The Real Estate Market In Denver has just become the most expensive non-coastal real estate market in the nation. According to Colorado Public Radio, the average price of a single family home has risen above $500 thousand. What’s more of the new homes scheduled to be constructed over the coming years, just 7% are expected to sell for less than $300 thousand. With developers building fewer affordable homes than at any time in Colorado history and no signs of a bubble on the horizon, it’s a good time to buy in the Denver Metro Area.
Why Are Prices So High?
Considering the massive population growth along the front range, many experts think Denver is only building half the number of homes necessary. Last year, Denver developers built 9 thousand homes. That’s compared with the 20 thousand homes a year that were being built before the recession.
What’s the reason for the sudden decline in housing production? You can sum it up in a single word: costs. Before any new housing developments can be built, developers have to build roads, water and sewer lines. Before the recession, this was standard operating procedure. However, many “developers were wiped out during the recession.” They’re not eager to take on the financial uncertainty of building out at their pre recession levels. Many developers balk at paying local government fees for installing water and sewage systems. The fees are the same regardless of the price of the property being built. Because of this, many developers opt to build a $1 million dollar home as opposed to a $300 thousand home.
There are several other factors causing Denver’s unprecedented real estate growth. According to the Denver Post, some builders are investing less in new construction due to “a shortage of construction labor, lack of close-in and affordable land to build on and conservative construction financing.”
Another issue is that an abnormally large amount of housing is being eaten up by the rental market. During the recession, many people bought up foreclosed properties and began renting them out. If the owners of these properties would begin selling them, the housing market might open up and prices could level off. However since interest rates are at an all time low, few investors are likely to do this at the moment.
So Is This a Bubble?
Despite the huge rise in home prices over such a short time, experts believe Denver is not experiencing a housing bubble. First of all, the current situation is completely different from 2008. That housing bubble was created by easy credit. Because borrowers were instantly approved for loans, an artificial demand was created, and housing prices rose as a result. Currently, credit is so tight that many “potential buyers can’t qualify for a mortgage, either because their credit scores are too low or they lack an adequate down payment.” The housing market in Denver isn’t driven by an artificial demand. It’s being driven by a real demand.
Many people are still moving to Colorado. According to BizWest, 80 thousand people moved to the Front Range in 2015. Similar growth is predicted for 2016. Since Colorado offers such a high quality of life, it’s likely people will continue flock to Colorado.
Economic reasons will also keep the state’s population high. Colorado has one of the lowest unemployment rates in the country. Since the end of the recession, Colorado has created between 50 and 100 thousand jobs each year. Also the cost to rent a home in Denver is currently comparable to the cost of a monthly mortgage payment. Anyone who can buy is buying, and it’s likely to stay that way well into the future.
Considering it’s likely high housing prices aren’t going anywhere soon and we’re not in the middle of a bubble, there’s never been a better time to buy. If you’d like to lock in an affordable mortgage, give me a call.