“How’s the real estate market?” Because of what I do for a living I’m asked this at least once a day. I love the question because it lets me talk about my favorite subject: our always-changing, ever-fascinating real estate market! There are lots of different factors and metrics I can discuss when assessing our market, such as:
1. Rising home prices
2. Overwhelming consumer demand for homes
3. A lack of inventory for sale
4. New construction not keeping up with demand for housing
5. Rental prices skyrocketing
6. The effect gas and oil prices have on housing
7. How low interest rates are continuing to make housing relatively affordable
8. What parts of town have appreciated more than others over time
9. And on and on…
But the thing I like to do most when explaining our real estate market is to show folks the chart below. A picture is worth a thousand words. Please take a look at it and begin to absorb what it’s telling us. Everything you need to know about our current real estate market is contained in this chart.
What you see are two lines, a blue one and a red one. The blue line shows the inventory (i.e., the number) of homes for sale in metro Denver every month from January 2007 to November 2014. The red line shows the number of homes sold every month. You can see that the inventory peaked in July 2007 at 30,827 homes for sale. That was at the depth of our economic and housing downturn, when fear ruled our market, banks were being shut down, our local and national economies were in shambles, unemployment was rising, and consumer confidence plummeted. The result of course was that people didn’t want to buy homes; they were afraid of the future and didn’t want to take on any risk. On the seller side of the equation, many home owners were getting caught with rising monthly mortgage payments as their Option ARM mortgages adjusted upward, so suddenly they wanted to sell, at the very worst time possible. The perfect storm.
It’s simple economics: if you have more supply than demand prices start to fall and that is exactly what they did from 2007 to 2009. Around 2010 and 2011 the market became roughly balanced, with 18,000 to 20,000 homes on the market. But as you can see the market did not remain balanced for long because the supply continued to fall.
Which brings us to today’s market. In January 2015, there were 5,152 homes on the market, 26 percent less than January 2014 and an all-time low for a January since records have been kept! This lack of inventory defines our current housing market.
The past several years have seen an incredibly strong real estate market in metro Denver and this chart explains exactly why. The supply of homes has vanished placing an imbalance in our market. No three dimensional, super fancy, econometrics model can do a better job of explaining the imbalance in our market than this simple chart.
It’s interesting to see that while the blue inventory line has dropped dramatically the past seven years, the red number of sold properties has barely inched upward, even though our population continues to rise about 1.5 percent per year. This tells me that our demand for housing is going to stay very strong for the foreseeable future.
So, how do you use this information? It depends, of course, on who you are and what you’d like to do. Here’s a brief sample.
If you own a home and are thinking of moving: It’s an incredible seller’s market and you can expect to get top value for your home. You’ll need to consider the purchase of your next home though, and make sure you have planned the process correctly so you find the home of your dreams and make the transition from your current to future home seamless.
If you are renting: Rents continue to zoom upward to all-time highs so you might want to get out of the rental rat race and buy a home. Inventory is low so you’ll need to make sure you’re prequalified to buy a home and come across as a serious buyer, otherwise sellers won’t even consider your offer. But because inventory is still so low we expect prices to continue to move up for several years, at least until the inventory balances with the demand. So you can expect appreciation in your home purchase for the next several years.
If you’re considering buying rental property: There’s no better way to build wealth than owning rental properties for the long term. Home prices have risen, but so have rents, and interest rates remain at record lows. Smart investors don’t try to time the real estate market; it’s as difficult to do as timing the stock or bond market. The vast majority of Americans who have built wealth as real estate investors have done it buying rental property and having their tenants pay it off for them over time. It’s not complicated and it works.
Of course, everyone’s situation is unique. If you want to talk about how best to take advantage of our real estate market and see what it can do for you please give me a call. I love talking about the real estate market!
Big Updates in the Lending World
Ever since the mortgage meltdown of 2008, it seems like it has been impossible for buyers to qualify for new loans. Following the 2008 crisis and well in to 2011 it looked like every lender required 20 percent down, excellent credit, and outstanding income in order to qualify for a new loan. Most buyers felt they would never be able to meet these requirements. However, the most recent three years have started to bring some flexibility back to the mortgage market. More specifically, we’ve seen some outstanding developments over the last six months that are really exciting for buyers:
• FHA reduced their annual mortgage insurance fee by 0.5 percent. This equates to a savings of $80 per month on a $200,000 home.
• The minimum down payment for conventional loans has been reduced to only 3 percent. This means you can purchase a $200,000 home with as little as a $6,000 investment.
• New down payment assistance programs provide either a grant or a repayable second lien for the majority of the down payment, requiring the borrower to contribute as little as $1,000.
• Investment property loans are available with as little as 15 percent down, allowing many smaller property investors to get back into the market.
If you’re considering buying a property and haven’t been prequalified yet it’s worth your time to speak with a loan professional and see what they can do for you. Ready to get started? I can introduce you to a fabulous lender.
I’m looking forward to “Helping You Create Your Life Story!”