Roll up to any new listing in the Denver metro area under
$400k on a Saturday afternoon right now and you’ll see the logjam down the
street. SUV’s, Priuses, bicycles, foot traffic. It’s almost comical
to watch what’s going on as buyers fight over scant inventory, once again, just
as happened in 2013… 2014… 2015… and now to start the year in 2016.
I closed a transaction last week with an offer $16,000 over
list price, and I’ve routinely been writing offers $10,000 to $20,000 over list
price for attractive listings since mid-December.
The inventory today is down 43% from September, and the
overall absorption rate marketwide is just 1.07 months. For homes below
$400,000, the absorption rate is 0.48 months. A balanced market has five months of inventory.
While homeowners are getting rich, there’s desperation for
everyone else.
Without any exaggeration, the value of a median-priced home
in Denver has been going up $60 - $70 per day, every day, for four solid
years. Nearly $20 million per day in new equity is being created in the
city of Denver alone… but every penny of it is reserved for the ownership
class.
If you are renting, the hole you are in gets deeper every
day.
This is that rare time when values and rents are moving in
tandem, two locomotives leaving the station together. Those living in
rentals are getting clobbered on rent and seeing their ability to buy shrink
almost by the hour. It's not a question of too many renters or too many buyers. It's a systemic lack of inventory, period.
There’s so much cash in Denver, so much equity being
converted into liquid funds through HELOC loans, so much marijuana money that
nobody really can quantify… that serious buyers are showing up with massive
down payments or full cash offers that just blow smaller down payment buyers
out the door.
The marijuana question is an interesting one.
I recently listed an entry-level property which predictably
drew multiple offers. One of the offers was all cash, and as it turned
out, some title research revealed that this buyer had purchased over 150 homes
with cash in the metro area in just the past three years. Total value of
that real estate – between $40 and $45 million.
Want to guess where that money was coming from?
We’ve got businesses moving here from all over the
country. In a very interesting twist, Zillow (which currently has no
data-sharing agreement with the Denver MLS) has moved 330 employees to a
location directly adjacent to the Centennial airport (so high ranking
executives can easily fly in and out, and perhaps play a round of golf at
Inverness) with plans to hire another 150 more in 2016.
Why would Zillow make Denver its second largest hub in the
US, when it is currently in a nasty stalemate with the leadership of the Denver
MLS over its abuses of past data sharing agreements and its refusal to accept
responsibility for the accuracy of its own data?
It’s pretty simple. While the dispute with the Denver
MLS is temporary, the demographic that is migrating here and changing the face
of Colorado is not. Zillow is recognized as a leading technology company
with aspirations of dominating the real estate information market… so making a
huge bet on Denver makes perfect sense.
As I wrote about last month, the gentrification of Denver is
underway, but at a scope and level few people truly understand. It’s not
just the poor neighborhoods of Denver that are being cleaned out… soon, it may well be what formerly constituted Denver’s middle class.
I spent 38 years in the most populated areas of California, and what eventually came to
be was a world where 90% of the people who bought their homes a decade ago
couldn’t possibly afford them today.
Is that happening in Denver today? Increasingly, it
appears so.
Eventually, you end up with constrained inventory because no
one can afford to sell and move up. So people stay. Inventory
dwindles. Prices go up further because there’s nothing for sale.
Like it or not, Denver is becoming a very big city. With
very expensive housing.
For those in the market today, finding a “dream home” may
already be just a dream.
If you plan to stay here, the best advice I can offer is to
find something, anything, and get it into your name as fast as you can.
The buyer pool is so deep, and inventory is already so
constrained, that the script for further price appreciation in 2016 has already
been written.
We are not the Denver you grew up with, or the Denver of
even a decade ago.
