There has been much written about real estate in 2019, so a simple recap is probably adequate before we have some fun talking about what to anticipate in 2020.
Last year’s interest rates (30-year) fell to 3.6% before settling in around +/- 3.75% in Q3 and Q4, with rates hugging the 4.25% range much of 2018. Denver sales nominally rose over 2018 numbers in most price ranges. The average price in Denver improved almost 6%, while nationally 3.6% was reported by Realtor.com.
The big story was low inventory (nationally and in Denver), yet demand still provided a slightly higher number of sold homes. The luxury market was uniquely healthy with sales over $1 million being 18% higher than 2018, while inventory actually rose almost 15%. With all that activity, values ran steadily, but depending on the area of town, appreciation was 1% to 3% higher.
While understanding real estate on a macro-scale is beneficial, it may be more important to pay attention to historic trends and local niches of your location. Consider what factors influence your city, part of town or neighborhood. Unemployment figures (Denver is one of the healthiest), age demographics, taxes, influx of companies, migration trends and even weather plays a role.
In recent years, we’ve seen climate-related disasters, from flooding to wildfires, hurricanes, earthquakes and even volcanoes. Climate will unfortunately remain a factor, influencing where people will locate. There is speculation that financial and insurance industries may push back over the next decade, impacting where lenders are comfortable lending, while flooding and fires influence insurance costs. Millennials are reaching their prime homebuying age and will be driving many housing trends in the coming years. For instance, first-time homebuyers will have increased interest in smaller more affordable homes.
Simply put, builders will build more homes to meet demographic demands. They have started improving the number of homes built (10% more in 2019), and for the first time in decades, the new home size has shrunk. In the 1970s, new homes averaged 1,500 square feet, in the 1980s growing to 1,700 square feet, and by the late 1990s into the 21st century, homes eclipsed 2,100 square feet. Today, builders build for lifestyle needs, efficiency, more modestly and with planned developments with smaller lots, but large common spaces.
And say “hello” to Generation Z. This early- to mid-20s profile is similar to millennials as they are saddled with student debt and look for smaller, more affordable spaces. Although a smaller demographic group, they will be competing with the millennials looking for similar housing.
What about the possibility of a mild potential recession and the certainty of an election year? In the years 2017 and 2018, almost all economists predicted that a recession was likely. In 2019, the word became more of a possibility and, if so, just a mild recession. Current reports seem to be more cautiously optimistic.
At the end of the day, buyers hope to buy at low prices (until they own), and sellers like waiting for higher prices (until when?). The moral of the story is do what is right for you. If you torture yourself or the market stats enough, eventually you will be able to get the answer you want.
Whether a recession or an election, buying a home is a pocketbook issue. If conditions are right (e.g., rates are low, job is secure and the right home comes on the market), then people will take advantage of the opportunity. At heart, we want more financial security and enjoy living in our own home.
Regarding an election year, a recent Inman article stated: “Our analysis of past election years shows buyers and sellers are hesitant to enter the market just before and after election day, but it’s a temporary blip on their radar.” In other words, it may mean a few will have pause and then, before you know it, life moves forward.
We are experiencing a 50-year low in unemployment, increased wage growth and a good economic climate. However, labor and land constraints create higher development costs, resulting in under-building for the demand.
If you might be a potential seller, please explore the advantages of selling … the market needs you. And for buyers, locate a great broker who can help you navigate this competitive market and successfully negotiate on the home you want.
LIV Sotheby’s International Realty, the exclusive Board of Regent for the Who’s Who in Luxury Real Estate, has 23 office locations in metro Denver and surrounding areas, including Boulder, Castle Rock, Cherry Creek, Denver Tech Center, downtown Denver, Evergreen and the resort communities of Breckenridge, Winter Park, Dillon, Crested Butte, Telluride and the Vail Valley. For more information, call 303-893-3200. To service all of your real estate needs, visit LIVSothebysRealty.com.