Denver-Boulder Housing Market - 2020
It’s time to forecast the real estate housing market trends for the new year, 2020. The purpose of this post is to answer the following questions: Where is our housing market headed? Will the seller’s market continue, or will it shift to a buyer’s market in 2020 – in other words, is the market cooling? Will there be a real estate market crash or decline in 2020? What do I believe will happen to our housing markets beyond 2020?
Before considering those questions, it would be helpful to see where we are and where we’ve been so we can discern any change in our market trajectory. Where we’ve been – Ten years ago, we were heading into 2010 when the recovery in the real estate markets began to appear after the financial crisis impacted our housing markets severely in late 2007 through 2009 at its peak. During the financial crisis, many lost their jobs and could no longer make their mortgage payments. Price-declines often wiped out five or more years of appreciation, causing some homeowners to walk away from the homes that became worth much less than their loans against them. There was a massive wave of bankruptcies and a glut of homes for sale on the market with little offsetting demand.
I have created two graphs below that cover the last ten years of inventory and sales prices using the Realtor’s MLS data-analysis tools. To reduce the “noise” (enhance the accuracy) in the graphical data, I concentrated on a prevalent portion of the single-family detached market for the first graph and the condo-townhome markets for the second. I compiled the data guided by my statistical experience over a decade of analyzing real estate markets while working as a licensed appraiser before working the past six years as a real estate broker/agent.
In the first graph above of inventory (blue line) vs. sales-price (green line), one can see a stepwise decline in homes sitting on the market from 2010 to 2012; the bumps represent seasonal surges. Prices remained rather flat until early January 2012 when single-family inventory took a steep decline from 8 months down to about three months over that same year. The appreciation rate (the rate sales prices were increasing) then reached its maximum positive rate of increase once inventory declined to less than one month, just after January of 2014. More recently, the inventory level had increased (bumped up slightly) to an average of close to 1 month from about mid-2018 to the present, which partially explains the apparent slowing in sales-price increases. Prices can only go up so much before local salaries can no longer support them, creating an economic ceiling where demand slacks-off – this is the other reason for the loss of upward price momentum.
You can see the analysis for the condo-townhouse market in the next graph. You’ll notice there is a similarity with the previous graph for single-family homes. It shouldn’t surprise a very similar analysis also applies to the condo-townhouse market.
However, I would point out the sales-prices from early to mid-2018 have more notably flattened (ceased to increase overall) in the condo-townhouse market than in the single-family market where some limited appreciation still appears in the overall data. One can see the seasonal ups and downs depicted in both graphs. Typically, inventory increases around March until hitting a peak May to June before buyers can put them under-contract, followed by a bump in prices as well, which may be counter-intuitive since it is normal for higher inventory to slacken upward pressure on price. However, the supply from sellers coincides with a peak in buyer demand, so there hasn’t been a price decline due to our limited inventory relative to the high demand which exists in our housing market. So, what we have been seeing is the increase in demand more than offsets the very temporary increase in inventory, and they happen more or less in sync.
Where is our housing market headed?
The hot market in the Denver, Boulder, and suburban areas have cooled a bit since 2018. For buyers here in 2020, it’s not unreasonable to purchase a home or tract of land with limited competition (one or two competing buyers) or even buying with no competitors at list-price or lower. Getting 10 to 20 offers on a property over several days was all too prevalent in the Denver and Boulder metro areas from 2014 to 2018, which made it very difficult and frustrating for buyers, sellers were, of course, benefitting greatly. Cash buyers bidding up prices over the appraised value was a common outcome of bidding-wars due to the large numbers of bidders – thankfully, for buyers, this pileup of buyers on newly listed homes has waned substantially. The main problem buyers face now is a limited number of houses listed, but the number of homes listed should increase in 2020. The competitive scenario for any particular property in 2020 depends on the specific location of the property, the price-point, the property type, and the condition of the property, as it always is, but demand will slacken overall.
The coronavirus will likely propel sellers to list early in the year before the infection rate causes the public to hunker-down and avoid social activities, including open houses. The effects mentioned should result in a considerable drop in people buying and selling homes for the second half of the year (well beyond expected seasonal variations).
The pandemic impact on the housing market will likely be in force in the second half. The pandemic will cause social distancing, school closures, workers opting to work from home, food hoarding, empty grocery shelves, a shift in the public’s priorities away from normal activities to those of survival and dealing with the inconveniences brought on by the pandemic. People will be spending extra time hunting down essential groceries and caring for sick family members. It is reasonable the coronavirus will cause a spike in foreclosures due to business disruptions causing layoffs and job cuts, and even business failures – which should put downward pressure on property prices.
Will the seller’s housing market continue, or will it shift to a buyer’s market in 2020?
In my opinion, it should be a mixed bag for the first half of the year, where it’s neither a seller’s market or buyer’s market overall. It’s important to point out while the rebound started in the city center areas of Denver and Boulder and spread out from there. There was about a one year delay in reaching the foothills and about a two-year delay in seeing price recovery in the more remote mountain areas with the highest inventory generated from the financial crisis. Just as markets tend to heat up from the city-center first, this tends to be the first area to cool off. Reason – As prices increase in the urban-core, buyers look farther and farther out to where prices are more affordable, often moving to a location they may not have initially considered. So, in a way, the core areas “flame-out” or cool-off first while the more affordable and distant neighborhoods from the urban-core decline later in a downturn. The second half, due to the likely economic impacts of the coronavirus pandemic, will likely shift all the real estate markets in Colorado to a buyer’s market.
