What is up with the market?

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If I had $1 for every time that I am asked when the market is going to crash, I could retire. Or at least, I could eat a lot more sushi and do some amazing shopping. It seems that everyone is concerned that the market is on the verge of a major shift in the Denver metro area.

“Prices can’t keep going up like this!”

“When is the bubble going to pop?”

“Should I wait to buy until the prices go down?”

Before I give my thoughts on the subject, I want to issue a disclaimer: Divination is one of the most imprecise branches of magic. Any thoughts on my part of speculative, at best. This is the world of crystal balls and palmistry.

Now, down to business: Are we headed towards doomsday? Is there a bubble and when is it going to pop?

The short answer is, no. It does not appear that there is a bubble blowing up in the Denver market and, absent a major event in the market (think mortgage meltdown, astroid hitting the earth, Denver becoming totally undesirable), doomsday does not appear to be coming anytime soon.

The Denver market is reflecting a long term build up of buyer demand with still limited seller inventory. Why? Well, there aren’t enough homes being built– duh. But more subtle, some sellers, that would otherwise be move-up buyers, are concerned that they can’t get a house as nice as the one they are in because of prices. They feel lucky to be where they are because they can no longer afford their own neighborhood. So they are staying put. Combine that with all of the newcomers to town and we have a situation ripe for massive appreciation that is PURELY supported by demand.

The current market is also being supported by CASH. About 25% of all transactions are happening without the involvement of credit. The influx of cash into the market supports prices. Market value is a buyer will pay– and if a buyer is paying cash, there is no false indication of value.

We have a market with LOADS of REAL buyers paying REAL money for homes. This is not a propped up housing boom. This is appreciation supported by demand and money.

But will it continue? That is less clear. We seem to be close to an affordability ceiling in the city. Prices have consistently been appreciating at least 10% year over year for the last 4 years. Housing is now 40% MORE EXPENSIVE than it was just 4 years ago. Think about that for a second! If I bought a $300,000 home in 2013 and went to sell that same home today, the value would be close to $420,000! That is just insanity. But wages aren’t keeping up with housing prices. Many many buyers are being totally priced out of the market simply because they haven’t had a 40% raise. At some point, this will cause the severe appreciation that we have watched over the last 4 years to slow down. We may not see prices fall, but we are likely to see a leveling off.

I know what you are thinking, “I have seen SO many price reductions lately! I think things are about to crash!” Not so, not so. I will explain more on that next time.

How do you feel about today’s market in Denver?