Archive - September 2022 - On home prices and dreary headlines.
In September 2022, everyone was starting to get worried about the state of the real estate market, and major publications were predicting doom and gloom. They may have jumped the gun, as Nick Melzer explained in an article for Colorado Serenity Magazine entitled On Home Prices and Dreary Headlines:
Legend has it that in the mid-1800s, Thomas Carlyle, a Scottish writer and philosopher, called economics “the dismal science” in reference to Thomas Malthus, the economist who famously claimed that population growth would eventually cause widespread starvation. Lately, I’ve begun to think it’s more likely Carlyle was referring to the prognostications of real estate “experts” about the housing market. Just scanning the headlines of the Denver Post would make any homeowner or real estate agent feel dreary: “Metro Denver’s housing market starting second half of year on a cold note;” “Metro Denver in top half of vulnerable housing markets, study finds;” “Metro Denver’s monthly home price gains coming down fast;” “Drop in metro Denver home sales will be steeper than expected;” “Day of reckoning coming for overvalued housing markets like Denver, study warns.” The national media is even worse: “We’re in a ‘housing recession,’ experts say” (CNBC); “Housing prices could fall by 20 percent in 183 cities, new data shows” (New York Post); “Real estate: A looming end to the long boom” (Yahoo News). But these headlines are often just that—headlines— clickbait at best. The actual news in the body of the articles is often positive! For example, the most recent Denver Post article begins, “A big chill continued to descend on metro Denver’s housing market last month as home sales fell sharply and the number of listings continued to soar… ” but then explains that “median closing price… [is] up 8.5 percent from a year earlier” and listings are “taking an average of 13 days to go under contract,” while inventory “still remains less than half of the average… between 1985 and 2021.” If I told you a year ago that today home prices would be up over 8 percent, houses on average would take less than 2 weeks to sell, and inventory would still be extremely tight by historical standards, you’d take that, right?
In Evergreen, in July, average and median price per-square-foot for single-family homes fell month-over-month, but was still up about 10 percent year-over-year. Single-family inventory rose very slightly month-over-month, but is about the same as one year ago. The number of new single-family listings actually fell by nearly 32 percent compared to June and declined 11 percent compared to July 2021. And we still have less than 2 months of inventory on the market. So, things are looking pretty good, to quote Obi-Wan Kenobi, “from a certain point of view.”
Now, I don’t want to paint too rosy of a picture here. The average time it takes to sell a home is increasing, homes are selling on average below list price, and closing prices are declining, particularly in the luxury market. In fact, Redfin reports that, in Colorado, 42.5 percent of homes on the market in July had experienced price drops (though 40.5 percent sold over asking price). But all of these data are still extremely strong by historical standards. For context, in 2018, it took on average 41 days to sell a home in Denver compared with 13 days last month, and the average closing price was 54 percent lower than it is today.
So, what’s going on? The housing market is certainly facing some headwinds, and the dismal science’s favorite subjects—supply and demand— are ever-changing. Pandemic-era migration trends are slowing down as many of the folks who could move, have moved (decreasing demand). Interest rates for mortgages have been consistently increasing since the beginning of the year, increasing costs for prospective homebuyers (decreasing demand). And headlines are causing potential sellers to think about listing their homes as they worry about missing out on a historically great seller’s market (increasing supply). However, the macroeconomic picture for the Denver metro area and the foothills in particular remains incredibly strong. Statewide unemployment is extremely low at 3.3 percent, while Jefferson County’s is even lower at 3 percent (increasing demand). The state’s population continues to grow, and demographers still project the population in Colorado will grow to 7.8 million by 2040, a 32 percent increase over the next 18 years (increasing demand). Construction costs continue to increase, making it more expensive to build housing for those new people (limiting supply). And places to build in the Denver metro area are few and far between, and virtually non-existent at scale in the foothills limiting supply).
All of these macro trends combine with the natural beauty, central location, great weather, and top-notch lifestyle to make Denver’s long-term economic outlook just peachy. As it becomes more and more clear that work-from-home is here to stay and people think long and hard about where they want to live, untethered from the office, Denver will always be at the top of the list of potential destinations for young professionals and high-income families (i.e. homebuyers)—the foothills even more so.
If I were a betting man, my money would be on single-family homes in the foothills, regardless of the month-over-month housing market numbers. As an Evergreen homeowner and REALTOR®, I guess it actually is! Long story short, people want to move here and buy homes, and we can’t build many more of them. Supply and demand. How dismal.