Denver Housing Bubble – Fact or Fiction?

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Is the Denver housing market is in danger of a bubble?  If someone you know has purchased a home in the Denver metro area this past year, you will certainly have heard about skyrocketing home prices, bidding wars, and properties often selling for higher than the asking price.  Considering that the home prices have quickly been rising while our nation’s economy still feels shaky, this is an understandable concern.

As with any bubble, real estate, stock market, or otherwise, a bubble can only be predicted in hindsight.  We don’t know where the peak (or the crash, for that matter) will hit, until we are past the hump or slump.

It’s worth mentioning that the Denver real estate market was not as negatively affected as many parts of the United States during the recession.  The subprime mortgage game wasn’t as prevalent in Denver, our economy remained stronger than many major cities, and our percentage of foreclosures was considerably lower.  The Case-Shiller Denver Home Price Index reported that metro Denver home prices have met and exceeded the pre-crash peak in 2013.

Much of the price appreciation has been due to the drop in interest rates.  During the recession, interest rates have been at an all time low, in the Fed’s attempt to keep money in the system and create more consumer confidence in home-buying.  Whether the attempt was psychological or not, when you buy at a low interest rate, as long as you can make your mortgage payments, you will greatly benefit in the long run by saving a boatload of money throughout the years on interest.

Denver, depending on which statistics you read, historically has had a 5% appreciation on home values.  (I have seen statistics reporting this number as high as 9%, but for sake of being conservative, I will report the lowest number I have seen.)  Most investments won’t yield more than 10% per year on average, and let’s face it – you can’t host a holiday party in your mutual fund.

Overall, the Denver economy is pretty strong.  Even if home prices drop for a bit, they most likely will recover and continue to rise.  Our state’s population has grown at almost double the national rate over the past few years.  State Demographer, Elizabeth Garner, states that of this growth, 55-60% of people are moving here due to a job change, indicating that Colorado is showing job growth.  Also, many young families are eschewing the coastal cities for Denver for lower taxes, lower cost of living, access to parks, and sunny days.  The Denver economy continues to grow with diverse industries – natural gas, mutual funds, clean energy, technology, and well… marijuana.

So, what do I recommend?  If you’re financially and emotionally ready to purchase a home, do so.  Interest rates are still low enough that even if home prices drop after you buy, you will still save money in the long run.  The Denver economy has remained strong and shows no indicators of slowing down.  The population keeps growing in Denver, and increasing demand for homes will keep prices up.

If you think you may be ready to talk a real estate professional about purchasing or selling your home, please contact Allison Parks at Conscious Real Estate at 303-908-9873 or [email protected].

Metro Denver Rents Still Rising – 2013

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illustration of board for rent

Denver rent averages have reached levels not seen since metro Denver’s apartment boom days in the dot-com era.  A report released in October 2013 from the Apartment Association of Metro Denver and the Colorado Division of Housing states that the area’s overall vacancy rate is 4.4 percent, which is a pretty tight market for renters.  Ryan McMaken, an economist with the Colorado Division of Housing, believes that many apartment units are sitting longer than normal only because they are being updated, repaired, or renovated.

Supply of rentals from new builds is finally beginning to push up the vacancy rates a bit.  However, even with 2900 new units, rents continue to rise.  Average rents are currently at $1,049, up 6.3 percent from Q3 2012.  2014 is expected to bring 10,000 new units, which may slow rent growth.  However, population growth hasn’t slowed much in Denver, so we will see how the numbers even out, if at all.

While interest rates remain low, it may be a great time for you to buy.  Through much of Denver, if you were to purchase the exact same property that you’re renting, your mortgage payment would likely be lower than your monthly rent.  Contact us at Conscious Group to see if buying in Colorado is a good move for you!

Colorado Energy Saving Mortgage Program – 2013

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Hands holding clear green meadow with sun battery block, wind mill turbines and countryside house. Concept for ecology, alternative energy, freshness, freedom. Green fields collection.

On May 28, Governor Hickenlooper signed into law the Colorado Energy Saving Mortgage Program.  Under this program, a homebuyer purchasing a new or renovated Zero Net Energy (ZNE) home is eligible for an $8,000 reduction on financing the total cost of their home mortgage.  A ZNE home produces as much energy as it consumes.  A new or renovated home that has a HERS rating greater than HERS* 0, but less than HERS* 50 will also receive a mortgage reduction incentive.

