What Does Living in a Top Housing Market Mean for You?
For fifteen years pundits have been talking about the rising prices of Colorado's housing market, and with an all-time low of just 2,541 houses for sale in the Denver Metro area at the end of last year, you can see why. Whether you are actively shopping in Denver right now, or if you have just seen the headlines - you know this state’s housing market is on a rocket ride.
Everybody’s situation is unique and affordability means something different to everyone. Whether you are looking at how to move into the next 10 years of real estate or to the next 40 years, one thing is clear; the Colorado housing market is actually a challenging situation for buyers and sellers.
What does a hot market mean for buyers?
If you are buying a house in Colorado you have to decide where you can compromise.
Right now, and for the foreseeable future, if you want to buy a house be prepared to make a competitive offer. What does competitive mean? You are most definitely giving up on the picture-perfect fit and finish in order to get into a house. People are waving inspections, waving appraisals, offering cash, considering contingencies, and agents are getting competitive by lowering commissions.
Maestro Associates’ principal, Chris Blair, has seen an uptick in requests for people who are looking to make room for this big purchase saying “Below $1.5m we have heard stories of multiple offers ranging up to 20% over. The key to making a competitive offer is understanding how far you can push it, relative to the house's true value, without compromising on your financial future.”
Historically, realtors have coached clients to count on 5.5% annual appreciation in the Denver real estate market. On this trajectory, we are likely going to see appreciation of +10% in the next two years. So, when people are making offers 20% over market, they are really buying 2-4 years ahead of the market. Whether you pay more now or wait for the market to normalize, you should plan on paying more.
Higher sales prices are great for sellers, right?
Yes, it’s great to cash out of your investment as a seller. However, sellers also have to compromise. Instead of compromising on the offer, it’s compromising on where to go next, how to minimize your tax bill, and how to maximize your profits.
“A Lot of sellers we work with are downsizing financially. They are taking advantage of the Colorado boom, moving to either leverage up to a higher price range or moving to the next stage of their life a little earlier than they planned,” said Laura Schaefer of E&L Team at RE/MAX Elevate. Laura continued, “they have profits from a boom on the ‘sell’ side and are finding newly appreciating markets on the ‘buy’ side, so they are really getting the best of both worlds.”
Selling a house only turns the seller into a buyer, and we all know that story.
Will the market slow and stabilize? How does one prepare for what could happen next?
If you are waiting for that perfect moment to get a deal you are likely going to be waiting for a while. Why? The Fed has committed to keeping rates low for the foreseeable future, people continue to migrate to Colorado from higher-priced housing markets, and supply remains consistently low.
The Denver market at large is behaving very similar to the Boulder market of the past.
Below is a graph of appreciation in Boulder County homes since 1978. The market rarely moves in a negative direction, and when it does it is momentary. If we use this as the model for what will happen next, the housing market could stabilize and appreciate slower as interest rates rise, but housing prices will not go down for long.
To make a move in this market, as a buyer or a seller, you have to have your financials lined up and understand what you are willing to compromise on. Having an understanding of your complete financial picture today, and understanding where you want to go in the future can be your best friend.
Can actually afford more than you think? Maybe you don’t have to compromise on what you want in the future to get what you want today.