Denver just passed an “affordable housing program” with new requirements for low-income housing. Multifamily will…
Redfin, the online brokerage, released their recent search volume report which shows Denver is losing it’s “mojo”. Denver topped the list of metros people looked to leave, posting the highest net outflows in the fourth quarter. 24% of all users were searching to move out of Colorado! How accurate is this study? Does this data mean a downturn is coming in real estate?
What is a net outflow?
Before talking about the study, it is important to define Net Outflow. Net outflow is defined as the number of people looking to leave the metro minus the number of people looking to move to the metro. A net outflow means there are more people looking to leave than people looking to move in, while a net inflow means more people are looking to move in than leave. This is tracked based on the searches on the redfin website.
Why is this important?
“Home searches are a forward-looking indicator of what is likely to happen to a city’s population,” said Taylor Marr, senior economist at Redfin. Census data shows that Denver peaked at 40,000 net domestic migrations in 2015, meaning that many more people moved to Denver than left. Since then, while still positive, the net migration has declined each year. Looking ahead, based on Redfin user search trends, the company expects Denver to see a negative net migration, or a loss of residents, in the 2019 Census.
The study doesn’t show who is actually leaving.
There is currently a demographic shift within Denver that is pushing out lower incomes. Denver is still very affordable compared to other “tech hubs” like Seattle and San Francisco. Are more people at certain price points using a realtor like redfin? Are these people more likely to look to move? Does this skew the data?
Actual Census data paints a radically different picture.
According to recent US census data, Denver and Colorado remain one of the top 5 destinations for relocation. Between 2010 and 2017, Colorado added about 377,000 individuals through net migration. I Thus, about 59 percent of Colorado’s population growth from 2010 to 2017 can be attributed to net migration (Kansas City Fed).
Redfin is a “discount real estate brokerage”.
Redfin is different than Zillow or Yahoo homes in that it is not just a data provider, it is a discount brokerage firm. Redfin’s model is that you use one of its agents and commissions will be returned to the buyer (or seller as the commission is less than traditional brokers). This model’s sweet spot is the mid-market. You rarely see redfin on the high end within the market (at least not in Colorado). Therefore, the data gathered by one brokerage is not representative of the “entire market”. Data generated by a brokerage firm is clearly skewed towards the clients the broker is focusing on.
Redfin has limited data on searches
Redfin is ranked fifth of the top web destinations for real estate searching. The top five websites had about 106 million visitors in May of 2018 (Alexa global traffic rank) with Redfin garnering approximately six million. This is less than six percent of all the traffic. Making assumptions on long term mobility trends based on a limited demographic and a sample size of only six percent of all traffic is quite a stretch. Furthermore, as mentioned above, the six percent sample is only looking at particular price points (and markets).
Will population really decline in the Denver metro?
First, looking and moving are two very different animals. I look at real estate frequently in other cities where I manage real estate or have lived in the past, but I am not considering a move there. I would suspect others do the same. I question the reliability of the data on the correlation between searches and actual moves.
Second, What about births? Denver is one of the fastest growing metro areas for births (in the top 10 in the country). Births are an indicator of long term stability in a given market. See my prior article where I discussed this in greater detail (Why children should guide your investing decision)
Third, Denver is landlocked with limited room left to grow. Naturally, the growth rate of Denver will slow as there is no room left to build. The rest of the front range will pick up the slack with areas outside the city continuing to grow.
Fourth, migration is driven by jobs. Denver and the front range have become a magnet for high paying tech jobs (google, amazon, intel, etc…). This trend will continue and further drive net migration to Colorado.
Although the headline is startling that 24% of users were searching for homes in other metro areas, the reality is far different. The redfin analysis made a great storyline for media both in Denver and throughout the country. Unfortunately, there are major flaws in the analysis including not only limited data but also skewed data that make the analysis worthless.
There are much better predictors of long-term relocation trends than Redfin. One of the key items to watch is actual births and corporate relocations to a state both of which are showing just the opposite trend of the redfin data. I’ll keep looking at census data and more reliable sources than the number of clicks on cities at a discount brokerage that garners less than 6% of all real estate search traffic, I would suggest you do the same.
Resources/ Additional Reading
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Written by Glen Weinberg, COO/ VP Fairview Commercial Lending. Glen has been published as an expert in hard money lending, real estate valuation, financing, and various other real estate topics in the Colorado Real Estate Journal, the CO Biz Magazine, The Denver Post, The Scotsman mortgage broker guide, Mortgage Professional America and various other national publications.
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