September Market Update

Home prices see biggest gains in two years.

The year of the Pandemic Summer, and the hot temperatures for the month of August have translated into a hot Real Estate Market! This has possibly been the most active and productive August in recent history in the Denver Metro area.

Exceptionally strong demand, historically low supply, and record low mortgage rates are combining to fuel the fastest home price growth we've seen since 2018. Falling mortgage rates helped bolster the pent-up demand from spring, when home sales ground to a halt due to the start of the coronavirus pandemic. Home buying is gaining significant strength in more affordable suburban and rural areas as buyers seek more space for the new work-and-school-at-home economy.

Below you can see statistics on single family home sales for the Denver Metro and Southwest Littleton markets (as a sample of the local suburban market). Comparing sales July-August in 2020 to sales July-August in 2019, home prices in both the Denver and Littleton Markets are up +11%.

You will also see a dramatic change in the number of homes sold year-over-year for the July-August time period versus the beginning of the year. For Denver Metro, the number of homes sold January-June in 2020 were down -9.3% vs the same time period in 2019 (largely due to the stay at home order in the spring). For July and August, home sales jumped up +17% vs. the same time period in 2019. By comparison, home sales in Littleton went from -6.3% year-over-year January-June to +30.8% in July-August.

Finally, you can also see that inventory was down year-over year for the January-June time period (-18.7% for Denver Metro as a whole, and -6% in Littleton), but is now down dramatically vs. this time last year. Inventory for Denver Metro is now -27.1% vs. last year, and inventory for Littleton is -24.5%. It is crazy that the number of homes sold can be up so dramatically with significantly less inventory available.

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The challenging part for buyers is that the increase in home prices is - in most cases - canceling out increased purchasing power from lower interest rates.

A homebuyer with a $2,500 monthly housing budget can afford a home priced $58,000 higher than a year ago, thanks to record low mortgage rates. At a 3.00% mortgage interest rate—roughly the average 30-year fixed rate for July and August 2020—a homebuyer can afford a $625,000 home on $2,500 per month, up from the $567,000 they could afford on the same budget when the average was 3.77% in July 2019.

The $58,000 rise in purchasing power from last year (from $567,000 to $625,000) is a 10.2% increase, and home prices here in the Denver Metro area are up over 10%.

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Final thoughts . . .

The interesting question now - will these trends continue? Economists at CoreLogic, one of leading providers of property insights, predict that homes will stay positive in 2021, but that the gains will weaken as the initial surge of pandemic buying wanes. There is also concern that as various mortgage bailout programs begin to expire, there will be a surge in sales of distressed homes. While the market will likely absorb these homes quickly, given the current housing shortage, the additional supply will take some of the heat out of home prices.

I'll keep a close eye on trends and continue to send out updates to share what I'm seeing.

- Chris Hawksley | Realtor, Broker Associate -