Fall in Fall? Metro Denver Home Prices Rises 1.22% Defying Expectations

Metro Denve Home Prices are Rising in October 2019

We are in the thick of fall, but metro Denver real estate prices did not get the memo. The Denver housing bulls received some great information from the November DMAR report that was released this week. Metro Denver home prices rose in October 2019 from September 2019 as well as year over year.

September to October 2019 Metro Denver Home Prices Trends

Month over month median and average prices Metro Denver home prices rose in October. In the Denver Metro area, median prices rose 1.98% and were up 1.22% for average residential prices. The monthly rises in prices were unexpected, as prices tend to weaken following the summer months. Single-family homes sold price were at $535,483, up 0.48% from September 2019.

October 2018 to October 2019 Metro Denver Home Prices Trends

Year over year, the metro Denver housing markets continued to have strong prices increase. Median prices rose 5.80% and were up 3.54% for average residential prices. Year over year metro Denver home price increases are currently running above our forecast.

October 2019 Metro Denver Housing Inventory

Housing inventory is down 7.85% to 8,557 from September to October. However, if we look at the year over year inventory statistics, inventory is up a minuscule 0.21%. Single-family was down 10.41% month over month and down 5.56% year over year to 5,844, while condos were down 1.81% month over month and up 15.540% year over year. The 8,557 homes available were still far below the historical norm of 15,784, showing the marketing inventory is still tight relative to Denver’s inventory history. The metro Denver housing market ended October with 1.75 months of single-family homes down from 2.04 months in September and 2.08 months of condominiums down from 2.12 months in September. This shortage of inventory is still leading the market to be a seller’s market.

We were able to hear a lecture from the legendary Colorado developer Chuck Bellock, founder to the Community Development Group, and he was committed to bringing 7,000 new housing units to market over the next few years because he sees and continues to see tightness in the available inventory for sales for single-family homes. The lack of available single-family homes available for purchase in metro Denver will drive prices higher in the coming year.

As we pointed out last month, the Denver condo market, on the other hand was performing bizarrely with regards to inventory. Starting in March 2019, condos active listing continued to rise all year, hitting a 2019 high in September. In a healthy market, active listings should drop after the spring selling season. The available for sale condos fell from September to October, from 2,763 to 2,713, in line with historical norms. We will continue to monitor this situation to see if the condo markets move into a buyer market due to an increase in inventory.

October 2019 Metro Denver Sold Homes

Sold homes were down a modest 6.40% month over month, and up 1.62% month over month, which was expected as sales tend to drop off in the fall and winter seasons. In September, 40% of sold properties had price reductions before receiving an offer. This is compared to last year when only 35% had a price reduction.

October 2019 Metro Denver Days On Market

Homes are sitting for longer with the average home on the market for 33 days up 10% year over year, flat from September. Homes sitting for longer are another warning sign of a cooling market.

Denver Jobs Outlook

The latest JOLTS released this month by the BLS confirmed that US workers and metro Denver works are going through a tough spot, as the total number of job openings fell. Also, after last month’s 7.051 million total was revised sharply higher to 7.301 million, it tumbled again, sliding by 277K to 7.024 million, below the 7.063 million expected, and the lowest number in 17 months, since March 2018.

“The labor market remains strong, but is clearly slowing down,” said Nick Bunker, an economist at job-search site Indeed.com.

Yet even with the decrease in the rate of job openings, there were still more than 1 million more job openings than unemployed workers. There have now been more US job openings than unemployed workers for a record 19 consecutive months.

September 2019 Unemployed vs. Total Jobs Openings graph
September 2019 Unemployed vs. Total Jobs Openings

Workers still feel confident as they are quitting their jobs to find other better ones. The rate at which workers quit their jobs, viewed as a proxy for confidence in the labor market, edged down to 2.3% in September from 2.4%, Tuesday’s report showed. The August and September quit rate was the highest recorded since 2001.

With the labor market still strong, but slowing down, this should be bullish for home prices in short to medium term and may lead to a record spring selling season in March 2020.

Dr. Denver Housing Bubble’s Outlook on Metro Denver Home Prices

Last month, we talked about how the metro Denver home prices, are a tale of two cities, with lower-priced homes having much less inventory than homes priced $1 million and above. There is also a great divide between the generations in home buyers. Conventional wisdom is that Millennials have missed out the bull run in housing prices since the end of the Great Recession due to their low rates of homeownership.

Our wise friend, Bob Shiller, who we wrote about here, has a different view. Professor Shiller did some analyses that show that

“average quality-adjusted single-family house prices, corrected for overall inflation, have risen a paltry 1.1% at a compound annual rate since 1972. The reason the results have an upward bias at all is that they don’t adjust for interim owners doing upgrades.

But then there’s the mortgage rate offset. Since 1972, 30-year fixed-rate mortgage rates in real terms have averaged 4.1%, meaning it has cost the homeowner 3% per year to own a house before taxes, maintenance, utilities and insurance.  That’s a real negative return. No wonder only about a third of millennials owned their homes in 2016, compared to half of Generation X at a similar age in 2001 and half of Baby Boomers in 1989. The homeownership rate for people under 35 has declined by 7.2 percentage points from a peak of 43.6% in mid-2004 to 36.4% in mid-2019, steeper than the 5.1-percentage point drop from 69.2 to 64.1 in the total rate.

In the aftermath, mortgage lending standards have been dramatically tightened and millennium incomes and net worth growth weak. So by choice or necessity, many millennials are renters. Since the housing collapse, multi-family housing starts, mostly rental apartments, have surged past their previous 300,000 annual rate level to 340,000 in September. But single-family starts, after nosediving from a 1.82 million annual rate in January 2006 to 350,000 in March 2009, have only revived to 920,000, well below the long-term average of 1.2 million. Also, investors have bought huge quantities of single-family houses and converted them to rental units. Last year, investors bought 20% of houses in the lowest one-third price range, up from the 15% average. These are abodes that first-time home buyers normally purchase.

Many millennials are accepting their fate. A new Freddie Mac survey found 24% of renters “extremely” unlikely to ever own a house, four percentage points lower than four years ago. Some 82% said renting is cheaper than buying, 15 percentage points higher than in February 2018 even though at $1,008 a month average as of the second quarter, rents nationally risen 20% faster than inflation between 1980 and 2016. ”

(source: Zerohedge.com)

In conclusion, we have several factors heading into 2020 that will drive metro Denver home prices. First, we have seen continued strength in home prices. We have also seen very low inventory levels, less than two months for single-family houses, that is pushing up prices. Jobs data are hitting all-time highs, and it has never been a better time to be an unemployed worker with over  7 million jobs available. Millennials continue to shy away from home purchases because they are the largest generation in the workforce currently should continue to put downward pressure on home prices. We are still holding to our forecast for home price increases but will be relying heavily on new data from the winter months to see if the forecast should be revised at the start of the year in January.

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