The comedian Steven Wright had a joke that went something like, “What do the French call déjà vu?. I think I’ve seen this before.” I have lost count on how many Januarys have started with ‘the residential real estate market in the Front Range set records’.
- Record sales
- Record prices
- Record low inventory levels
- Record low interest rates (not unique to Colorado)
- Record number of people living in Colorado
You can replace ‘record’ in some of those cases with ‘ridiculous’. Why ridiculous? In a metropolitan statistical area (MSA) of almost 3 million people, there were (at the end of 2020), 2,541 available properties for sale. That is ridiculously low.
In 2000, according to U.S. Census data, there were 2.194 million people in the Denver-Aurora-Lakewood MSA. In 2019, that MSA had 2.967 million people. That’s a 35% increase in population….and we have 70% less homes for sale. We haven’t yet talked about how many more people migrated to Colorado in 2020 – we’ll come back to that.
For the last three months more homes have been selling than are available for sale. That can only do one thing to prices: keep them up. Remember the insanity over toilet paper? It’s been happening with houses, especially those under $500k. People are paying *a lot* of money to buy homes – at all price points. They are able to “afford” them because interest rates are at historic lows. This is not new news – I have discussed this before. The issue is the market’s strength during what’s typically the slowest transaction volume months of the year. What’s going to happen this spring, when we move into the higher volume months? Prices could take off like Tesla stock in 2020. In other words, home prices could continue to increase significantly from an already elevated level.
As I said last quarter, supply and demand are not in equilibrium. Homebuilding (supply) has been under produced for the last decade, with numerous issues keeping it there. We are faced with a housing shortage that began in 2013 (I said so in a 2011 presentation to my Toastmasters club) and has never gone away. In fact, it’s worse. The way I see it, the only thing that can change in the near term is demand, which could happen in one of two ways:
Affordability: Ability to qualify and pay for housing. People need jobs with incomes to support current pricing, and/or interest rates must remain low for buyers to keep paying these increasing prices. (See November’s article on how that works). The Federal Reserve promises to keep the 10-year bond low – which is what influences mortgage rates – to keep borrowing costs low.
Migration: As previously mentioned, Colorado’s population has done nothing but go up. We don’t yet have official 2020 data, and there are some conflicting inputs using moving company data. According to United Van Lines’ annual migration study, Colorado was even last year – with about equal number of moves coming in and out.
That simply did not match my experience, so I went to U-Haul’s study, which tracks one-way rentals of trucks and trailers. Colorado was 6th (2019 rank: 42nd). Which study is correct? I don’t know. If you are a high-income earner buying a $1.5mm home in Denver, my guess is you are not renting a one-way U-Haul. If you are a younger professional (millennial…?), or on a budget, U-Haul is probably the likely method. Along the millennial line of thinking, another study reported that in 62% of the people who moved to Colorado in 2019 were millennials. It further stated that they comprise approximately 30% of the state’s population.
Obviously, you can make your own conclusions. In spite of the pandemic and some real issues and concerns, the overall state of the state is rosy: strong demand to be here, overall employment is strong, a generally healthy population, perceived favorable business climate. Southwest and United Airlines both look at their Denver hub as “resilient”, especially in “retaining demand”.
It feels like “something’s gotta’ give” – eventually. I just don’t see what that is right now, nor when. In the meantime, we all have to live somewhere. If you need a home, and it’s the right home and the payment is affordable, then why wouldn’t you buy? On the other side, if you are thinking about selling a property, could the market be any more favorable for you (assuming you have somewhere else to go)?
As always, I am here to help.
All the best,
Steven Ross – Real Estate Agent
LIV Sotheby’s International Realty