Updated: Jan 30
A look back on what happened in Denver’s market in 2021 and what buyers and sellers can expect in 2022.
In 2021, as demand hit an all-time high, new listings went down 5 percent. Add both together and it explains how the metro area ended up with median home prices appreciating 19.78 percent year-over-year in the month of December.
I don’t want to freak anyone out here, but we just rolled into 2022 with a 30-year all-time low of 1,477 active listings and less than ten DAYS of inventory:
Why is inventory so low?
New construction in the metro area has lagged behind population growth since 2011. More recently as prices have risen, there has been a decline of homeowners looking to sell at all. Not because they don't want to move or because it would be difficult to sell, but because existing homeowners would have to become buyers facing high prices and significant competition.
How can demand be so high?
Denver is growing and many households have ample wealth to spend on housing. While cash buyers are out there, most are taking advantage of favorable financing terms that attract qualified individuals into the market. Recently, higher conforming loan limits were set making qualified buyers able to purchase a home for $750,000 putting just 10% down. While forecasters signal higher interest rates in 2022, most predict rates to rise to about four percent.
Demographics. Denver’s population is rising faster than the nation, just as millennials are entering their peak homebuying age. With Colorado being a favorite destination, especially for professionals at companies that adopt flexible working policies, expect the metro area to attract residents from all over for years to come.
Environmental factors and forces. Tragically, the Marshall Fire disaster added to the considerable demand and inventory shortage already here when it destroyed a thousand homes and put hundreds of potential buyers into the market who weren’t intending, or needing, to buy a home just a month ago.
This is not a bubble. IT'S A HOLE.
Focusing on the back half of the curve since 2008, the magnitude of the problem and how it has intensified becomes clear.
While the amber trendline for active listings is diving, the blue trendline for closings is rising.
Plenty of homes are being bought and sold in the metro area right now; in fact, as many or more homes are selling today than they were way back in 2008. They're just being snapped up by eager and well qualified buyers in DAYS, not months.
When will home prices decrease?
The last graph compares total housing units in the metro area against active listings from 1985 to 2021, apace with total population growth. The bullish housing market can be expected to continue as long as intense and sustained demand outpaces a thin supply with insufficient new construction in sight.
Thankfully, a few indicators suggest the market will settle down ... some. Expect any relief to be above pre-pandemic levels. Higher mortgage rates expected later this year should ease the number of multiple offer situations. And, while buyer demand will continue to be strong, it will finally be met by affordability pressure.
The wild card in all this? Inflation. Is it transitory or will it be sustained, and how high will it go?
Altogether, I anticipate home prices in the Denver Metro to rise in 2022 just at a slower rate. Prepare for annual price increases between 10 and 12 percent with about 3 percent fewer closings overall.
I'm a BUYER who really needs to purchase a home this year. What do I need to know?
Home prices aren’t going down, they’re going up. Unless you already own a home, plan to move away in 18 months, make exceptionally high income with rental expenses less than 5% of your annual pay, or are a true cash buyer with serious liquidity — now is the time to buy a home. With interest rates likely to rise, your individual buying power could reduce significantly, soon. Connect with a local lending professional to run the numbers on a monthly house payment at today’s rate. See how it will change when interest rates go up later by a quarter, half, or even whole percent.
Partner with a knowledgeable, dedicated, responsive real estate professional who you trust. At any price point, the market is extreme right now. The lower the price the more intense things become. Winning in this market is absolutely possible — but requires preparation, a strategy, and extremely fast reflexes. A market this intense waits for no one. Smart buyers will identify their needs versus wants, be reasonable in their expectations, understand that it may take a few attempts to successfully purchase a home, and get prepared early in order to make decisions quickly. Best advice? Team with someone who knows this unique market, respects your goals and is committed to them, and will be candid about the strengths and weaknesses of your position in order to maximize your opportunities for success. (They are out there, I promise.)
Affordable Housing might be an option to consider. Seriously. While affordable housing options are a unique purchase that requires research and patience, they are available in the metro area right now and more become available every month. This option could be a good one for buyers with moderate incomes, who qualify for financing, need to avoid rent hikes, and want to enjoy many benefits of homeownership while having the opportunity to save up a nest egg for a few years to put toward a traditional home whenever the market balances.
