Notwithstanding the many woes of the world at this time, and of our own society, both socially and economically, I mean to focus here only on the struggles we’re encountering in the world of real estate, and they are many.
Most obvious is the plight of anyone attempting to buy their first home, or their next home, with prices having risen over 35% in just the last two years, and over 100% in the last 10. And now interest rates are creeping up as well, diminishing the buying power of those requiring financing, which is almost every first-time buyer and, really, the vast majority of all home buyers. While statistics show that 30% of all home sales nationwide are cash purchases, a lot of those are investors as you would expect. Due to the low cost of money and quickly rising rents and real estate values, there is a LOT of investment capital flooding into residential real estate. In multiple-offer situations, which are extremely prevalent right now, the cash offer has the winning advantage. That is for two major reasons. One is that the home seller doesn’t have to worry about the buyer qualifying and having a loan contingency in the contract, and secondly, appraisals are not required which is a significant wild card because home sale prices are rising so quickly that the prior home sales, which are used as comparables, aren’t keeping pace.
But it’s not just the first-time buyer that has a problem in this market. Denver has one of the strongest job markets in the country and so there are many families and individuals moving here to take up these jobs, only to find that the cost of housing, and even the total lack of available housing, puts them in a dire situation unless they can manage living in an apartment, indefinitely. The housing situation in Denver and surrounding areas, for blue collar folks especially, is in an actual crisis.
There is another group struggling, and of course we have less sympathy toward them, but that is those who have a home already but now it’s too big or too old, or too something that would have them want to sell it and move to another home more suitable. The problem is that, while they would have no problem selling their current home, and at a great price, there aren’t enough options for them to purchase that smaller home, or newer home, or home in a more desirable location, perhaps with a shorter commute due to high gas prices. So, they stay where they are. I have many friends and clients whose kids have grown and moved out, and now they occupy a home much bigger than they need, with more maintenance than they would like, but they are truly stuck there.
Many wonder when home prices and rents will level out, or even possibly come down. I search for that answer every day, while already knowing that the answer is, “no time soon”. But still, when? Because of the fact that builders are more than 10 years behind the demand for new homes, and it’s becoming more difficult every year to get development approved and to even get permits, let alone the shortage of skilled construction workers and continuing supply chain issues, sadly, there are no definitive answers to that question. And building entry-level priced homes is even more difficult (impossible?) due the cost of development and of building. I’ve studied many models and projections on the subject and the closest definitive answers I’ve seen still put it out 3-6 years out, minimum. Yes, wages have risen significantly, which softens the rising cost of housing problems, but only for those who are in their prime earning years and who demand the best wages. For those just entering the workforce, and those in their late 50s and 60s, those wage increases are less available. And of course for retirees— well, forget about it. Let’s just hope they have a living situation that’s sustainable for the long haul, or family who will help.
I really hate putting anything out journalistically that doesn’t have an upbeat message, but this is just not an upbeat subject at this time. At least I can suggest solutions, many of which I’ve written before, but are always worth reiterating. There is opportunity to cash in on this market and take advantage of your windfall in another location, maybe near-ish and maybe far. I have friends and clients who have sold their homes here and moved either “back home” or to another market area that has some attraction to them and has significantly lower priced real estate. At that new location, some of these folks have been able to buy a nice home for themselves and another one or two homes to hold as rental properties, for long-term income and wealth building. Another solution is to encourage our local governments to streamline their approval processes for new development and new building permits, but still to do so safely and responsibly for the communities affected. The bureaucratic process is just out of control. My last suggestion, and I really do see a lot of this taking place in communities all over the country, is people watching out for their families and neighbors, and helping to identify and steer them toward housing solutions that they see happening nearby or near enough to useful.
As always, wishing you all a Happy Homes. The KC Butler “Home” Team