If you missed the headline in the Denver Post, it sounds like the sky is falling. Boulder’s average sales price is down 2.7%, Denver 1.2%, and Douglas 2.1%. Are lower home prices on the way? Is this the beginning of the next cycle? How accurate is the eye-catching headline? What should you do now? Unfortunately, there is allot more to the story than the headline reveals.
Major flaw in analysis
It is unfortunate that many media sources focus on the eye catching headlines. The headlines are sensational, but very misleading as to what is happening in the market. January is one of the slowest months in real estate in Colorado so to make assumptions off one month’s numbers is statistically impossible.
Let’s look at Denver county, in January of 19 there were 357 sales, all of 2018 there were 7198 total sales. Assume 19 is similar to 18 this means January sales are 4.96% of total yearly sales. It would be quite a stretch to make any assumptions off less than 5% of total sales.
Boulder county is even more profound, there were only 150 sales in January, 4% of all sales in 2018. Furthermore, to make market predictions of such a small sample size is ludicrous.
Data flaws lead to false assumptions
With a flawed analysis of such a small sample size of total sales, any assumptions made would be false. In the Denver post article, the author stated that “ Kiss those years of double-digit annual home price gains goodbye. Depreciation has made a comeback in Boulder, Denver and Douglas counties, foreshadowing more widespread declines in the months ahead, according to a report Tuesday from the Colorado Association of Realtors.” Just like the analysis, the assumption above is not accurate due to issues with the data including small sample size and limited data compared to total sales.
Is there really a slowdown?
It is tough to say whether there really is a slowdown based on the data we have so far. Colorado, like many markets are highly cyclical with the spring selling season getting going in the April/May timeframe and the winter months Nov-feb/march pretty slow in real estate. On top of the limited data on sales there are many factors that are likely influencing sales:
- Rates: Rates have been going up and down almost daily. This likely is keeping people on the sidelines
- Weather: This is the first January in 4 years where Denver has gotten some real winter weather with snow and cold, both of which decreases peoples “mood” for real estate shopping
- Large sales: With limited data, large sales can swing the averages. For example, what if there was a 20 million sale in Boulder in January of 18 and only a 5 million sale as the largest sale in January of 19? With limited data, it is relatively easy for the data to quickly become skewed.
Where do we go from here?
I don’t see any cliff drop on the horizon for Denver or the metro area. I think the market will become much more “normal” with a balanced market overall. For the next several years I see flat appreciation to allow incomes to catch up with appreciation. There could be some slight declines but nothing like we saw in the past recession.
Healthy market
Denver and the front range over the long term will remain a healthy market. Like stocks real estate doesn’t go up forever and needs to take a “breather”. We are in the “breather” stage of the market but remember that Denver has strong fundamentals: highly educated workforce, desirable quality of life, low cost of living compared to the coasts, and continues to attract desirable employers from the North Face to Google to Amazon. These fundamentals will continue over the long term. For now, sit back and enjoy the 360 days of sunshine in Colorado (at least that is what the marketing material says), take a breather, and relax just like the real estate market.
Resources/Additional Reading
- https://www.denverpost.com/2019/02/13/home-prices-decline-boulder-denver-douglas/
- http://www.coloradorealtors.com/market-trends/regional-and-statewide-statistics/
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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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