Real estate boom settles down, ‘buyer’s market’ emerging
Posted Monday, July 29, 2019 10:38 am
The Denver area’s real estate boom that saw rents and housing prices skyrocket in recent years is slowing down, experts say.
“It’s flattened out a lot,” said Jill Schafer, the head of the Denver Metro Association of Realtors’ Market Trends Committee. “It’s still a good market for sellers, but buyers are regaining a lot more leverage.”
Here are five things to know:
Inventory is up:
1) Inventory of homes for sale is way up, with 9,520 homes for sale in the metro area in July — an increase of 28% over last year, and a level not seen since 2013, before the latest boom.
Increasing the supply side of the equation eases the frenzy among buyers, Schafer said.
“We’re seeing far fewer multiple-offer situations,” she said.
Prices are holding steady, with the median housing price of $428,000 up just 1.9% over last year.
That’s below the ideal appreciation rate of 3% to 5% per year, Schafer said, but eases the pressure on buyers after years of sometimes double-digit growth rates.
It also loosens up the market for sellers, she said.
“A lot of people didn’t want to sell because they didn’t know where to go,” Schafer said. “It locked up the market. But now, they have places to go.”
Starter homes still lag
2) The market for starter homes is still tight, Schafer said, because much of the new inventory is still high-priced stock.
That’s thanks to a convergence of market conditions, she said: Land in the metro area is expensive, and tariffs imposed on raw materials by President Trump are driving up construction costs. Further, high demand for contractors means they can name high prices, Schafer said.
The result, Schafer said, is that there’s little motivation for developers to build starter homes. The majority of starter home building is in places like Denver, which offers subsidies to build lower-cost homes.
Condo construction is starting to tick back up after years of underbuilding, Schafer said, which may be an outcome of a 2017 law meant to ease the burden on builders imposed by a 2005 law that made it easier to sue condo builders.
3) Price reductions are becoming more common, Schafer said, with high-end homes seeing the biggest shift.
Homes priced between $1.5 million and $1.75 million are being sold for 91% of asking price on average, Schafer said. Starter homes and lower-end homes are selling for much closer to asking price.
“There are sellers who overvalue their homes,” Schafer said. “They’re paying attention to automated websites. Those sites don’t know if you’re on a busy street or the condition of the property.”
The slowdown means it’s more important than ever for sellers to enlist the help of a professional, Schafer said.
“People can’t price like they could two years ago,” Schafer said. “For a long time, people didn’t have to do anything to their house and it would sell. Now, you really need to get the place in shape first. It can take months of work to get the highest price.”
Great time for buyers, but beware
4) The increase in housing inventory is good news for buyers especially when coupled with still-low mortgage interest rates, Schafer said.
That said, there are still perils to look out for.
An experienced real estate agent can recognize red flags, Schafer said, like fix-and-flip properties that have been done poorly, or multi-unit projects that are in trouble.
“Certain builders are way behind estimated delivery dates because of the lack of contractors,” Schafer said.
On the flip side, some projects have too much inventory building up, in some cases because builders are overpricing homes. In some places, that’s because landscaping or accompanying commercial developments are way behind schedule.
Expect more scrapes
5) Though Denver has outlawed the construction of slot homes — jamming multiple-unit structures into single-family home neighborhoods — communities can expect more scrape-off homes, where builders demolish an older home and replace it with a new home that’s often far larger.
“Buyers love new,” Schafer said. “They want the latest and greatest. You’d think with all these fix-’em-up shows on TV about old homes, people would want to go that way, but they don’t. They’re willing to pay for something modern.”