Will there be a housing market crash or decline in 2020?
In my opinion, I see a downward shift in prices with increasing inventory relative to demand from the coronavirus pandemic and collateral effects. I’m particularly concerned now about recent Fed actions (I discuss this further below), which are attempting to counter a stalling national economy, and current global supply-chain and business interruptions domestically and globally caused by the spreading coronavirus. The direction of our national economy will affect Colorado’s housing markets as well.
What do I believe will happen to our housing markets beyond 2020?
The coronavirus pandemic will likely run its course this year, but the adverse economic effects will likely linger into 2021. However, I sincerely believe the outcome of our elections at the State and Federal levels will have the most impact beyond 2020.
We have a sick and unbalanced economy, but this year voters may be able to change it back to one that is more balanced and reminiscent of our boom years in the ’50s and ’60s (or even better). It may enable changes that will increase the participation of the 99% in our country’s wealth generation by empowering workers. Through a “Green-New-Deal,” the creation of many good-paying jobs may occur to build a new national and state infrastructure and a modernized economy. It may end austerity, reverse ever-increasing regressive taxation, require a higher minimum wage, increase domestic production, reduce the cost of healthcare, and the financial risks of illness. It may stimulate small business and entrepreneurship, and it may reduce the burden of education costs through free tuition and student loan forgiveness.
All these actions favor demand-side economics – Simply, when people have more wealth, and higher wages, they consume more, which is good for business – this creates a virtuous cycle. It will also raise the quality of life for the majority of Americans and support a growing middle-class, which is the backbone of a healthy economy. The middle-class has been shrinking for decades. The majority of economists support demand-side economics.
I’d love it if more people could become homeowners, and I can see for many, these measures would remove their obstacles to homeownership and greatly benefit our housing markets and economies.
The other possible outcome is maintaining the status-quo of supply-side, trickle-down economics, which most economists reject as supporting a healthy economy. The status-quo will continue our weakening economic trajectory and the concentration of wealth and political power into the hands of a few while continuing the shrinking of per-capita wealth and income experienced by the 99% over the past 45 years.
The potential change I’m referring to is the progressive movement (driven foremost by Millennials and presidential candidate Bernie Sanders). I believe these progressive policies if implemented, can forgo a depression, a recession, and a market crash affecting our overall economy and our housing markets in the foreseeable future in exchange for a new economic and social renaissance that spans generations. However, we may start a downturn, and we may crash before these policies can take effect.
My concerns for our economy and housing markets beyond 2020 expressed in more detail below.
Last fall, September 17th, 2019, the Fed stopped a market crash in the making when it bailed out the credit market (aka. repo-market, credit-swaps market). The Fed intervened in the repo market by purchasing credit-swaps that financial institutions no longer could buy because they became so expensive it would have resulted in them realizing a negative income for operations, possibly leading to their economic collapse. I found a great explanation of this by Wolf Richter in his “Wolf Street” website article “What’s behind the Fed’s Bailout of the Repo Market? The repo and reverse repo market are necessary for our financial markets to function. Since mid-September, the Fed has injected over a half-trillion dollars to keep interest rates down and keep the stock market up, which supports the housing market as well. Our economy is fragile, and our GDP is anemic.
Look at the following two graphs and ask yourself – how much farther can we extend these trends (lowering interest rates and stockpiling dept) to keep the economy and markets afloat?
The housing market (and the middle-class) is the backbone of our economy, and interest rates affect it; lower rates stimulate the economy and housing markets. In the graph below, one can see the Fed has needed to gradually increase economic stimulation by dropping rates since the early ’80s because of the increasing drag of our weakening economy (see the graph below of US 30-year mortgage-rates since 1971 published by Freddie Mac).
We’ve been under economic austerity since the ’70s, a consequence of an economic regime popularly known by several different names, trickle-down, Reaganomics, and Neoliberalism, which has been shrinking our middle-class, the foundation of our economic engine.
Evidence of the adverse effects of austerity are the following: According to Pew Research, in 1970, 62% of all income went to the middle-income class, and 29% went to the upper-income class, whereas in 2014, 43% of all income went to the middle-income class, and 49% went to the upper-income class. Median wealth (assets minus debts) of the middle-income class has also dropped 28% from 2001 to 2013. The wealthiest individuals and corporations stash cash in offshore tax-havens, estimated by economist James S. Henry of the Tax Justice Network to be as much as thirty-two trillion dollars back in 2012 (all these stats appear to be substantially worse now).
Americans are increasingly running on debt to afford necessities. Our increasing public debt as a percentage of GDP is not sustainable (see the graph below from the Federal Reserve Bank of St. Louis)
This concludes my projection and concerns for our housing markets. I revised this blog post on Mar 5th, shortly after posting on Feb 25th, to more realistically factor in the coronavirus effects.
I wish you well this coming year – Please find a way to vote in the primary and general elections to create change! Remember to stock up on essential supplies, food, and water; the coronavirus is going to disrupt our lives by a considerable measure.
Please note the views and opinions expressed herein are my own and do not necessarily reflect those of Real Broker, LLC or the National Association of Realtors.