August 30, 2016
Denver Housing Market Plateau: Why it’s a Blessing in Disguise

After a three-year streak of double-digit gains in metro-Denver home prices, many experts are seeing the summer of 2016 as a “high plateau,” after which the market will begin to normalize. Naturally, this will mean a depreciation in home values in some areas and slow gains in others. Far from a bubble bursting – à la the subprime mortgage meltdown – the cooling of the Greater Denver housing market is precisely what will prevent a bubble from forming.

Barring any major financial catastrophe, lenders and Realtors can expect the Denver-area real estate market to remain on solid footing for sustainable gains going forward – and we’ll give you the numbers to prove it.

Denver Home Prices Plateau: A Cause for Panic?

Spring of 2016 was unprecedented for the metro Denver housing market, with inventory hovering near record lows and median prices up 10 percent on a year-to-year basis. In June, the pace cooled as new home listings rose and sales slowed down. But prospective buyers got little relief as selection remained 50% below the historical average, home prices continued their northward march, and median single-family home prices hit a whopping $466,288.

The consultants at Real Estate Economics in Orange County, CA predict a 5.4 percent gain in median home prices in metro Denver in 2016, a 2.8 percent increase in 2017, and a 1.8 percent increase in 2018.
With many buyers being priced out of the market, slower price gains (even some drops) are a net positive. The problem is that we’ve grown so accustomed to huge spikes in home prices that moderate gains going forward could spook consumers and give the impression that a crash is around the corner.

Strong Economic Fundamentals in the Denver Area

Though the fracking boom is running out of steam, steady job growth will be driven by the nearby universities in Ft. Collins and Boulder, which deliver a steady stream of young professionals to the area’s rapidly expanding technology and healthcare sectors. As population continues to grow, investment in restaurants and retail stores will also keep economic participation and output heading in the right direction. Another source of growth is construction.

A recent Forbes article has predicted that the next three years will see the construction of:

  • 30,000 new units in Denver County (more multi-family than single-family)
  • 20,000 new units in Adams, Arapahoe and Jefferson counties (more single-family than multi-family)
  • 12,000 units in Ft. Collins
  • 8,000 in Boulder

To those prospective buyers worried about home values, we would say one thing: look at the fundamentals in and around Denver: housing demand, population growth, wage growth, and employment opportunities. These are the things that really matter. With mortgage rates still extremely low, now may be the time to enter the market.

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