Anyone Else Sitting Out the Denver Real Estate Market? (Golden: 2015, foreclosures)

[2bindenver]

The decision to buy or rent is not just financial. It's emotional. It's rational.

Only you can decide whether it's the right time to buy.

Is the mortgage interest deduction a factor?
Do you want more control over your monthly payment?
Are schools a factor?
If your landlord decides not to renew your lease, what happens?
If rents are rising more than housing price does that factor into your decision?

[GoldenZephyr]

The Denver market was a good place to buy the last 5 years, but now I would say it is getting into bubble territory. I lived in CA during the boom, I have friends in Denver and visit there regularly. I think the market is risky right now.

Here are the reasons I see:

1) The mortgage price for homes is now outstripping rents by a sizable margin, that's the first indicator.

2) Inventory is at an all time low. This is a major red flag, because prices are rising due to the extremely tight market. If prices were rising with higher inventory and more slack in the market, I would say you might have some play and even growth because inventory could drop further and tighten the market. But with inventory at rock bottom levels, an increase in inventory will likely put downward pressure on prices. Inventory is 15% of what it was in 2007. It is less than half of its historical norm.

3) Interest rates are still near record lows. Low interest rates allow people to borrow higher sums of money easier. Rising interest rates act as the equivalent of a home price increase.

As rates rise, at $500,000 house becomes as expensive as a $600,000 house, even though it is still $500,000. Rates have declines over the past 5 years making homes cheaper, even as prices rise. Once this trend reverses, price gains will likely slow or stop, perhaps even reversing.

4) Wages and employment. Are wages rising rapidly in Denver? How tight is the labor market? If people are able to find jobs at the drop of a hat, and wages are rising, then you have a strong backstop for prices. If the employment market is slack, then price gains are all financing driven and point 3 becomes even more relevant.

There are more reasons, but those are the big three that I've seen.

I think Denver is in a bubble, how much, don't know, will it pop or deflate? Difficult to know, but I don't think realtor's dreams of perpetual 5%+ gains are likely. Realtors in 2006 were saying that "based on their data, prices would likely plateau or rise for the foreseeable future". We know how that ended up.

[headingtoDenver]

I've been following the rental cost of my previous apartment and they have been going up 150 bucks a month year over year. When I first moved out here a few years ago, my rent was just over 1400 a month. Now the same floor plan is over 1700 a month. How long before this same apartment is 2K a month?

Knowing that my mortgage is always going to stay the same, is a huge plus for me. The couple of downfalls about owning which have been mentioned are the repairs you have to make yourselves as well as taxes and insurance. If home values steadily increase, property taxes will steadily increase. Insurance will always be all over the place depending what natural disasters happen throughout the year. As of right now, the money I am saving by no longer renting is outweighing the cost of ownership/repairs along with tax/insurance increases.

[rumline]

Originally Posted by GoldenZephyr

1) The price for homes is now outstripping rents by a sizable margin, that's the first indicator.

From what I've seen, I'd say the opposite is true: rent is increasing faster than home prices, and it is cheaper to own in Denver than to rent. Or am I not interpreting you correctly?

[Pesare]

2) Inventory is at an all time low. This is a major red flag, because prices are rising due to the extremely tight market. If prices were rising with higher inventory and more slack in the market, I would say you might have some play and even growth because inventory could drop further and tighten the market. But with inventory at rock bottom levels, an increase in inventory will likely put downward pressure on prices. Inventory is 15% of what it was in 2007. It is less than half of its historical norm.

Actually, the above reason justifies and supports the increase in prices since demand for homes is strong. Since if you have a lot of inventory that means demand is slack and the prices would decrease. Although it is hard to say that if new home builders built more homes if there would be a slack in demand, but from what I am seeing new home builders are able to sell almost any home they are building with some even having waiting lists for lots as long as it is not astronomically expensive.

[Pesare]

4) Wages and employment. Are wages rising rapidly in Denver? How tight is the labor market? If people are able to find jobs at the drop of a hat, and wages are rising, then you have a strong backstop for prices. If the employment market is slack, then price gains are all financing driven and point 3 becomes even more relevant.

The above also justifies the reason why the prices are high and we are not in a bubble.
Right now based on the latest data we have an unemployment rate of 4.1% which is below the national average.
I believe wages are rising at a good clip here in Denver. As an example, I have a friend that was making only 40K in their position and right now they are making double that in the same position.
The labor market is pretty tight as well as there is a shortage of construction workers.

[GoldenZephyr]

Originally Posted by rumline

From what I've seen, I'd say the opposite is true: rent is increasing faster than home prices, and it is cheaper to own in Denver than to rent. Or am I not interpreting you correctly?

If it is cheaper to buy than rent, then buy. If it is much more expensive to buy than rent, consider the other factors carefully before deciding to buy. It can at times be a good idea to buy even if it is more than rent, if you believe that over the period of time that you plan to live there or need shelter that you will gain more by buying or that rents will outstrip the cost to buy.

Proceed with caution.

[GoldenZephyr]

Originally Posted by Pesare

2) Inventory is at an all time low. This is a major red flag, because prices are rising due to the extremely tight market. If prices were rising with higher inventory and more slack in the market, I would say you might have some play and even growth because inventory could drop further and tighten the market. But with inventory at rock bottom levels, an increase in inventory will likely put downward pressure on prices. Inventory is 15% of what it was in 2007. It is less than half of its historical norm.

Actually, the above reason justifies and supports the increase in prices since demand for homes is strong. Since if you have a lot of inventory that means demand is slack and the prices would decrease. Although it is hard to say that if new home builders built more homes if there would be a slack in demand, but from what I am seeing new home builders are able to sell almost any home they are building with some even having waiting lists for lots as long as it is not astronomically expensive.

No it doesn't, because, if you had higher inventory and prices were rising DESPITE having higher inventory, you could say that the market was fundamentally strong. An unprecedented shortage of housing causes margin pricing to rise and is a fundamentally weaker market.

For example, if lots of people are putting there homes on the market and prices rise, then that says that demand is being driven by something other than a shortage. However, Denver inventory is at an historic low in inventory, which is another reason that the market isn't as strong as it may seem. When there is a shortage of any good, prices tend to get distorted because people increasingly take on frenzied buying patterns.

Old frenzy cliches come back, like "buy now or be priced out forever", "there not making any more land", "permanently high plateau".

You'll even see more and more examples of frenzy behavior in shortage environments. Love letters to sellers, camping out for days "just to get a chance to get on a waiting list". 50K over list prices plus ludicrous demands by the sellers to "feed the squirrels".

[SkyDog77]

Trying to time a market perfectly will drive you completely crazy.

If you are planning to be in one place for a while and can afford the house, buy it. If you are using your home as your retirement plan, you have other issues that need addressing.

[himain]

We're paying $1630 for a 1/1 with den and garage here in Lakewood. 1200 sq ft. That's including pet fee.