The Denver metro real estate market has performed a sudden U-turn with inventory up 28%, sold homes down 14%, and days on the market up 23%.    This is the highest amount of inventory since October 2013.  With all the grim news, there is a ray of light 😊  Colorado takes 3 of the top 10 spots for long term investment but Denver has a 17% probably of declining. What cities in Colorado made the cut?

 

3 Colorado cities top long-term investments in the US

Smart Asset named three Colorado cities as top long-term investments in the country.  SmartAsset collected and analyzed data on home values over time to find the metro areas that are the best bets for growth and stability. Specifically, we compared home value data for every quarter during the 25-year period from the first quarter of 1994 up to and including the fourth quarter of 2018.

The goal of this study was to find the top places throughout the United States that have the best prospects for long term growth and minimizes the risk of falling prices.

Who made the list?

  1. Boulder, CO
  2. Midland, TX
  3. Austin, TX
  4. Fort Collins, CO
  5. Bismark, ND
  6. San Francisco, CA
  7. San Jose, CA
  8. Denver, CO
  9. Houston, TX
  10. Cheyenne, WY

The three on the list in Colorado were not surprising.  Boulder, Ft. Collins, and Denver are all strong markets with lots of demand, ample jobs, and limited supply.  Boulder having the most limited supply and highest demand which vaulted it to the top position in the country.

The Downside risk

This is an interesting part of the analysis.  The study tried to predict the probability of at least a 5% decline in prices.  Boulder had a 0% probability of decline, Fort Collins had a 2% probability of decline, and Denver had a 17% probability of decline.  I’m not sure how they can predict the probability of decline.

When looking at possibility of decline there are three factors that will influence the probability: how quickly a market appreciated, how much supply there is now (and how much is coming online), and what future demand looks like.  All these variables are very difficult to monetize.  For example, how do you predict how much demand there is and furthermore how does demand change if there is a recession.  For example, in the last recession the amount of movement throughout the country slowed dramatically.  When we have another recession, the number of people looking to move to Colorado will likely slow.  Long and short, the predictions of loss in value are impossible to predict!

Summary:

I think every market in the US has a high likelihood of at least a 5% decline in the next recession including Boulder, Fort Collins, and Denver.  Housing in many markets has been appreciating at double digit returns so a 5% decline is minimal compared to the appreciation that has occurred since 2009.  With that said, I think Colorado will outperform most other US markets due to the lack of supply (and pending supply), strong job growth, and demand from other cities throughout the country.  I don’t see these factors changing anytime soon but there will be some small downside risk in Colorado due to economic conditions just like the rest of the country.

Resources/Additional Reading:

  1. https://smartasset.com/mortgage/best-housing-markets-for-growth-and-stability-2019
  2. https://coloradohardmoney.com/real-estate-sales-plunge-in-denver-inventory-surges/

 

 

 

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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.

Fairview is the recognized leader in Colorado Hard Money and Colorado private lending focusing on residential investment properties and commercial properties  both in Denver and throughout the state. We are the Colorado experts having closed thousands of loans throughout the state.

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