Barry Kunselman | 303.88.0588 | Contact Barry

Buying a home is one of the most important financial decision that you will make. However, Denver Metro area homebuyers are experiencing extremely tough times purchasing a home due to low inventory which turns to bidding wars and further escalates home prices. Porchlight Real Estate statistics show that year over year Denver home prices for single detached homes have been increasing by an average of 9% since 2013. The figure is even higher for condos/townhouses. 

After making predictions about  2017 Denver Housing Market Trends, I wanted to take a moment to address this homebuyer question:

Are Metro Denver’s Home Prices Overvalued?

As early as 2015, Denver real estate was reported as one of the most overvalued in the US. An overvalued housing market is defined as having home prices that are 10% or more above the long-term sustainable level.

Last week the Denver Post posted published an article stating that Arch Mortgage Insurance Index study shows Denver’s home prices are more overpriced than any time since the 1980’s. However the article itself does cite that economists think Denver and Colorado home prices will likely NOTdecrease in the next 2 years.

How Bad Is It?

In Q3 2016, Colorado home values are about 15 percent above where they should be given income gains, making the state one of the most overvalued after North Dakota and Texas. But like metro Denver, the state as a whole faces only a 2 percent chance of a home price index decline over the next two years versus a 5 percent chance of a decline nationally, according to Arch MI.

 Top overvalued areas in Colorado per Arch Index Estimate in the third quarter of 2016:

  • Denver - 22.1% 
  • Boulder - 16% 
  • Fort Collins - 15.6%

 

Overvalued

Job losses, shrinking incomes, out-migration and overbuilding are among the ingredients that can trigger price declines, but those aren’t evident in metro Denver. Colorado is in fact expected to be in the top 10 cities for economic growth in 2017.  

Does It Matter?

Last year, if you read national news like CNN you will have the perception the housing market is on the verge of a market correction. However our local news and other economist feel the Denver market is still strong with potentially another 8-10% home appreciation this year. If interests rates increase home prices may slow but the market will still be strong.

“Much of the price increases we are seeing are the result of rising demand among investors and homebuyers for a still-limited supply of homes for sale,” said Anand Nallathambi, president and CEO of CoreLogic.

 

  • If you're planning to live in a home for a long time, for example, you may be willing to pay a bit more.
  • If it's cheaper to buy a house than to rent one, then whether your housing market is overpriced will be less of a concern.
  • If, on the other hand, you're getting into real estate as an investment (or you hope to resell within a few years), you'll care a lot more about what's happening in your housing market. The be successful in real estate it's not "timing the market" but "time in the market". The longer you hold on to your investment the more you will make over time.  If you are planning buying a home in the next 2-3 years it is better to buy now than waiting for prices to increase with interests rates.

 

In general, however, if you're ready to buy your Denver home and can comfortably afford to do so, then go ahead — interest rates are low and it may yet be possible to score a great deal. Want to know the best strategy in purchasing a home? Give me a call at 303.887.0588. I would love to help you out with tough questions. 


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