Every January I like to review what the real estate market experienced in the past year and see where we think it’ll head in the New Year. Overall, I’m extremely pleased with what we’ve experienced in the past 12 months and am bullish on the future. I expect the economy to continue to improve and our metro Denver housing market to stay strong but, critically, not overheat. Here are a few different metrics I use to evaluate the market and help you understand it better. For each, I’ll briefly describe what 2014 looked like and where I think we’re headed.
Market strength – 2014 was a strong sellers’ market. We still have near record low inventory of homes for sale which is keeping the demand for housing strong. Prices are up about 9 percent in 2014 making homeowners (and real estate investors!) very happy. I expect 2014 to continue to be a sellers’ market but I see no sign of a major imbalance in the market that could lead to any sort of ugly peak and crash. Overall, I expect home prices to continue to rise but at a somewhat slower pace in 2015, about the long-term average of 6 percent.
Rental Vacancies – The rental market is as strong as it has ever been in metro Denver. The vacancy rate for 1-4 unit properties is at a near record low 2 percent. Rents are rising faster than they ever have in the past. As a result of the rising rents, we are beginning to see more renters deciding it’s time to buy instead of suffering through continual rent increases and tougher application processes. In addition, more and more homeowners who experienced hardships during the downturn, lost their homes and have been renting ever since, are now able to purchase a home again as their ability to finance a purchase recovers. This is great news for the market and will certainly lead to more sales in 2015, continuing to support our sellers’ market. It’s very interesting to study the relationship between the rental market and the sales market: the tighter the rental market, the faster rents go up, the more likely renters are going to become buyers, the more it strengthens the sales market.
Interest rates – We had a big jump in interest rates in June 2013 as the economy showed signs of improvement. But, much to everyone’s surprise it didn’t put much of a damper on the housing market. Since then rates have drifted downward helping to keep homes relatively affordable. No one knows exactly what interest rates will do in the future, despite what all the screeching cable news networks say! I foresee continued improvement in the economy, both locally and nationally, over the next year so my best guess is that interest rates may rise a little in 2015, but only a little. 2015 is still going to be a great year to buy a home. Someday down the road we’ll see interest rate hikes, but for the foreseeable future I don’t predict any major jump in rates.
The Economy – Let’s talk a bit more about the economy. The metro Denver economy is very strong, with unemployment down to 4.1 percent. Despite the fear of a spike in inflation it has stayed extremely low, in the range of 1-2 percent. Consumer confidence is at its highest point in five years and will continue rising. Nothing can be better for our housing market than a slowly but surely improving economy. In a steadily improving economy buyers and sellers behave rationally and buy and sell in a controlled environment, based on solid personal, financial, and economic reasons. At the same time it avoids the problems associated with an overheated market where prices pop then crash like we experienced during the last downturn. This is what real estate market dreams are made of.
When all’s said and done, I can’t wait for 2015!