Click here to see gross income levels and household sizes that qualify
$55,950 and under — 1 person household
$63,950 and under — 2 person household
$71,950 and under — 3 person household
$79,900 and under — 4 person household
$86,300 and under — 5 person household
Your real estate partner should be able to help you explore affordable housing options. If they cannot, or you know someone who could need information about affordable housing programs in the metro area, give me a call. I am a specialist in this field and honored to help.
I am a potential SELLER this year. What do I need to know?
CONGRATULATIONS, you’re in an amazing position! If a homeowner wants to sell and move, especially out of the metro area or to another state, now is a great time to do it. Rates are still historically low, inventory has literally never been lower, and demand is highly concentrated.
Beyond price, in the current market and inside a multiple-offer situation, you are likely to see special incentives to get your attention. Those could include easy inspections, help with usual seller closing costs, even potentially a free “rent-back” for you to stay in your home for up to sixty days after closing making your move smooth and easy.
CAUTION 🚩 It's extremely
easy for this position to slip away.
Pricing Problems. While professional marketing has always been important, determining a strategic and supportable list price has never been more important. With home values rising so fast it's no easy task. It requires a thorough and complete examination of true comparables ("comps") along with active competition and absorption rates at the time of listing. It demands in-depth understanding of appraiser criteria and reporting tools to get the list price right the first time. If you do decide to over-price your home, prepare for an underwhelming launch and headaches late in your transaction.
All real estate is local, but the buyers you're trying to attract are MOBILE. You need much more than a “local expert." You need to understand the intensity of demand, know how to advertise a professional listing through multiple channels, be savvy about launch timing, and have the resources to manage the hyper-active launch period that can develop if your listing is planned and executed correctly. A seller only gets one chance at a debut. It's critical to get right.
Sellers Beware. While it seems counterintuitive, it is the buyer who prepares and presents a written offer to purchase a home, usually on Colorado's Contract to Buy and Sell Real Estate. This 20-page, recently updated, legally-binding document defines far more than a purchase price, it also cements offer terms and solidifies important responsibilities for both the buyer and the seller. Sellers MUST understand this contract in its entirety, be able to interpret additions and omissions any offer may contain, prepare counterproposals as warranted, and be able to judiciously weigh the strength and weaknesses of competing contracts before deciding to work with a single buyer in a multiple offer scenario.
The market is intense, has been for a while, and everyone is really (really) tired. Sellers who price realistically and professionally promote their homes can expect to be greeted by an enthusiastic (even if exhausted) pool of buyers in 2022. Within that mix, there will be no shortage of market-savvy contenders and some can be pretty aggressive. No matter the mood of an overall "buyer wave" in a homeowner's first 7 to 10 days on the market, know that any rush will dissipate quickly as disappointed would-be homeowners whose contracts weren't accepted immediately focus their attention, intentions, and financing on the newest listings elsewhere.
While sellers are undeniably in the proverbial catbird seat to begin, that position is not a given. It also has a short shelf-life and will evaporate quickly if a seller is unprepared, uninformed, unreasonable, or simply unrealistic.
New norms. It is fair to consider that what everyone thought was an outlier year in 2020 could be becoming more the norm. While some signs now point to a more normal and predictable real estate market ahead, it is likely a new normal. Yes, inventory will continue to become available, but as it does expect it to be snapped up fast by qualified and serious buyers determined to own a home in the prime and upcoming Denver Metro area.
An intense market isn’t easy, for anyone. The Denver Metro real estate market has more complexity and uncertainty than ever before. It is hyper-active and stressful requiring expertise, realism, and adaptability — for buyers and sellers alike.
In 2022 affordable housing has become everybody's business. Opportunity for home ownership is essential to the economic vitality of every healthy community, yet home price increases in the metro area have made it prohibitive for far too many to buy at all.
Any December that records a historic low of 1,477 active listings alongside a twenty percent increase in median home prices provides a serious wakeup call for everyone that not only deserves — but will require — an answer.
Michelle Schwinghammer is a REALTOR®, Certified Negotiation Expert® and Pricing Strategy Advisor® who helps people move forward in Colorado. She currently serves as the West District Director for the Denver Metro Association of REALTORS and is a leader on its Community Alliance Committee.
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