Wednesday, November 28, 2018
By Kevin Deselms
What to expect in the Real Estate market, in 2019

History will reflect that 2018 was the end of the "glory days" of shooting for the moon with your home price (and getting more than you hoped for, thanks to insane bidding wars among desperate buyers). There is no debate among real estate professionals: This market is shifting. How much depends largely on where you are looking to buy and/or sell a home, but the winds of change are blowing for every market in the country, right now. There are suburbs around the Denver metro area that are perpetually hot and show no signs of giving buyers a break (Boulder and Golden spring instantly to mind) while others are facing price reductions, increased inventory and a smaller pool of eligible buyers. The last two points are going to be the biggest factors in what buyers and sellers are likely to experience, as we head into 2019.

Here in the Denver market, we are seeing a marked uptick in the amount of available inventory. In fact, we haven't seen this many houses available for sale at one time since January of 2013...but over the past month we've had nearly 20% fewer homes go under contract than the same time period, last year. A much healthier supply and fewer buyers does not typically lead to price appreciation...and the market is reflecting that dynamic right now, with price reductions and a longer time on the market, before selling (often for less than the original asking price). This adjustment is, of course, a major positive for buyers...long lashed to the whipping post of the Denver real estate market and eager for any kind of break. Sadly, interest rates have cost buyers a lot of their purchasing power, this year...and so the payments on a property a prospective homeowner might have been entertaining in January are probably not going to look nearly as realistic, today. I read recently that assuming a 30 year conventional loan with a payment of $2,500/month, a buyer can afford to spend $30,000 less today than they could have, to start 2018. That's a significant chunk of cash to lose by waiting!

What we can know with almost 100% certainty is that rates will not be going in reverse, now...the glory days of sub-4% rates are officially over. Many lenders are expecting to see 5.5% by the end of 2019 and this means monthly mortgage payments will rise 8% over 2019, making things even tougher on the budget-conscious. Is the answer to keep on renting? That depends on how much you enjoy throwing your money away and having nothing to show for it, I suppose...but some people see a slowdown in price appreciation and rising home costs as a good enough reason to sign up for another 12 months of watching their hard-earned money evaporate into thin air. Some worry (irrationally, but perhaps not surprisingly) that we are on the verge of a bubble burst, where prices will fall precipitously and result in homeowners either losing equity, or finding themselves upside-down on their freshly-minted mortgages, paying more than the house is actually worth. The fundamentals of a bubble don't currently exist, however, and the shift we're experiencing right now is evidence of that. In a true bubble, prices would continue to rise even though inventory has increased and demand has decreased. That's not what's happening, though.

So what can we expect in 2019?

Homeowners can say goodbye to 8-10% annual appreciation, in 2019. In the Denver metro area, certain areas will continue to experience fairly robust gains...particularly in areas with prices that are friendly to first-time homebuyers. Lakewood, in particular, seems poised for price gains. Colorado Springs also continues to be a popular new destination for people, so the homes there should continue their steady march upward. On the other hand, the more traditionally expensive and "hot" areas (Golden, Boulder, Cherry Creek, etc...) will probably start to experience some slowing. Again, though, take this with a heavy dose of historical perspective...the gains that we've been experiencing in the Denver market are simply unsustainable. A slowdown isn't a pullback or a reversal and we're in no danger of throwing things into reverse, here in the Mile High City.

I don't expect a massive flood of new inventory to hit the market in 2019 (and in fact, in spring/summer I expect it'll dwindle again), but what does sell may take a little bit longer to do so...unless it's in perfect condition, well-maintained and updated, of course. In those cases, we're still likely to see multiple offers. It's going to require agents to demonstrate a real knowledge of the market and available inventory, to help their clients make the right call with their negotiating strategy. To this point, the Denver real estate market has been a pretty straightforward affair: Sellers hold all the cards while buyers grit their teeth, compete as well as they are financially able to against multiple offers and hope for the best. In 2019, we'll need to have a much better sense of whether a home is likely to sell over its opening weekend, whether they're likely to get multiple offers, whether the comps support the asking price or not and whether a buyer has the leverage to offer less than the asking price and potentially still get their offer accepted. It's going to challenge many agents who have become accustomed to simply being on autopilot over the past 6-8 years.

With all of that said, we still aren't looking at transitioning into a buyer's market, any time soon. Sellers know that there is a shortage of available options and a continual influx of new buyers, therefore they still hold most of the cards. However, buyers over the last four or five months have shown that they're no longer interested in taking a beating. They'll pay market value or maybe a touch above it to compete, but they're not going to pay 10% over market value out of sheer panicked desperation, anymore. Those days are in the rear view mirror. It's going to cost a buyer more money to get into a house in 2019 and they're going to need to give the process a lot more thought, as far as determining how to make the financials work for their budget. Of course, a good lender can help immeasurably with that - please let me know if you'd like a recommendation, to get the process started!

I fully expect that Millennials will be coming out of the woodwork in droves to buy homes, throughout 2019. I've been working with a bunch of first-time homebuyers in this segment and they're ready to jump into the fray, next year. All of the research done by NAR and others demonstrates a belief that this segment of buyers may account for nearly half the mortgage loans offered in 2019. The question is, what will they buy with those loans? In Denver, the most pressing shortage is among homes priced below $500,000 and that is the very price range that most first-time homebuyers are targeting. I don't believe the competition among buyers looking to spend more than $500,000 will be quite as fierce throughout 2019 and I also expect them to start getting a little bit pickier, hoping to ensure that the home they write an offer on ticks all of their "must have" boxes, along with as many "would like to have" boxes as possible. Buying a home will be immensely easier for people on the higher end of the market, as the competition will be much lighter and properties will sit on the market longer, waiting to attract the right buyer.

Sellers, on the other hand, are going to need to shake the old "shoot for the moon" mentality and understand that in a shifting market, it's more important than ever to price your home correctly, right out of the starting gate. People selling homes that will appeal to first-time home buyers can still expect to entertain multiple offers, but the more expensive properties will take longer to sell and their buyers (with the help of their agents) will be doing much more research about what the market will actually bear, before making an offer. The financial realities of the market will be sucking a lot of the "frenzy" out of it and realistic expectations will start taking hold, again. True marketing skill and effectively reaching the segment of buyers you're after is going to become very important again, so people who are looking for an agent to sell their home should be looking closely at their agent's marketing expertise. Discount brokerages are going to start suffering, as selling properties becomes a bit more complicated, time-consuming and costly than simply posting it on the MLS and waiting for the offers to come rolling in.

Denver continues to be one of the most competitive real estate markets in the country and I'm sorry to say it, buyers...but 2019 will not yet bring an end to competing offer scenarios, escalation clauses and emotional/financial stress for you. It will just get a little bit less stressful, and you'll have a slightly better chance of getting the house you wanted...but it's an improvement. Having the help of a good, attentive and communicative Realtor is going to become even more important, though...so choose wisely! If you have designs on buying a new home in 2019, it's probably time to start some of these conversations. Give me a call or send an email and let me help put you on the right track, so that when you're ready to pull the trigger, we can maximize your chances of success. I can't wait to get you into a new home!

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Kevin DeselmsKevin Deselms
Front range lifestyle ambassador and your new favorite Realtor!