Housing Market in Denver

“It’s the best time to buy investment property”
“Wait it out for a couple of months”
“You are investing now? The markets so bad”
“So give it a few weeks and you can invest”
“The market is not so hot right now but not cold either”

Imagine, if you had a dollar for each time you heard these contradictory statements – you wouldn’t have to worry about your retirement. Investing is confusing enough without an added icing of confusion and uncertainty. Every article you read offers starkly different takes on the housing situation. None are to be blamed.

The markets are unpredictable. Period.

You can choose to wait till the stars align and everything from the economy, selling price, and mortgage rates stabilize. Does this happen? Like most celestial occurrences this one is rare. Most investors just end up waiting for ‘the right time’. This can actually delay or eliminate any possibilities of investment, as we have covered in more detail in our blog.

So what do you do as an investor? You begin with taking a stock of your budget, return expectations – factors we have covered in our exhaustive blog for beginners. Next comes understanding the basics of the housing market – factors that influence the demand and supply of properties. This is what we cover in our next section. So read on.

Metrics to Understand Housing Markets in Denver

Is Denver a hot housing market?  What kind of data will help you understand how dynamic the local housing market is?. During your research or during conversations with your agent you can look at specific metrics to gauge the current market scenario. Here we have collated metrics for the housing market in Denver. You can use these as a guideline to further your own research of Denver or other markets. To begin with, we found the Rental Price Change percentage in Denver in 2020-2021 is +8.90% [1] and Home Price Change percentage in Denver in 2020-2021 is +18.80 % [2]. A steady rise in both of these parameters indicates that the housing market is hot (definitions are explored in the coming sections). The price changes should at least be in tune with the inflation rate for the market to be even worthy of consideration from an investment perspective.

Then we looked at 2 key housing inventory metrics i.e; Active Listing Count (as on Oct’21) in Denver metropolitan area which is 3506 [3] and percentage change in this listing count (2020-2021) which stands at – 27.80 % [4]. Housing inventory changes will give you information on the current balance/imbalance between supply and demand for homes. If demand and supply are in equilibrium, then there won’t be much of a change in the housing inventory. If the demand is high and is not met with adequate supply, then there will be a decrease in housing inventory and the reverse is true when supply is higher than demand.  Next we looked at home’s Median Days on Market (DOM) in Denver metropolitan area as on Oct’21 which is 28 days [5] and the change in number of days in comparison to the previous year is -8 days [6]. A decrease in DOM means that the market has gotten hotter in the past year and vice versa.

While all these metrics are great data points to consider, they also are somewhat limited in the sense that they are akin to looking in the rear-view mirror i.e. what is happened in the past. Such metrics are great to identify trends but you also need to consider what the future holds for your home purchase/investment. For that you would need to dig up some more details on the local economy and how it has been trending over the past few years. You would need to consider factors like population growth rate, job growth rate, local household income, local vacancy rate and local unemployment. For example the population growth rate for  Denver metropolitan area over the past decade is +16.53 % [7]. You can find the rest of this data and more such insightful information on LitPoodle.

Access to a wide variety of property investment metrics is also available on LitPoodle. We have properties listed from MLS – a credible and secure source.  Every listing is complete with the above analysis points. So understanding housing markets in Denver or any other region is a click away. Our Poodle-O-Meter is a concise rating metric that tells you whether an investment is worth it or not. You can compare listings quickly, understand which works as a better investment for you and then work with your agent to make an offer.

We have made the process this simple so first-time investors can feel confident in their investment journey. Our resources are also centered around keeping you informed on best investment practices, measures and investment trends. Sign up for free to our portal to experience a secure and smart investing experience that aids decision making that benefit your future.

Understanding Housing Market – A Complete Overview

Housing Market may seem like a fancy jargon but at the basic level it simply means the status of demand and supply of properties in a particular market.

So what exactly influences the housing market? After all, the housing market is often in a state of flux. This flux is created by a sea of factors. We can’t predict or even identify all of them but there are some factors that act as barometers of the housing market. Let’s learn more about them.

  • Good or Bad Economic Conditions – Good economic conditions make for a strong housing market. When there is economic stability the purchasing power of consumers is on the rise – this is also true for home buying. This increased purchasing power increases the demand leading to higher property values.

  • High or Low Mortgage Interest Rates – A majority of home buyers are dependent on mortgages. So a higher rate of interest is a deterrent to home buyers. A low interest rate, on the other hand, leads to higher purchasing activity. Keeping an eye on the market will help you understand interest rate fluctuations can impact the prices in your locality. Some housing markets are more sensitive to interest rate changes than others – especially the higher priced markets where most people will take out significant loans to buy property.

  • Local Indicators – Local markets are influenced by metrics of income, unemployment rate, job growth and population growth. The growth of the local community is key to understanding how favorable or unfavorable the market conditions truly are.

