The last four years have been super dynamic for real estate in the Denver metro area. There have been tons of sales as well as a healthy 10% per year appreciation. Even more stunning is that the average sold price is hovering around the $400,000 mark!
2016 started with a bang and we saw an extremely hot market during the first six months. Right around the 4th of July the market began its normal leveling trend. During the second half of the year, as trends balanced out, we saw more inventory and the market became more normal.
With such great trends what might happen in 2017? Others often ask this question as well, so in an effort to keep our clients and friends knowledgeable I’ve put together some thoughts. First, I believe we will see a lull but not a decrease during the first six weeks of the year. Interest rates have risen and the Fed has communicated that they want to raise it at least three more times per year over the next two years. I’m not positive whether this will actually occur, however it is wise to be aware of this possibility. Once spring season (selling season) sets in, I believe we will see an aggressive seller’s market around the $400,000 or less properties. I also foresee spill over in the higher price ranges , although the buying power may be affected should the Fed decide to increase the rate again as they stated.
In regards to the possible rate increase, for every 1% increase in interest rates the buying power lost basically translates into a 10% decrease in mortgage buying power. For example, if I can afford a $400,000 loan at 4.5% and the rates increase to 5.5% then my mortgage affordability drops to $360,000.
Another important detail that affects the housing market is the rate at which home builder’s are building. Builders haven’t kept up with the demand due to the cost of land and development. They are not really where they need to be and quite frankly have been slightly gun shy after the last brutal recession. Conclusively, tight inventory and a high average market price, along with rising interest rates will actually normalize the market and appreciation.
This will be the last six months of high demand and aggressive escalation in pricing with all other aspects remaining status quo. We will see appreciation, slow but still positive. I am betting about 5-6% this year. Millennial’s entering the market as well as the population growth of 2,000-3,000 people a month will drive this growth!
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