Current state of the economy and housing market

[Angelo Tafoya]

I’m still new I haven’t completed a deal yet but there is the fear of the  current state of the economy and the fact that it seems like it might be hard to find a deal right now with many offering over asking price in the Denver area. I’m trying to get creative and maybe im over thinking it but I wanted to hear others experience currently finding deals and thoughts on the potential of the economy getting worse and what that might mean for equity. I currently work in the construction industry for a large manufacturer and I am seeing the effects on the material end and how that’s translating to builders etc and do wonder what this all might mean for the housing market.

[James Carlson]

Hi @Angelo Tafoya

Welcome to the game! Normally, I'd respond that yes, the Denver and Colorado Springs (and Colorado as a whole) markets are hot but that they're going to continue to be scorching hot for awhile. But at this exact time we're seeing some shifts, and the BIG QUESTION is ... are these changes a blip? Or are they a harbinger for more changes in the market to come?

The main dynamics that have driven prices upward in recent years is low supply and high demand. More people wanting to buy homes than there are homes available. But there are a few things happening right now on both the supply and the demand side that are changing that dynamic:

• Supply is actually up a bit. We saw the highest number of new listings in the Denver market last month since May 2019, the and second highest number in years. That bodes well for an increasing supply.
• Demand is a little depressed right now. Or at least, that's my anecdotal experience. The general consensus is that most people in Colorado are vaccinated and primed to get the hell out there and travel for the first time in a year and a half. So those people are not in the buyer pool at the moment. 

Even with the above, it's not like there are "deals" out there, it's just that you aren't having to compete quite as hard. (I have seen this with a few clients recently who are competing against 3-5 other offers, not 10-15 offers.)

So again, the question is whether those dynamics stay or not. 

Supply: Will this increase in supply continue? Or is it a temporary increase from all the people that wanted to sell during Covid but were scared to let people in their homes? And if so, that backlog of listings might dwindle quickly.

Demand: Are we correct that a significant portion of the buyer pool is just out traveling and will return in the fall to make things crazy again? Or are we wrong and there some other issue depressing demand. 

A side note to demand is that historically low mortgage rates have fueled a lot of demand because money's cheap. There's a lot of chatter about increasing inflation and its affect on mortgage rates. If mortgage rates go from low 3s to low 5s, we'll see a big drop in demand. 

None of that is a direct answer to your question. If I had to guess, I think we're entering a period where the rate of price increases will slow. That's not the same as home values decreasing. It's just that they won't increase as much as they have in recent years. But damn, anyone who says they know what's going to happen with the market is someone who's way too sure of their own opinion.