Do you have a road trip that you take repeatedly?
Heading over to Sturgis on the Harley? Trundling off to Lake Powell?
If so, you are familiar with the waypoints. That place you stop for a milkshake. A noteworthy view from a mountain pass. The historical marker where someone famous did something noteworthy at some time in the distant past.
The 2018 residential real estate market in metro Denver was like an oft-repeated road trip through familiar territory.
However, 2019 might be the year where we take a different route to get to our year-end destination.
The highlights for 2018 include:
- Average price appreciation was 8.4% and that is solidly within the 6.9% to 11.5% range experienced in each of the previous five years.
Just over 50,000 homes had a new owner at the end of 2018 than they had when the year began. We’ve had 50,000 and 52,000 home sales yearly going back to 2013.
We began the year with 3,400 homes on the market and that number climbed as high as 7,700 in early fall. “Ditto” for 2013 through 2017 when the inventory fluctuated from a low of 3,300 to a high of 9,200.
One thing that did shift significantly in 2018 was affordability. The media have been sounding the alarm on affordability going back as far as 2014. Up until 2018, it was a false alarm.
Over the last 45 years, the average principal and interest payment required to buy the average single family home has been $1,756, monthly. That is in 2018 “inflation-adjusted” dollars.
In 2014 through 2017, the numbers ranged from $1,611 to $1,888, monthly – very much in line with the average affordability level over the last four and a half decades.
In 2018, however, we saw the average payment climb to $2,191. Affordability has been worse than that in only six of the last 45 years. Obviously, this is a significant change.
So, we got out the map to see if we have experienced these road conditions before. Turns out we have! The table below shows the numbers.
Affordability was similar in the 1996 – 1999 time frame as it was from 2014 – 2017. Then, affordability became substantially worse in the years following each stretch, (2000 and 2018).
Here is what happened to the market for the five years from 2001 – 2005, after affordability became more challenging in 2000:
The number of homes sold gradually increased each year compared to all of the years from 1996 through 2000.
Home prices continued to appreciate but at a slower pace. Appreciation went from being 9% to 14% per year in 1996 through 2000 to being 4% to 7% per year for 2001 through 2005.
The number of homes available-for-sale shot up dramatically. After never seeing more than 12,000 homes on the market at any one time in the late 1990s, the peak inventory level reached almost 25,000 homes in 2003.
This leads us to expect a similar pattern to develop for 2019. Inventory will climb, and buyers will have more homes from which to choose. This will not impede home sales. We will continue to have 50,000+ homes changing hands and can even expect more homes to be selling. Home prices will continue to rise, but at a slower rate.
Affordability will be the key metric to watch in 2019. How much the home price appreciation rate slows down will be tied to whether the affordability numbers continue to worsen or improve.
Here are some trends to expect if you are buying or selling this year:
The market will continue to be good for sellers – still slightly favoring sellers, but not as wildly so as in the last five years.
Sellers should expect it to take longer to get a home sold.
Multiple offers will become less common, except in certain price ranges and geographic areas.
Buyers will have more inventory from which to choose and will have more negotiating leverage.
It will be a good time for people that have wanted to sell their current residence and buy another place. Many have been reluctant to do so for fear of being “homeless” – knowing it would be easy to sell but hard to find the replacement property. Increasing inventory should help alleviate these fears.
The road may have some different twists and turns this year, but it will get us to a good destination.