In addition to the mortgage incentive, homebuyers will benefit from lower energy bills, which can be used to offset the cost increase of a ZNE home.  For example, $30,000 in improvements on a 2,200-square-foot home after the $8,000 incentive would require an additional $94.53 in mortgage payments each month.  However, the monthly energy savings would be $154.00.  That’s a net savings of $59.47 a month.

Under this new program, a homebuyer can receive an $8,000 incentive and purchase a zero net energy home that is worth substantially more at a lower annual cost than an equivalent non-ZNE home.

With this attempt to move our Colorado housing market to ZNE homes, this movement should create more construction jobs, as well as increase state and local government tax revenue.  According to the analysis conducted by Architecture 2030, each $1 million in incentives will generate:  $16.22 million in direct spending, $16.49 million in indirect and induced spending, and $1.92 million in state and local government tax revenue.

*The HERS Index is the nationally recognized scoring system for measuring a home’s energy performance.  The HERS Index Score can be described as a sort of miles-per-gallon (MPG) sticker for houses, giving prospective buyers and homeowners an insight as to how the home ranks in terms of energy efficiency.  A HERS Index of 100 represents the energy use of the “American Standard Building” and an Index of 0 (zero) indicates that the building uses no net purchased energy.  The lower the value, the better.

Denver Housing Market – Summer 2013

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The houses

As our much anticipated summer kicks off, the Denver housing has become increasingly hot! 

Anyone currently buying a home in the Denver market no doubt has noticed how quickly things are selling, with multiple offers being made and accepted within a day of two of listing.  Many recent home sales have sold above asking price as the result of bidding wars.  All of this is the result of an influx of new home buyers and a shortage of sellers within the local market.

Denver’s Chief Economist, Jeff Romine, reports that 12,250 new jobs were created in 2012, unemployment has dropped almost 2% since 2011, construction is on the upswing, and consumerism has shown significant evidence of an increase.  Oh yeah, and he reports that Denver’s housing market is among the strongest in the nation with home values up 8.3% from last year.  Yes, Denver’s economy has improved. 

In fact, Denver’s economy never took as hard a hit as many U.S. cities during the recession.  Couple this with the fact we have a fun, healthy city adjacent to the majestic Rocky Mountains attracting a population of active professionals, and it should be no surprise that housing demand has been on the rise. 

So… what does this mean for home buyers and sellers?

For buyers, “sleeping on it” may not be the best approach to deciding on whether to submit an offer on your dream home.  I have had recent experiences with clients who saw a home they loved only to have missed out on the opportunity by simply taking a night or two to think things over.  It is imperative to be pre-qualified for financing and have earnest money available to submit an offer immediately when the right home presents itself.  Buyers will also gain a huge benefit by having a realtor represent them who has access to industry databases that provide immediate updates with new listings and comparable sales data that may not be available on public sites.  To the extent that bidding wars have become commonplace, having a realtor advise you utilizing their familiarity with market statistics may also prove key in making a reasonable and successful offer.  Buyers should also be aware that mortgage rates have increased recently as a result of a strengthened national economy and that there is speculation the Federal Reserve Board is contemplating an increase to the prime rate, meaning that historically low interest rates could soon increase.

For sellers, the strengthened economy, increase in local housing demand and prices, and short supply has created the most seller-friendly environment Denver has seen in ages!  Yet not many people are selling their homes.  Perhaps Denver’s home-owners haven’t received the memo that housing prices have surged 10-20%, or remain hopeful they will continue to appreciate.  Maybe the recession has made people more cautious, so they are reluctant to sell and upgrade to a larger home and mortgage payment.  Maybe folks finally got the color of that accent wall right and they don’t want to mess with a good thing.  Whatever the case, prices have continued to rise and comparable statistics from recent sales over the year or so may not be applicable to current valuations, making it important that you work with a knowledgeable real estate professional.  It is also possible that rising housing prices could eventually plateau given the influx of new large scale construction occurring in the Denver metro area, such that increased housing prices may not continue indefinitely and there has never been a better time to sell.

If you are considering buying or selling, I’d look forward to discussing your situation and assisting you in any way possible. Please call Allison at 303-908-9873 or email [email protected].