Denver is one of the most desirable cities in the U.S. The economy is strong, business is booming and the mountains are breathtaking. However, has 2020 shaken things up a bit?
A drive through central Denver quickly reveals an increase in tents, housing the homeless. There is also an escalating tension among residents about how to handle the COVID-19 pandemic, as well as Black Lives Matter protests.
For many, Denver is starting to feel like a different city than it was just a few years ago. At the beginning of this year, no one could have predicted that 2020 would have evolved into such bizarre circumstances.
With all of these developments, there was bound to be some impact on the local housing market. Using data from the local multiple listing service for the Denver area, REcolorado, here's what you need to know about the current state of the Denver housing market, and what you can expect in the future.
Is It a Buyer's or Seller's Market in Denver Right Now?
In 2016 and 2017, Denver had one of the hottest seller's markets in the country. Homes would have multiple offers and net far above asking price. Home sellers relished the opportunity to cash in on their equity with lightning-fast home sales.
In 2018, the seller's market began to slow down and continued to do so up until the first few months of 2020. In the second quarter of 2020, the number of available homes began to drop again.
Denver is still in a seller's market, but it's not the extreme seller's market the area experienced in 2016.
Let's also look at this from another angle: Realtors use the term "months of inventory" as a way to measure a market's strength. This term references how many months of sales a market can sustain if no new homes are listed for sale before it entirely runs out of inventory. For example, if a market only has two months of inventory, and no new homes are listed, then it would run out of homes within two months. Agents consider it a seller's market when there are less than four months of inventory.
At the height of the housing market crash, Denver had a 6.4-month supply of inventory. This was a strong buyer's market. It was a time when buyers had plenty of homes to choose from and could often get a great deal.
At the busiest peak of 2016, Denver had a 1.3-month supply of inventory. During this time, homes would sell in hours with a pile of offers. It was a crazy time for real estate agents. Things were moving at a furious pace, and high-pressure deals were happening all over the city.
Today, Denver has a 1.7-month supply of inventory, so it's still a seller's market. It may not be the same seller's market that we saw in 2016, but it still favors the seller. According to MLS data, the last time Denver was in a buyer's market was May of 2012.
You may hear real estate agents in Denver talking about the current "slowdown" of the last few years. But their slowdown is minimal compared to an actual collapse like we experienced during the Great Recession.
Homebuyers continue to have a hard time finding homes in certain areas of Denver, but many sectors have experienced longer days on the market than we saw in 2016.
How Has COVID-19 Affected Denver's Housing Market?
On March 26, 2020, the governor of Colorado issued a stay-at-home order, valid through April 11. This mandate shut down all real estate showing activity for the first few weeks, and then later allowed showings with certain restrictions.
Many consumers were too concerned about the pandemic to think about their real estate needs. Real estate agents were waiting for clarity on how they should proceed with business. Eventually, the restrictions were lifted, and Realtors started selling homes again.
During this time, the Denver real estate market took a hit, but home sales bounced back after the stay-at-home order expired.
The demand for homes in Denver was too great for a slow down in sales to continue. People need homes, and the market can't be stopped.
In April, Denver lost nearly 1,350 home sales due to COVID-19 restrictions on businesses. In May, Denver lost an estimated 2,727 home sales. That's a combined total of 4,077 home sales lost in Denver due to the coronavirus pandemic.
From the chart above, it may seem like Denver took a substantial hit, but considering the circumstances, the city's real estate market held together quite well.
What Will Denver's Housing Market Be Like in 2021?
The real estate market in Denver started 2020 incredibly strong. As we venture into the third quarter, the market appears to be on track to finish even more robust than it started.
The median sale price in Denver peaked in 2018, but it's positioned to be higher in 2020 than it was in 2019, based on the current year-to-date statistics. The median home price in the city of Denver is $447,500 as of July 2020. It was $428,000 at the same time last year.
There is no indication that the demand for housing will slow down any time soon. As long as the need for homes continues to increase, the prices will continue to steadily rise. If the market does not slow down, the median price of a home in Denver will be around $470,000 by this time next year.
Looking at the chart above and the represented sales trends, it's hard to imagine prices dropping any time soon without some unpredictable event bringing it down. However, if we've learned anything this year, it's that the unexpected does happen.
[Read: How to Buy a House]
What Factors Can Change Denver's Market in 2021?
Low interest rates continue to fuel the housing market in Denver. The Federal Reserve has made it clear that it does not intend to raise interest rates any time soon. If rates change, the local housing market will inevitably change as well. But for now, it's reasonable to expect the seller's market in Denver to extend through 2021.
The national economy is also a big question mark, as 2020 has seen our national debt skyrocket. The unemployment rate continues to be a lingering issue that has yet to be fully resolved. These challenges could have an impact on the Denver housing market next year, as well as that of the rest of the country.
The big question is, "how much of an impact will it have?" It's clearly too early to tell.
The generation that's taken over homebuying
The Great Recession delayed many millennials from being able to buy a home, but the generation isn’t locked out of property ownership the way it was a few years ago. The National Association of Realtors defines the millennial generation as people born between 1980 and 1998, and according to the 2019 NAR Home Buyer and Seller Generational Trends report, they make up 37% of all homebuyers in the U.S., the largest share of any generation. Over the past five years as millennials have become a significant portion of U.S. homebuyers, they’ve also helped shape trends in location and home type preference, helped usher in technological advances and embraced new platforms that make a home purchase feel more user-friendly. Here are 10 ways millennials are changing the homebuying process.
Updated on Feb. 26, 2020: This story was published at an earlier date and has been updated with new information.Text communication is key.
Text communication is key.
