As we approach the end of the year it’s a great time to review what the real estate market experienced in 2015 and where we think it’ll head in the New Year. Overall, I’m extremely pleased with what we’ve experienced in the past 12 months and remain bullish for the future. I expect the economy to continue to improve and our metro Denver housing market to stay strong but, critically, not to overheat. Here are a few different metrics I use to evaluate the market and help you understand it better. For each, I’ll briefly describe what 2015 looked like and where I think we’re headed.
Market strength - 2015 was an extremely strong seller’s market. The market strength peaked in the spring when the bottom dropped out of our inventory and multiple offers were the norm, not the exception. The good news is that since then the market has reacted appropriately. With the rise in prices, more sellers have put properties up for sale this fall, cooling the market down somewhat. It’s still a strong seller’s market today but it’s not overheated. I expect 2016 to continue to be a seller’s market but I see no sign of a major imbalance that could lead to any sort of ugly peak and crash.
Rental Vacancies - The rental market is stronger than it has ever been in metro Denver. The vacancy rate for 1- to 4-unit properties is an extremely low 2 percent. Rents are rising faster than ever, up 30 percent in the past three years alone! As a result of the rising rents, we are seeing more and more renters deciding it’s time to buy instead of suffering through additional rent increases and tougher application processes. In addition, more and more homeowners who experienced hardships during the downturn (who lost their homes and have been renting ever since) are now able to purchase a home again as their ability to finance a purchase recovers. This is great news for the market and will certainly lead to more sales in 2016, continuing to support our seller’s market.
Interest rates - The recent decision by The Fed to raise short-term interest rates by 0.25% doesn’t mean that long-term rates — like mortgage rates — will immediately rise. A possible change in the historically low mortgage rates that consumers have been accustomed to since 2008 may cause concern, but there is no indication that there will be an alarming rise. With even a minor adjustment, there is no need to be caught by surprise. Remember, the Federal Reserve has control over only short-term, not long-term rates. Long-term interest rates are impacted by the bond market as well (as bond prices decrease, interest rates increase). The bond market to a large extent is not predictable. Looking at where you stand now, and how your housing budget could change when mortgage rates do go up at some point, could save you thousands of dollars in interest costs. Thus, it’s not time to worry, but rather an opportunity to strategically plan. Feel free to reach out to me directly if you would like to run some numbers to understand how a potential rise in rate could impact your buying power or if you would like to be introduced to a good lender to evaluate a refinance at this time.
The Economy - Let’s talk a bit more about the economy. The metro Denver economy is very strong, which has a lot to do with our terrific real estate market. The unemployment rate is extremely low, at about 3.5 percent. Inflation will stay in the range of 1-2 percent, our population is rising at a rate of 50,000 people/year, and consumer confidence continues to rise. Nothing can be better for the housing market than a strong and steady economy.
When all’s said and done, I can’t wait for 2016!