The chart above looks quite scary to say the least (source: Fed charts). Values have increased further since the data was analyzed. Housing prices are now substantially above our last peak. From the chart it sure looks like there is a bubble/peak soon. There is one piece of data that could assuage your fears.
What does Denver have to do with San Francisco?
The St. Louis Federal Reserve Bank did an analysis on another “hot” housing market San Francisco. In San Francisco the federal reserve found: “the buying power in the Bay Area has increased significantly more than for the rest of the country. Assuming the housing stock has remained basically unchanged, there have been fewer people with much more money chasing the same houses. So house prices increase.”
What does this mean for Denver? If you look at the chart below, Denver has also experienced a significant increase in income while at the same time inventory has been slow to react. Building in the metro area
What about inventory?
Inventory in Denver and the front range remains constrained for various reasons. According to the Denver post: “Colorado is growing at twice the pace of the country, but you have housing starts that are at 1995 levels. That is your problem,” said Eisenberg, previously a senior economist with the National Association of Home Builders. (source: Denver Post)
Should you be worried?
The rising income, increased demand from our growing economy, and lack of supply are the key drivers of the recent large increases in Denver housing prices. I don’t foresee any large change in inventory soon, but net migration is beginning to slow. There does not appear an imminent bubble waiting to pop but the decrease in net migration will begin to slow the pace of appreciation. Do I think there is a bubble? No, but we are somewhere near a peak that will likely level out over time
Sources/Additional reading
- http://www.businessinsider.com/housing-bubble-fed-charts-2017-5
- https://fredblog.stlouisfed.org/2017/10/incomes-determine-house-prices/
- http://www.deptofnumbers.com/income/colorado/denver/
- https://www.denverpost.com/2017/02/12/denver-new-home-construction/
I need your help!
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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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