2017 was another strong and interesting year for the Denver residential real estate market.
Here’s a quick market update:
Prices have continued to go up in Denver in 2017. The median sale price across property types in in Denver County at End Of Year (EOY) 2017 was 10.9% higher than EOY 2016. Separating this data by property type, the median attached single family sale price in Denver County for EOY 2017 was up 15.7% over December 2016, while the median detached single family sale price in December 2017 was up 9.4%.
Supply remained very low in Denver in 2017. Throughout the year inventory levels were nearly identical to 2016, but at the end of the year we saw a sharp decline in new listings. There were 24% less listings at EOY 2017 in Denver County than there were at EOY 2016.
Demand remained steady. Roughly 14,000 properties sold in Denver County in both 2016 and 2017.
In short, lots of buyers are looking, not a lot of people are selling, and prices are continuing to rise. Denver remains an exceptionally strong seller’s market. It would take six times the number of homes for sale for this market to be considered balanced.
If you are considering selling your property or purchasing one in 2018 please be in touch so that we can get the ball rolling for you! If you would like a deeper dive into our perspective on the real estate market, please continue on!
Some people ask us: “Has Denver become too expensive?” or “Is Denver a bubble waiting to burst?” Even with its recent appreciation, we still believe that Denver is a fundamentally great place to be both a seller and a buyer. Sellers who need to sell are well positioned to capture the gains of the last decade (or even just the gains of the last few years). Buyers still can benefit from interest rates that are still historically low and prices that are expected to continue to rise at a strong rate. We are putting our money where our mouths are: in the last two years our three team members have purchased a total of 13 properties in the Denver metro area, and we are always looking for more to purchase.
For years we’ve been saying that we expect Denver to continue to appreciate for the foreseeable future barring something calamitous happening to the economy (or to Denver specifically). We’ve also said that we expect the percentage rate of appreciation to begin to ease into the single digits year over year, as opposed to the double-digit gains to which we’ve grown accustomed over the last several years. The gradual slowing of the rate of appreciation is happening, though we are still appreciating at a rate well above the national average (and we expect to continue to do so).
Moving forward, the two biggest questions for our market are, is something calamitous going to happen to our economy or to Denver specifically, and what will be the impact of the new tax law on the Denver housing market?
First things first: is something calamitous going to happen to the economy or Denver specifically that would that would negatively impact housing prices? While we don’t have a crystal ball, we, of course, hope that nothing calamitous happens to the economy or to Denver specifically. We do think that most people, though–regardless of political background–would acknowledge that we have an incredibly unpredictable President, and that destabilizing geopolitical events are marginally more likely now than in prior years as a result.
We’re facing global instability, and we’re also exposed to local uncertainty with the recent policy changes toward the cannabis industry, which has grown to be a significant portion of our local economy. The Colorado cannabis industry, believe it or not, is larger than some countries’ entire GDP with multiple billions of dollars of sales annually, generating hundreds of millions of dollars of tax revenue, and creating tens of thousands of local jobs. A change in the enforcement of the laws that relate to this industry could have a noticeable impact on our economy and housing market. We think the odds of an actual change in enforcement are low given how massive the industry has become both here and nationally, and given the tidal shift in attitudes toward it, but we do feel like it is worth pointing out that a change in enforcement is possible.
The second big question for our market is what the impact of the newly enacted tax law will be on Denver’s housing market. The short answer is while it may have a small impact, we don’t believe it will be major given the large number of people who are continuing to move here and the extreme shortage of inventory we continue to experience.
The longer answer is: it’s complicated. The consensus view nationally is that the new tax law will slow down the housing market somewhat primarily due to the increase in the standard deduction that taxpayers can now take. When the standard deduction is lower (as it was before this new tax law), buying a house with a mortgage becomes more attractive because it is more likely that the interest you pay on the mortgage, combined with your other deductions, will allow you to itemize your deductions (and receive a larger tax benefit) instead of using the standard deduction. But with a higher standard deduction, there is a lower likelihood that it will still be beneficial to itemize your taxes, and, therefore, there is less of an incentive to take on a mortgage. Additionally, the amount of mortgage interest that can be deducted over the life of a loan in the new tax law is reduced from $1 million to $750,000. So, less people will get the benefit of deducting their mortgage interest from their taxes, and those that do at the higher end of the market will be able to deduct less of it, so together these factors will result in some reduced demand for housing.
That being said, there are aspects of the tax law that will actually benefit the housing market. Colorado has some of the lowest property taxes of any place in the country. Since the deductibility of State And Local Taxes (SALT, which includes property taxes) is now limited to $10,000 per year, owners of real estate in high-tax states may move to states with lower income and property taxes like ours. Also, effective tax rates are lower on average across income levels, so people may have some extra money in their pockets they may want to put toward a house. Additionally, certain “pass through” companies that own real estate now receive preferential tax treatment which may incentivize the creation of more companies to purchase rental properties (increasing demand and therefore putting upward pressure on prices). And, many first-time home buyers don’t know a lot about the tax implications of buying a house when they make their decision to do so—they are more interested in just purchasing a home because they want to own the place in which they live–so the impact on their decision-making process will likely be minimal.
In sum, while there may be a somewhat higher likelihood now for a significant destabilizing event that could impact the Denver housing market than in years past, that event would have to be just that—very significant—in order to alter the fundamental dynamics of our current market, which continues to defined by two simple facts: there are lots of buyers looking and not nearly enough homes for sale. This is a great time to be a seller to capture the gains of the last several years, and this is a great time to be a buyer with interest rates at historic lows and prices that are expected to continue to rise.