Denver has been a primary city leading the nation past the recession years (2008-2011). Since 2012, Denver experienced annual price appreciation between 9.5 percent and 11 percent and may likely end up near 10 percent in 2017.
Let’s look at why some cities “bubbled and then burst” nearly 10 years ago. I’ve had many clients, friends and other brokers ask if Denver is possibly entering a “bubble” phase. It’s not unreasonable to wonder (when things are good) if the market might be headed south. The answer is that it’s highly improbable for Denver.
The “bubble to burst” cities like Las Vegas, Phoenix and Miami, were experiencing annual price appreciation of anywhere from 20 percent to 35 percent for several years before 2008. New-home and condo construction development were built at rapid rates as those areas became quickly “over-built.” Denver is building at about half the pace of 2005, when 20,000 new homes were built, compared to 11,000 in 2016, which is not meeting current demand. Apartment construction has begun to meet demand, but will likely level off soon. In many metro areas, price appreciation will continue, as the principles of supply and demand remain the rule.
Another major reason our country experienced the recession was due to graft and greed of our nation’s financial institutions that provided mortgage loans to any borrower with a pulse who could sign their name to a 95 percent to 100 percent mortgage. That system no longer exists and loans are now being originated to actual credit-worthy buyers.
Rising prices and low housing supply are a challenge to home affordability. Conversely, driving forces such as low interest rates, low unemployment (4.1 percent nationally and 2-3 percent in Colorado), with strong job creation and salary growth, will continue to provide market balance.
As fall approaches, we see more homes coming on the market, providing better selection and less seasonal buyer competition. I would love to encourage first-time buyers and potential move-up buyers to experience the wealth-building benefits of homeownership before it becomes more difficult. I mention “move-up” buyers because:
1. The lower-to-mid price ranges enjoyed most of the reported price appreciation, while the luxury (over $1 million) market increased less (1-5 percent per annum, compared to 10-14 percent below $500K). Consequently, the “move-up” family has more opportunities to sell higher and
buy lower.
2. When the “move-up” buyers sell their home, they create more inventory for other buyers. Potential buyers try to save more down payment money before buying, while move-up buyers are waiting to build a little more equity before selling then buying.
I understand the desire to increase down payment (DP) to lower the monthly payment. The following example demonstrates a possible financial approach providing higher benefits.
Let’s say you are buying a $500,000 home and have $50,000 as a DP, hoping to save another $50,000, to total 20 percent. You can finance a property with DP options of 3.5, 5, 10, 20 percent or more. Today’s interest rate of 4.25 percent means for every $1,000 borrowed, it costs $4.92/mo. over 30 years. Waiting to save $50,000 would only save you $246/mo. in payment. That may not be worth it if it takes two years to save $50K. If you halve Denver’s 10 percent/year appreciation rate to 5 percent, that same home is worth $50K more in two years. The additional two years of payment totaled $11,808, representing over $38K lost; not to mention tax benefits, principal reduction of over $6K, and the likelihood of future higher interest rates.
Speak with a good professional broker and sit down with a trusted lender to learn your best near-future options.
For more information, contact LIV Sotheby’s International Realty managing broker Steve Blank at 303-520-5558. To service all your real estate needs, visit LivSothebysRealty.com.
LIV Sotheby’s International Realty has 14 locations in the Denver Metro and surrounding areas. For more information, call 303-893-3200.
The news and editorial staffs of The Denver Post had no role in this postap preparation.
