Buyers? Sellers? Builders? Investors?
In 2019 we saw a lot of market segments balance out, much to the relief of many of those endeavoring to purchase a home or investment property. Of course, as relief goes, it was “too little too late” for what they would’ve preferred, especially since prices ran up in many areas as much as 50% in the past five years. For most of these buyers though, the saving grace has been the very low interest rates we’ve enjoyed and should continue enjoying for much, if not all, of the next year (fingers crossed).
What many home buyers can also expect, but not so much enjoy, is the continuation of multiple-offer situations in the highest demand market segments. Ironically, of the 86 data sets I download monthly, 62 can now be considered as buyer’s markets. But don’t get too excited. Eleven of those are vacant land segments, and thirty-one of them are luxury market segments. Where home buyers need it the most, in the entry level home market, inventory remains very tight and hence demand continues to exceed supply. And homebuilders are a
lmost helpless to add sufficiently to the supply in this area due to the rising cost of construction, governmental regulation, and a lack of inexpensive land. Besides, they can sell all the homes they can build in the mid-range and higher so why even try?
Yes, the builders are sure to have another good year in 2020. Interestingly, almost a quarter of the available inventory of single-family homes across the entire Denver Metro IS new construction. While it would be nice if they could produce even more inventory, the real issue is the lack of resale homes coming online. And yet the two are related in that there are many who would gladly sell their older home and buy a brand new one, but prices are so high it’s untenable for them. This is even true for a number of my well-heeled clients, who would like to downsize from the larger home they raised their children in, to something smaller but nice. They’re finding that the replacement home they envision is not much less in price than the larger home they want to move from. And so, they stay put. Come on Builders! Step it up! We need you!!
“The greatest opportunity for investors in the last 10 years was 10 years ago.”
Will 2020 be a good year for real estate Investors? That depends on what their needs and expectations are. The greatest opportunity for investors in the last 10 years was 10 years ago. Distressed homes could be bought at fantastic prices back then and every year since then the margins have decreased. Flippers made of fortune in 2014, 2015, in 2016 and then as prices escalated and distressed properties all but vanished, those who got used to big profits started backing off and even going to other cities were they could get the same margins they’d become accustomed to. Yet even today there are very skillful investors finding the right opportunity and profitably flipping properties, although many have very wisely transitioned to buying and holding properties has a longer-term investment.
Even though the appreciation rates have decreased from double digits down to now around 3%, mortgage money is still cheap and rental rates are high. Small multi units—duplexes, triplexes, and fourplexes, especially in Jefferson County are one of the strongest market segments of the 86 I pulled down. In that particular segment, investors are competing with savvy, usually first-time, home buyers that learned that buying a duplex or triplex, and living in one unit while renting the other(s), is a great way to leverage yourself into homeownership and investment simultaneously. 5-plus unit apartment buildings are in super-high demand and delivering strong returns for investors who will usually go in and, with a few upgrades, immediately raise rents to improve their returns. I am affiliated with a group of commercial real estate exchangers who are very active and finding great opportunities for their clients in this area.
I saved the best for last. There is no question that if you own real estate, and especially if you’ve owned it for five or more years, you’re in good shape. That’s a pretty strong blanket statement since I’ve preached so many times that “it depends” on the particulars of your real estate to say whether things are good for you. While that may be true, there are very, very few segments of the real estate market that have not appreciated dramatically in the last five to 7 years. Vacant land in Douglas County and in the Jeffco Foothills, yes Evergreen, Golden and Conifer, is glutted and pretty soft. Clear Creek County is not performing great, but it is performing. The softest market is the high-end luxury market. The higher in price you go the softer it gets, understandably. From $750,000 to a million dollars there’s enough supply vs. the demand to designate this segment as buyer’s market, but just barely. From $1M to $2M there is plenty of activity also but a lot more inventory, and so it’s a softer market. Upwards of $2M, again there are buyers, but these buyers are going to be very selective because they can of course. Your Value Proposition, meaning “what you offer for what you ask” is critically important to compete.
If you are a seller in any market other than those softer segments I just mentioned then, for you, it is only a question of how much “bank” you’ll obtain when you sell, and whether the process will go smoothly. How you sell matters, and so you would be well advised engage an experienced REALTOR, and not your niece or your daughter-in-law’s brother who just got their real estate license, to optimize your outcome. There is a lot at stake! By the way, the average single family home sale in the 6-county Metropolitan Denver Market is still at 99.3% of asking price and selling in 29 days, so you can see after 7 strong years we’re heading into yet another year much like last year and the year before. The average Foothills, single-family home sale for 2019 was 98.3% of asking price and 47 days to sell. And that’s why I pull down 86 different datasets every month because there’s no such thing as “the market.” Only YOUR market is relevant to you.
Wishing you as always, happy homes, and an amazing 2020!