Let’s rewind, take a stroll down memory lane, and sift through 2017’s housing data…
Days on the Market and Inventory
The new year is here, but it forgot to bring new homes for sale along with it! The following two charts go hand in hand and help influence the median sale price. Notice any similarities? As buyer demand increases and the average days on the market decreases, inventory usually drops with it.
Dial back to 2012 and you can see we were in a neutral market and average days on the market were in the upper 60’s. Fast forward to the end of 2017 with inventory for detached, single-family homes at literally the all-time low. December saw a mere 800 detached and 839 attached homes (condos, townhomes) available for sale. That leaves Denver with a puny 1.5 months of inventory; still a strong seller’s market, with average days on the market lingering in the mid 20’s.
Inventory, nothing new here…
And the best real estate agent quote from the last five years goes to… “it’s a seller’s market!” Barring any domestic or global financial crisis, our inventory will remain low until Denver focuses on creating more “affordable” housing (i.e. dense condo projects). The city and state leaders need to make condo defect law reform a top priority for 2018. Stop putting bandaids on it. It’s time for a complete overhaul with both sides coming to the table to find a compromise that spurs condo development. If we can add 10-12k apartment units this year, there is absolutely no reason why we can’t increase our condo unit delivery rate to half that number by 2020.
Interest rates started the year at 4.2% and bottomed out slightly above 3.8% in September. We’ve seen a constant increase in the rate which has started to follow the Fed rate hikes (March, June, and December) in 2017. They have hinted at increases in 2018, so we would expect rates to continue to creep upwards as the year progresses.
Putting things into context, the interest rate has been flirting with historical lows for the past five years. When financing a home, it can be stressful when it comes to locking in a rate. Our advice? Rely on your lender’s experience and council… most of them know what they’re doing! Trying to time your rate lock is a lot like day trading in the stock market — sometimes you win, sometimes you lose. We also suggest taking this approach: lock in your rate and then don’t look back until you’ve been in the home for a year. Then, start keeping track of what rates are doing and if you are noticing that rates are trending below your current rate, call your lender and start the refinance discussion to see if it saves you $$$!
Now for price…
Again, no surprises here. The median sale price pretty much goes the opposite direction of average days on market and inventory. The median price for detached homes has reached whopping $435k, with attached properties coming in hot at $337k. This is an 8.8% increase of (that’s $35,000, an equivalent of roughly $165 per month on a 30-year mortgage) since this time last year and a 61% increase from five years ago.
This is an area that we need to stop setting records in and why city and state leadership must get moving on this <insert broken record comment here>. Denver must not become a city that only the wealthy can live in. Our city is struggling with the cost of housing (can we get an amen?!). Recent discussions have started on the grass roots level and we hope to see this gain momentum and put pressure on the top to make a real change.
We’re going to land the plane with one last topic:
Amazon H2Q and Denver
You may be wondering how this has anything to do with a 2017 recap report. The famous quote credited to George Santayana states
Those who do not learn history are doomed to repeat it.
In this case, we should edit the quote to read, “Those who do not learn from Denver’s housing statistics are doomed to an unaffordable housing market.” If Denver is successful in winning the H2Q race, it will have a major impact on our housing market, cost of living, and overall economy. Seattle is the test bed for what could happen to the “winning” city Amazon selects. July’s home prices in Seattle increased by 13.5% year-over-year. For comparison Denver wasn’t that far behind, with a 9.2% increase, without Amazon! Keep in mind Amazon is bringing 50,000 high paid workers who will need to either rent or buy a house, so we would expect that number to reach or exceed Seattle’s numbers. We could go on, but you get the point. It’s definitely worth a conversation before we change Denver forever.
Source: Jon Murray at The Denver Post
The Denver Green Roof Initiative passed on November 7th by 54.3% of voters, and became effective on Jan. 1st. Here’s a breakdown of what this means:
Reduce Denver’s urban heat island effect from heat radiating issues. This happens when human activity causes urban or metro areas to become significantly warmer than surrounding rural areas.
Rooftop gardens on all buildings with at least 25,000 square feet and residential buildings over 4 stories. Depending on building size, 20-60% of available roof space have to have green-roof coverage (industrial buildings only have to have 10%). –
- Cost for developers.
- Fees that will be charged for buildings that get variances.
- Watering requirements in Denver’s already dry climate.
- The major structural alterations that will be required to replace roofs on buildings that weren’t built for green roofs.
