Many people are wondering if real estate values have topped out in the Denver metro area and whether it is still a good time to purchase residential real estate. We certainly believe that real estate is always a good investment in metro Denver; it is just that sometimes you only need to hold a property for a couple of years to see a gain, where other times you need to hold on for longer. According to the home price index which is put out by The Federal Housing Finance Authority, based on purchase price the metro area has only seen 5 years out of the last 30 from 1992-2021; where property values went down rather than up. Yes, that is only 5 out of the last 30 years! Since 2012 we have been in a 10-year uptick:
2012 ~ 11.4%
2013 ~ 9.9%
2014 ~ 10.5%
2015 ~ 12.2%
2016 ~ 11.0%
2017 ~ 10.0%
2018 ~ 6.0%
2019 ~ 5.8%
2021 ~ a whopping 17.4% which was fueled by an astounding demand due in part to the pandemic, combined with continued low interest rates & very low supply.
Metro Denver is a place that people want to live which is negative and positive. On the negative side it means more demand than supply which has fueled the large increases in value the past couple of years. On a positive note, values are apt to hold steadier even as the market cools down a bit because many people still want to live here. We are not expecting a large decrease in values because there is too much demand for housing in our city. We also have many different types of industries fueling our economy. It is not likely that one or two struggling industries will take down the entire housing market.
Yes, interest rates have gone up by 2% give or take, and that has changed buying power, but this also means that the double-digit value increases are likely to get back to a more normal 3-6% year over year rate of increase. This will help buyers with the ability to make a full price offer on a house rather than bidding it up way over list price. In some cases, they may even be able to pay a little bit less than list price. We are seeing one or two offers on a listing now where two months ago it would have been 20+ offers. The condition of the property and the neighborhood still have a lot to do with it but we are hopeful to get some people into houses that can afford to purchase at list price, but not afford to throw a bunch more cash at a property.
The housing market itself is in much better health today that it was in 2007-2008 according to CNBC. Total mortgage debt in the United States is just 43% of current home values, which is the lowest on record. Negative equity, which is when a borrower owes more on their home than it is worth, is virtually non-existent. Just 2.5% of borrowers nationwide have less than 10% of equity in their homes. Should home prices go down in the metro area; this will provide a nice cushion for homeowners.
Appreciation is of course one of the main objectives when purchasing residential real estate; but there are many other great reasons to do so:
Tax benefits ~ You can deduct the interest you pay on your mortgage and your property taxes. Some of the costs involved with buying a home can also be deducted in the year you purchase the property.
Equity ~ Mortgage payments let you build up equity in your home whereas rent you pay is money that you will never see again.
Savings ~ Building equity in your home is a forced savings plan. Plus, when you sell, in most cases, you can take up to $250,000 individually or $500,000 for a married couple as a gain without owing any federal income tax.
Predictability ~ Your fixed rate mortgage payments do not rise over time (unlike rent); therefore, as your income rises your housing costs become a smaller portion of your expenses. You do need to keep in mind that the property taxes and insurance costs will likely increase.
Freedom ~ You can update and decorate your property to your hearts desire because it is yours!
Stability ~ Setting down roots in one neighborhood and remaining there for several years allows you and your family to build relationships with neighbors and the community. It can also offer children the benefit of educational and social continuity.
To conclude we believe that residential real estate has always been and will continue to be a good investment. Stop waiting for the “right” time to enter the market, or you will continue to miss out on all of the benefits of being a homeowner.