Updated: Jun 2
In February 2023, Nick Melzer and Julia Purrington wrote an article for Colorado Serenity Magazine explaining that in real estate, When It Comes to Home Prices, Demography Is Destiny:
The French philosopher and sociologist, Auguste Comte, is often quoted as having said “Demography is destiny in the real estate market.” Ok, perhaps he didn’t say the real estate part, and maybe it’s an overstatement regardless, but demographics are incredibly important when thinking about long-term home values. Nonetheless, it’s a factor that is often overlooked in casual conversations about real estate.
As REALTORS®, the question we are most often asked is, “How’s the market?” It’s a great question, and one any real estate agent will jump at the opportunity to answer, usually with some vague, unimpeachable statement designed to spur additional conversation, like, “It’s interesting.” Cryptic, noncommittal answers aside, there are really two ways to answer the question honestly. The first is with anecdotal stories about the number of showings on a home, how busy you’ve been, the number of offers on a recent listing, or the traffic at your last open house. And yes, in the last few weeks, we have been seeing increases in all of those “metrics.” The other is with data, which, in the short term, inevitably lag behind anecdotes. Those data are looking up, too. Lawrence Yun, the National Association of REALTORS®’ Chief Economist, recently predicted that while housing prices will remain flat in 2023, they’ll increase by 5 percent nationally in 2024. Of course, there is no national market for homes, but you get the point.
A home is a long-term investment, and there’s a lot we can say about the real estate market by focusing on the long term. And, when it comes to long-term real estate values, no effect is more powerful than population growth. One in-depth regression analysis from Pace University in 2014 concluded that a 1 percent change in GDP results in a 0.93 percent increase in housing prices; a 1 percent increase in the supply of homes results in a 0.046 percent decrease in housing prices; a 1 percent increase in unemployment leads to a 0.684 percent decrease in housing prices; and a 1 percent increase in mortgage debt causes housing prices to rise by 1.3 percent. However, a 1 percent increase in the number of people between the ages of 15 and 64 causes a 2.707 percent increase in housing prices. So, perhaps demography is destiny when it comes to real estate.
A recent Denver Post article somewhat misleadingly titled, “Colorado’s population growth hit a wall,” sheds some light on demographic trends in Colorado and the Denver
metro area. In 2021, Colorado added just 26,489 net residents, the slowest population growth in years (due in part to excess deaths from COVID), but the State Demography Office predicts it will pick right back up in 2023, with Colorado adding 55,000 new residents. The most recent census showed Colorado with 5,839,926 people as of July 1, 2022, but the Demography Office now estimates that number will increase to over 6,400,000 by 2030 and almost 7,500,000 by 2050, while the Denver metro area alone is expected to grow from 3,300,000 today to 4,400,000 by 2050, a 33 percent increase.
You certainly can’t blame these people for wanting to move to Colorado. We all know how great it is to live here. Everyone else is finally figuring out it’s one of the most desirable places in the country to live. If demography is destiny and you’re thinking about home prices, the question you should be asking yourself is, “Where are all of these people going to live?” Finite water, lack of undeveloped buildable land, and limited infill opportunities will continue to constrain our housing supply, particuly in the foothills. More density is the likely solution in Denver, but that isn’t feasible here in the foothills. And while there is some development going on here in Evergreen, it will barely make a dent compared to the increased demand we’ve seen over the last few years. We also all know that the NIMBY (Not In My Back Yard) view dominates discussions about development here. Your feelings about whether this is good or bad aside, it’s a local truth that constrains supply.
It’s also clear that the foothills have seen a strong migration of folks moving out of cities and into more rural areas over the last few years. This was obviously exacerbated by COVID and has slowed some, but not much. Our foothills communities remain ideal places to live if you’re looking to relocate and can work from home, which is more common than it used to be, and a fact of modern life that’s here to stay. At less than an hour from downtown Denver and world-class skiing, our neighborhoods look pretty good to most!
The law of supply and demand is what it is. Clearly, limited supply and increasing demand is a recipe for price appreciation. So, looking at the demographic trends, is there a better long-term investment over the next 20- 30 years than a single-family home in the most desirable area (the foothills) of one of the most desirable cities in the country? We can’t think of one.