* This replacement clause is one of the biggest reasons that this initiative faces so much opposition and it makes Denver’s green-roof initiative the strictest in the nation. Toronto and San Francisco are considered “green-roof pioneers” but they do not require existing buildings to replace their roofs, only new ones.
So what’s next?
The city is implementing the initiative but changes are to be expected. In May, the city will re-evaluate what changes need to be made and as of right now, the Denver Department of Public Health & Environment is putting together a task force to review the initiative.
Source: National Association of Realtors
The Tax Cuts and Jobs Act was finalized on December 20, 2017 and went into effect after December 31, 2017. So what does this mean for you, as a current or potential homeowner? We give a breakdown on important numbers for current and potential homeowners here:
- $750k = limit on mortgage interest deduction (for mortgages issued after Dec. 15th, 2017)
- $10k = state and local deduction for income, sales, & property taxes
- $12k = standard deduction for single filers
- $24k = standard deduction for married filing jointly
- $0.00 = personal exemptions
- 2 out of 5 years = how long you have to live in a primary residence to qualify for capital gains exclusion
- 15% = max rate on capital gains (generally speaking)
Source: Kelcey McClung at the Denver Business Journal
Affordable housing options in Denver are scarce but there is a group that is doing something about it! A group of 8 funders have partnered to invest around $25 million to create over 700 affordable homes for low-income housing in the Denver area, within the next five years. Not only are they providing housing, the trust is also going to assist families in accessing early childhood education, workforce training and placement, healthcare, and wealth-building opportunities. This won’t completely solve the affordable housing problem but this is an AWESOME start!
Source: Caitlin Hendee at the Denver Business Journal
Real estate development is seeing a parking lot and turning it into a district, which is exactly what The Rockies are doing. The west parking lot at 19th and Wazee will be transformed into what will be known as “the Stadium District,” an impressive and dynamic mixed-used development that will connect LoDo to Union Station and RiNo. This block will have an outdoor plaza, the Rockies Hall of Fame facility, a hotel, retail, entertainment, residential, offices, and food and beverage spaces.
There are two words to sum up the real estate market in November: seasonal slowdown.
Proof of this seasonal slowdown is in the amount of homes that were available for buyers to choose from, the average days that these homes stayed on the market, and the median price of a detached, single-family home.
Inventory was at an all time low, which is nothing new here! With only 1,427 homes listed in November, we had 1.3 months of inventory available in Denver. The average time that these homes stayed on the market was 30 days (in October it was 27).
And let’s talk about prices. The median sales price for a detached, single-family home was $438,500, a $7,450 decrease from October. Although, that’s a welcomed breather from the continual price climb, it’s hardly enough to move the median price to a more affordable level.
Usually the narrative about low inventory revolves around how quickly and how much over list price these homes sell, but this past month was a little different. Yes, we did see some awesome homes go quickly and over list price with multiple offers, but we also experienced our buyers not willing to pull the trigger on a home as quickly. Why? Because they just didn’t have many homes to compare them to. And since these homes stayed on the market longer, sellers were more willing to accept offers below the list price, which explains the decrease in median sales price.
So does this mean that Denver was in a real estate bubble after all and you should be worried about it finally bursting? We are pretty confident in saying no to that question. This seasonal slowdown is most likely just that: seasonal. And it is totally normal. We are in the busiest time of the year with all the holiday festivities of Thanksgiving, Christmas, and New Years. If this year’s seasonal slowdown is anything like last year, the market will most likely keep slowing down over the next couple of months and then pick back up around March or April.
Now, if we could just get the snow to fall a little like the real estate prices have!
Is it just us or has November been hot? We’re beginning to think Mother Nature has been basing temperatures on our “hot” real estate market. October’s median price is still hot, but the other four indicators are supporting a cool down. Better grab your coat!
Source: Samantha Sharf at Forbes
Trump’s Tax Cuts & Jobs Act was released at the beginning of November (follow the live coverage about it on The Wall Street Journal’s website). Three major components of this Reform that are relevant to buyers, sellers, and investors are:
- the mortgage interest deduction will go from $1million to $500k,
- a new cap on property taxes, and
- capital gains limitations.
These all become more concerning as the median home price is approaching $500k in Denver.
Anyone else noticing a slowdown in the market? I bet those are words you didn’t think you’d read! But it’s true… we’re starting to see homes stay on the market longer and the median sale price is creeping down. If this fall/winter is anything like last year, then we expect the peak slowdown to happen in February. Oh, and the inventory… well, that’s low too (but that’s old news). Even though we’re seeing an uptick in homes for sale since August, we’re still under two months of inventory and holding steady in this sellers’ market.