Colorado is an odd state, prior to last year, you were unable to buy full…
Is Denver’s popularity starting to fade? In the first three months of 2018, Denver posted a “net outflow” of Redfin users for the first time, meaning that more Denver-based Redfin users were searching for homes in other metro areas than Redfin users elsewhere looking to move in. This is according to the latest Migration Report by Redfin. How accurate is this prediction? How will this impact commercial and residential real estate in Colorado?
According to Redfin’s recent data analysis, Of all Denverites using Redfin, 20 percent were searching for homes in another metro, up from 15 percent during the same time period a year earlier.
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.
Where are they looking?
The top destinations for people looking to move from Denver are CO Springs followed by Fort Collins. Out of state, Phoenix Arizona led the list.
Who Cares where people are looking?
The majority of folks in Denver looking to move are looking to move within the metro area (or front range). This is not surprising as prices increase in the center core, people migrate to more affordable areas where they can still reach employment opportunities focused around the respective city.
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?
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 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.
Although the headline is startling that 20% 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 which is 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 brokerage website, I would suggest you do the same.
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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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