In recent months, the number of homes for sale along with the days on the market has increased. It’s difficult to determine whether these changes are seasonal or are a symptom of a larger market correction that will put more power into the hands of buyers over the coming months and years. In any event, we believe current market conditions are pointing to more balance between buyer and seller power in the short-term. Local economic conditions like employment, job growth, and net migration remain healthy in Denver Metro. These economic markers continue to drive homebuyer confidence to purchase and continue to support the foundation for a strong housing market in Denver.
Inventory in Denver has reached a three-year high. Our team has noticed that buyers are becoming more discerning and patient throughout their home searches. As Denver’s notoriously competitive market slightly cools, homes are on the market for longer and price reductions are occurring. Competition in some price ranges continues to be intense, but as inventory increases so will negotiating power.
Mortgage rates have increased a half point this year, and there is speculation mortgage rates will continue to increase another half point by year-end. Although increase in policy rates in June didn’t seem to have much of an impact, the Fed announced there will be two more increases this year (one more than initially projected) assuming national economic conditions remain stable. Rate increases could create urgency for some buyers to act now. That said, we believe for many buyers, rate increases will only compound what we’ve recently been experiencing – higher monthly payments may simply cause buyers to put their foot down and demand better value.
The residential real estate market is deeply connected to the rental market. Apartment developers have completed 7,651 apartments in Metro Denver in the first six months of 2018. Yardi Matrix, a leading commercial real estate research and data platform, is projecting that 13,739 apartments will be completed in the last six months of 2018. As a result of the growth in available rental units, we believe that rental rates will stabilize into 2019 and then potentially decrease modestly as the year progresses. We are already seeing an uptick in move-in incentives as landlords and management companies fight to fill units before additional competition arrives.
The Denver residential real estate market experienced a summer slowdown earlier this year than it has in recent years and fall/winter 2018 likely won’t be an accurate predictor of which direction our market is headed for 2019. In other words, we’re not quite prepared to announce a market adjustment just yet; we’ve decided it’s prudent to wait until Spring 2019 when we will have a better feel for whether the recent short-term slowing in market conditions are symptomatic of a larger shift. It is entirely possible that median and average sale prices will return to double digit gains in early 2019 in a similar manner to the seasonal growth experienced over the past three years, but it’s safe to say right now is a better time to be a buyer than it has been in recent memory, and the recent overall market growth in Denver continues to create a strong seller’s market.
Sources: Denver Metro Association of Realtors, The Denver Post, Yardi Matrix, and Metro Denver Economic Development Corporation.