The stock market did not crash, but it did exceed most rational expectations over the last couple of years. It is always sensitive to economic factors and remains volatile to events that have control over business, politics, the consumption of goods and services, trade agreements, and much more, both nationally and globally.
What is the relationship between Wall Street and the real estate market? It is helpful to understand what influences the housing market such as: buyer and seller trends, supply and demand, mortgage rates, construction activity, etc.
Joseph Kirchner, Chief Economist for Realtor.com, stated “Despite the stock market correction, the market is still 15% above a year ago and economic fundamentals remain strong”.
Short term corrections never had a large effect on real estate. However, if a correction continued longer-term (more than 4-8 weeks), confidence in the economy would slip, impacting labor and housing.
Rates have finally begun to see small increases. In December, we found mortgage rates in the +/- 4% range, and now see rates closer to 4.5% for a 30-year fixed mortgage. This expected rate change has more effect on lower price ranges and people on a fixed income. Interest rates have less influence on the mid to upper price ranges. Those buyers may have more flexibility on a monthly basis. Having more discretion related to payment amounts and the possibility for a cash transaction. Historically, it is interesting to note that when rates increased, real estate activity visibly improved. People move off the fence deciding to relocate before the cost of money is higher.
Economic factors affecting Denver real estate in 2018 will be similar to the past couple of years…strong demand and weak supply. First-time buyers and those looking below $500,000 will need focus and desire. It can be true in every price range. This means becoming pre-approved for a mortgage and then locating the best full-time professional realtor to represent your interests and help you compete at the highest level. It can be a little rough out there, but there are many success stories, both buying and selling. By working with a real pro, he/she will increase your likelihood of enjoying a pleasant and rewarding experience.
From urban to suburban, Denver housing values annually appreciated 8.3% to nearly 11% each year since 2012. Neighborhoods valued in lower to mid-price ranges typically escalated above that average, while million dollar plus areas (approximately 10% of the whole market), averaged 1% – 5% annual appreciation during the same period.
Since the recession, housing has recouped its lost value, and continues to gain value nationwide, albeit not very evenly. Denver is consistently in the top ten cities for annual appreciation, but the gap has increased across the country. The top 4 cities with the most value gained were from California starting with San Jose gaining $615,000 since the housing crisis. San Francisco gained $435,000 followed by L.A. increasing $248,000 and San Diego at $217,500. #5 was Seattle with an increase of $206,400. The least value gained was in Indianapolis with $19,400 followed by St. Louis – $22,100, Cleveland – $25, 200, Pittsburgh rising $29,000, and Cincinnati up $29,600.
In Boulder, value gains were very good in 2018 showing a 7.3% improvement. Although slightly under Denver’s appreciation rate, the strength of that gain is impressive considering the average price has now eclipsed $1 million for a single-family home. While Boulder has become less affordable (still a seller’s market), buyers are discovering surrounding areas are appealing and more affordable.
In Colorado and nationwide, real estate is generally seeing good demand and weak supply. According to the U.S. Census Bureau, new construction starts are projected to increase 9-10% in 2018. That’s helpful, but construction is still significantly below the needed threshold to accommodate housing needs. I hope perspective sellers read this and choose to make a move.