The telephone was once the primary form of communication between real estate agents and their clients, but the younger generation that has grown up with internet and cellphones will likely prefer more text-based modes that make it easy to multitask. “A lot of my clients already work in tech, so their expectation is they’re going to work with an agent that can at least keep up with them in terms of communication,” says Dana Bull, a Realtor with Harborside Sotheby’s International Realty in Marblehead, Massachusetts, who specializes in working with homebuyers. She says millennial homebuyers prefer to text and email their agent more often than older generations, and it’s reasonable to expect they’ll be comfortable using real estate-related apps.Research is a natural part of the process.
Research is a natural part of the process.
When it comes to researching neighborhoods, checking out listings online and doing a deep dive into the fine print of a pending deal, millennial homebuyers are known for doing their homework. Jill Levin, a Realtor with Coldwell Banker Legacy in Albuquerque, New Mexico, says she recently represented some buyers in a deal that went particularly smoothly because the buyers read every disclosure and document sent to them and asked questions beforehand – something she doesn’t see from older buyers who feel experienced enough that they don’t need to read into the details. “There’s way more information today now, and (homebuyers) really, really should be paying attention,” Levin says.The hub for advice is online.
The hub for advice is online.
While apps and online search tools are an integral part of the homebuying process for all consumers these days, millennials are the first generation to grow up using technology broadly in everyday life. The familiarity with smartphones, social media and the internet make communication, finding out information and contacting professionals easier. Millennials are also inclined to shop around for everything from real estate agents to mortgages to contractors. In HomeAdvisor’s State of Home Spending report released in June 2019, the majority of millennials, Generation X and baby boomers research home remodel project costs on the internet, but millennials do so by the largest margin (77%).Homeownership is focused on building wealth.
Homeownership is focused on building wealth.
While purchasing a home involves plenty of hurdles for younger buyers, many of them are choosing to become homeowners because it helps them build wealth in the long term. “There is still interest in buying a house because I’ve got a job, I need a place to live, rent is expensive and I should put my money somewhere,” Bull says of the millennial homebuyer mindset. As they build equity in their home, they’re in a better place to purchase a larger house in the future or use the profit of a sale for other investments.Kid-friendly housing makes a comeback.
Kid-friendly housing makes a comeback.
Homeownership isn’t the only thing that millennials are doing later in life for financial reasons. Millennials are also marrying and having children later than previous generations. But as millennials get older, more are getting to the point where they’re starting families. While a condo in the heart of downtown worked for many first-time millennial homeowners when they were single, home preferences change as soon as kids come into the picture, Bull says: “People are starting to step up into that next level of a single-family home and maybe out in the suburbs.”Walkability is a must.
Walkability is a must.
Even with many millennials leaving urban centers, one feature they won’t compromise on is walkability. “They want more activities in the area, they want walkability, they want the convenience of shopping without having to use their cars a lot,” Levin says. Even in more suburban settings, many millennials are showing a preference for areas that offer residential and commercial spaces within walking distance. Bull says the areas catering to these homebuyer preferences have been dubbed “hipsturbia,” where suburban towns offer an active downtown or main street area with the live-work-play atmosphere many people don’t want to lose when they move out of a major city center.Eyes are on garages and kitchens.
Eyes are on garages and kitchens.
Luxurious features and finishes in a house are ideal, but millennial homebuyers are making their must-have lists a bit more realistic. In a survey of 1,000 Americans who plan to purchase a home in 2020 by real estate information company Clever, millennials' preferred home features focused on details that make life more convenient, especially as they start families. When asked which features are a requirement for their new home, millennial respondents placed a garage, large kitchen and space to grow into as their top three priorities. Details like hardwood flooring, a fireplace, pool and dedicated office space were among the lesser-desired details.High home prices don't deter eager buyers.
High home prices don't deter eager buyers.
Affordability is still an issue for many millennials, especially among the younger members of the generation. But that doesn’t mean millennials are uninterested or afraid of purchasing a home – it’s just a matter of the right timing, the right location and the right home. Between consistently rising home prices and a lack of inventory as homeowners choose to remain in their homes longer, the housing market remains extremely competitive, Bull says, especially in the Boston area where she works. But the millennials who are financially ready to purchase are willing to rise to the challenge. “They’re used to being aggressive to get into the college they want, and then get the job they want,” Bull says, which primes them to make a strong offer if they see a home they like.Low down payments solve savings issues.
Low down payments solve savings issues.
The Clever survey found 70% of millennial homebuyers plan to make a down payment of less than 20%. Low down payment programs have grown significantly in the past 10 years and are now a major part of home purchases – NAR’s 2019 Profile of Home Buyers and Sellers reports that the median down payment for a home in the U.S. is 12% of the purchase price. While low down payment programs help resolve the lack of savings, homebuyers putting less than 20% down should be sure to factor into their budget the added monthly cost of private mortgage insurance.Parents play an important role.
Parents play an important role.
For younger millennials and even Generation Z, which is made up of people born in 1999 and later, coming up with the cash for a down payment is one of the biggest obstacles to becoming a homeowner, even at less than 20% of the purchase price. For millennial first-time homebuyers and the rare Gen Zer getting into the market, financial help from a loved one is often what makes a home purchase possible. “Parents are getting involved a lot – I still see a lot of situations where parents are gifting money or helping in some other way,” Bull says. “I don’t see that changing at all.”Here are 10 ways millennials are changing homebuying:
Here are 10 ways millennials are changing homebuying:
- Text communication is key.
- Research is a natural part of the process.
- The hub for advice is online.
- Homeownership is focused on building wealth.
- Kid-friendly housing makes a comeback.
- Walkability is a must.
- Eyes are on garages and kitchens.
- High home prices don't deter eager buyers.
- Low down payments solve savings issues.
- Parents play an important role.