Happy New Year! Now that the holidays are over it’s the perfect time to talk about what I think the real estate market will look like in 2016. So let’s jump right in.
- Average Home Price: The average price of a home in metro Denver leapt another 8 percent in 2015, hitting an all-time high and finishing the year above $407,000. I believe 2016 will be almost as strong with an average price increase of 6-8 percent and here’s why: The number one driver of home price change is the amount of inventory on the market. In 2007, for example, we had a peak of 31,000 properties on the market and prices DROPPED 14 percent, while in 2015 we averaged just 7,000 properties on the market so prices ROSE 8 percent. For the past several years we have had record low inventory in metro Denver with absolutely no sign of it increasing. Until it does there will continue to be tremendous upward pressure on prices as demand outstrips supply. Where will the new supply of home inventory come from? It won’t be bank-owned properties or shortsales. After five long years of downturn our economy is in full recovery, and a better economy means fewer distressed properties. The additional supply will eventually come from home owners who finally realize what a great market it is and decide to put their home up for sale. But when this will happen is anyone’s guess. Part of the issue is an interesting Catch 22 where many potential sellers look at the market and think they can’t find their dream home because of the lack of inventory... therefore they don’t put their homes on the market... thereby contributing to the lack of inventory. I frankly don’t see any reason to think this will change any time soon. Low inventory and rising prices are here to stay for the foreseeable future.
- Number of Homes Sold: There was an increase in the number of single family homes sold year over year of just 1 percent simply because there was so little inventory on the market to buy. So while prices rose, the number of sales was nearly flat. I don’t foresee any dramatic change in 2016. I expect a 3-4 percent increase in home sales over last year, if only because our Denver metro population is rising 1.5 percent per year, and all these people need to live somewhere!
- The Condo Market: Incredibly enough the condo market did even better than the single-family home market in 2015 with an average price increase of 16%! Just like the single-family home market, I don’t see any evidence that would lead me to believe this will change any time soon. The inventory has been at rock bottom for years and until more condo inventory comes on the market, prices will continue to rise.
- The Investor Market: I think the real estate investor market will remain strong. The fix and flip market will continue to be profitable for those who can find under-priced homes to buy and repair. They’re out there but it takes tools, patience, and work to find them. Once you get one fixed up, selling is the easy part due to the lack of competing inventory. The buy-and-hold market will continue to be extremely generous to long-term investors. Interest rates and vacancy rates are still at record lows and rents continue to skyrocket. It’s not difficult to buy a rental property in today’s environment and put it on the path to be paid off in 12-15 years. For building long-term wealth it’s tough to compete with rental property ownership. That’s the one thing that never changes!