  • Constraints for Demand and Supply – A simple concept you once learnt in high school economics is actually a key factor in determining the complexity of the housing market. Housing markets function on demand and supply. The ideal state of equilibrium is that demand for homes is met with a commensurate supply. In reality, housing markets represent a pendulum like state – where at times demand rises more than available supply and at other times, the supply of property is higher. This makes it an interesting and yet confounding situation for the home investor. To make things more complex, there could be artificial or man-made constraints on demand and supply in an area. For example, excessive zoning & housing regulations can stifle the number of new homes being built and this can lead to an unhealthy imbalance between demand and supply.

Let’s dwell deeper into understanding the conditions created by an imbalance in demand and supply.

Types of Markets

Buyers Market a.k.a Cold Markets –  The Buyers Market tilts in the favor of the buyer. It is a market condition where there is a higher supply of homes than demand. Such market conditions create favorable home buying ecosystems because:

1) Homes experience longer days on the markets (DOM) and hence elongated sales cycle for the home seller.

2) There is less competition in the market making it possible to negotiate. This low competition also offers more available inventory to choose from, for the buyer.

3) Sellers are compelled to lower the home value in order to make it sell quickly or offer concessions during the contract stage.

Sellers Market a.k.a Hot Markets  These markets tilt in favor of the seller. The market conditions are characterized by a reduced supply of properties in the market. These then create favorable home selling ecosystems because:

1) It’s hard for buyers to find properties because homes are sold faster than before.

2) Buyers are faced with fewer property options and increased competition leading to bidding wars.

3) Sellers have an upper hand in deciding which buyer gets their property and for how much. Home values are sold at inflated prices and many times higher than the listed price

Balanced or Transitional Markets – These markets create equilibrium where the demand and supply are met. So it does not necessarily favor the buyer or the seller. These markets exist for short periods of time, often between transitions from a sellers market to a buyers market or vice versa.

For a quick back of the envelope determination of whether a market is hot or not, look at the available inventory of homes in the market and divide that by the average no. of homes sold for the same month in the previous years. If the resultant value is less than 3, then it is a hot market. If it is higher, it is a cold market.

So now you clearly know what it means when someone asks whether a ‘market is hot or not’. And yet most buyers are unsure of how to navigate through hot markets. Know the steps you must take to leverage hot market conditions.

Navigating Through Hot Markets a.k.a Sellers Market As A Home Buyer

1) Begin With Research – Look at available inventory in your neighborhood and then look at how long properties remain listed. These 2 are indicators of how ‘hot’ the market really is and the frequency of sales. Next is to look at recent sold listings. This gives you an idea of how much a home is sold for vis-à-vis its listed price.

2) Hiring a Licensed Real Estate Agent – Investing is hard enough in a buyer’s market, let alone trying to do it alone in the midst of a seller’s market. Agents will guide you through hot markets by keeping you informed about new listings and changes in existing listings. Agents also know how to make buyers interested in your offer – a skill that’s invaluable in a market ridden with multiple competitive buyers. On LitPoodle you can connect with licensed agents who have successfully navigated hot markets.

3) Keep Your Expectations Real  That amazing home may seem like the perfect investment option but not if it surpasses your budget by 10X. A sellers market is not the best environment to invest in your favorite property. Don’t compromise on the essentials but be practical enough to know that compromises are inevitable. You will need to make quick decisions in short spans of time. So have one focus point – for instance your budget that helps you make smarter decisions.

4) Have Your Finances Ready – A sellers market waits for no man! In such markets it’s integral to have your down payment, mortgage pre-approval forms and even handwritten notes ready. This indicates to the seller that you are a serious buyer and tilts the scales in your favor.

5) Don’t Skip The Home Inspection – The rush, the thrill and the adrenaline make the perfect cocktail for hasty decisions. Skipping the home inspection in a seller’s market is one such mistake. Yes you want to close the deal before the next buyer steps in. After all, you want to avoid that bidding war at all cost – but not at the cost of your investment. Get a home inspection done by a professional to identify any roofing, plumbing or structural issues.

6) Place Icing On Your Offer – Some buyers introduce rent-back agreements which allow sellers to pay rent and occupy the property after the sale is done. Others offer a closing timeline that is conducive for the seller. A more risky ‘escalation clause’ is often added in contracts. We advise that you consult your agent before adding this clause.  These clauses and incentives are ways by which home buyers elevate the value of the offer they make without actually increasing the home value. Work with your agent to identify these sweet spots.

As a property investor, recognize that the markets will change. What you can do is follow processes, analyze past data and don’t blindly believe predictions. Stay cautious by keeping yourself informed and working with a trusted agent. The flux in the market is only combatted by stability in your process of investing. LitPoodle offers that anchor you can come back to verify, learn and re-evaluate your investing strategy.

Sources:

  1. % Rental Price Change as of December 2021: https://www.apartmentlist.com/
  2. % Home Price Change as of December 2021: https://www.zillow.com/
  3. Housing Inventory – Active Listing Count as of October 2021: https://fred.stlouisfed.org/
  4. % Active Listing Count Change as of October 2021: https://www.realtor.com/
  5. Median Days on Market as of October 2021: https://www.realtor.com/
  6. Change in number of days (Median Days on Market with respect to previous year) as of October 2021: https://www.realtor.com/
  7. Population Growth Rate (2010-2020): US Census Bureau
 

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