Is Denver Heading for another Bubble?
Those of us who watched our home values plummet in 2008 during the last recession can't help but wonder.
Megan Aller of Land Title Guarantee Company shared her thoughts on this topic today, and I thought I'd try to provide you with some of the highlights of her discussion.
Some of the factors that contributed to Denver's last bubble were questionable lending practices including 100% financing and approved loans based on stated incomes. In addition we had an over supply of homes and over building of homes. It is clear we do not have these factors at play in the Denver Metro area at this time.We are all grateful that lending practices have improved dramatically.
Another major reason for the difference is migration into Denver. Normal migration figures into Denver are 1%, and we are at 2% now. We have an active population of buyers competing for properties under $400,000. These include Millennials, First Time Home Buyers and Baby Boomers all competing for the same properties.
Even with a recent increase in inventory of homes available, Denver Metro inventory levels remained low as demand continues to outpace supply. The average sold price of a single-family home in the Denver area in May was around $417,000, and the average sold price for a condo/townhome was $263,000 for the same time period.
Skyrocketing rental rates and low vacancy rates have Denver landlords dancing in the streets due to low inventory.
Denver's competitive housing market and high demand is keeping the sales cycle very short; for both attached and detached units, the majority of homes in Denver Metro are likely to be gone within seven days.
What could cause a slowdown or correction leading to a more balanced market?
If interest rates start to creep up or exceed 5%, if migration into Denver slows down dramatically, or if we see a huge influx of homes available on the market, we could start to see a more balanced market, where the cards will seem to be dealt more evenly for buyers and sellers.
Only Carnac the Magnificent can predict the future, but as long as we have strong migration into Denver and low inventory, there is little likelihood of a bubble in the foreseeable future.
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