Denver just passed an “affordable housing program” with new requirements for low-income housing. Multifamily will…
Metro Denver’s housing market has been changing in recent weeks, much like a cold front ending record heat, and could provide significant relief for buyers if this continues, local real estate agents say. The market has started moving in the past two to three weeks and has been very noticeable for most brokers within the past seven days. What is causing the shift in Denver real estate? Are the mountains next? Will real estate cool or completely freeze?
What is happening in Denver Real Estate?
“Although traffic is continuing at a historic pace, we’ve seen a significant month-on-month decline from April levels,” said Daniil Cherkasskiy, ShowingTime’s chief analytics officer, in a press release. “As we explained last month, even if demand weakens, we will still be a long way from a buyer’s market as demand for real estate will remain at unprecedented levels.”
Weekly screenings in Colorado, up 50% in April compared to the first week of January, went almost flat in late May. They rebounded in June, but the rate of increase is only about 20%, a fraction of the typical increase in June screenings versus January, according to ShowingTime.
Aside from being easier to get a display space, buyers should also notice a greater variety of homes to choose from and be able to view a property more than once before deciding whether to bid. And they will have less competition when it comes to making an offer.
What is happening in Mountain real estate?
In many mountain markets, I am seeing a similar “slowing” of the pace. The market has gone from “frenzied” to hot with many properties staying on the market a bit longer. I am starting to see a trend where older residents are deciding to sell as prices have gotten so high and now is viewed as the best seller’s market in a while.
For example, in my neighborhood, a few months ago there was not a single home on the market, now there are five houses that are priced pretty high to try to take advantage of the market. Although I do not see the frenzied pace we have seen over the last 18 months or so returning this summer, I also don’t see much downside in the mountain towns as build costs are so high and inventory very limited.
What is causing the “cooling” of Colorado real estate?
- Prices: As prices have increased, the number of available buyers has decreased due to affordability. For example when the median home price in Denver was closer to 400k, more buyers could afford to buy a house, now that the median home price is 600k, considerably less buyers will qualify for the same house.
- Inventory increases: As prices have increased so much, I am starting to see a trend where more opt to sell. This should begin freeing up inventory in Denver and the Mountain markets.
- Demand pulled forward: The last 18 months throughout Colorado have been insane to say the least. With so many sales taking place, this has essentially pulled forward years of demand. I was talking with a realtor in one of the ski towns and his take is that 3 years or so of demand was pulled into one year.
- Back to the office trends: Regardless of what the media is saying, everyone is not going to work remotely forever. Businesses are already coming out with their reopening plans and the overwhelming majority are going to move into a hybrid model where it is required to be in the office a set number of days a week. This trend will taper demand in resort markets. I’m already seeing this where houses sold a few years ago with relocators from the coast have their house on the market as they venture back.
- Decrease in demand due to a shift to services: As the economy heats up, traditional patterns will remerge with services accounting for most spending from restaurants to travel. The nesting phase is over and consumers are ready to spend on experiences.
Will Denver and mountain real estate in Colorado cool or totally freeze?
The trends we are seeing now are merely a respite from the scorching hot market. Years of demand has been pulled forward and appreciation has been off the charts. It was inevitable for the markets to slow to a more measured pace which we are now seeing. Both the mountains and Denver have cooled but that does not mean that we have flipped to a buyers’ market. With inventory still limited it could be a bit before the switch changes from sellers to buyers but for now the market is becoming a bit less frenzied.
Although no freeze is in sight for Denver and mountain real estate a cool down is upon us. This cooling will continue throughout the fall as demand ebbs, more traditional spending patterns emerge, and workers migrate closer to the office. Fortunately I don’t foresee any cliff drops on the horizon as inventory remains constrained due to high build costs and limited availability of land to build on.
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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 Bloomberg, Businessweek ,the Colorado Real Estate Journal, National Association of Realtors Magazine, The Real Deal real estate news, the CO Biz Magazine, The Denver Post, The Scotsman mortgage broker guide, Mortgage Professional America and various other national publications.
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