptible to fluctuations in the market. As a result, Denver builders are currently only constructing one new home for every five jobs created in the region.
This is not expected to change anytime soon. Builders will continue building homes at the same rate as the last couple of years. So why the talk of a high plateau? Basically, Denver area home prices have finally reached the limit prospective buyers are able to pay. It's predicted that interest rates on a 30-year loan will rise from 3.6 percent today to as high as 5.8 percent by 2020. As these rates climb, Denver home buyers will no longer be able to afford the dramatic price increases we've seen over the past few years.
That being said, Boud says the Denver real estate market is still 1.8 percent undervalued which is why housing prices will continue to rise over the next few years, albeit at a slower rate.
In fact according to Colorado Hard Money, this is simply a sign that the Colorado housing market is beginning to normalize. Likely over the next few years, we will see a more normal "appreciation in the 3-5 percent historical average." Real estate in Denver has historically followed a "step pattern" in which prices rise dramatically over a short period of time, followed by several years of slow gains in housing prices "until the next cycle begins." We are not experiencing a housing bubble and home values will continue to appreciate.
All of this is to say, it's an excellent time to buy. The crazy bidding wars we've seen over the past few years are about to become a thing of the past making it that much easier for you to afford your dream home. If you're interested in finding the perfect home in the Denver metro area, contact us.