@Scott Trench Grant P. and everyone else investing in the Denver market -
Here's some very good info I just received from Lon Welsh at Your Castle Real Estate - YCRE are the numbers and stats guys who track everything in our market. These are his notes taken from a presentation he attended given by the lead economist for NAR (National Association of Realtors). I'm very optimistic about the future of our market.
Here are the presentation slides Lon refers to below
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As you may know, Dr. Yun is the lead economist for NAR (National Association of Realtors). He was here in Denver a few days ago, and here are the slides from his presentation. Below are my cliff notes for the high points.
Page 4, 5
- We lost 8 million jobs in the big recession and have since added 12 million
- Unemployment insurance claims at a 15 year low!
- Unemployment rate almost back to best years before the recession
Bottom page 5 – BEST slide ever
- Denver has added A LOT of jobs since 2010! About 300,000 or +30% (and you wonder why there is no inventory??). that’s +50,000 jobs a year
- The total population increase has been around 50,000 people a year in 2009-2015. Half of those folks are in the labor force (others are retired, kids, college students, stay at home parents). So we can approximate that most/all of the population increase people that wanted jobs have gotten them (25,000 or so per year) AND we’ve absorbed another 25,000 people a year on top of it (mostly from the ranks of the unemployed).
- The average income keeps going up in Denver, so these jobs are as “good” as they have been. While there have been pressures in the energy sector, other parts of the Denver economy are doing well enough to offset those losses.
Page 7
- Net worth (all assets minus all liabilities) at an all-time high. This driven by high stock market valuation and the rebound of the real estate market across the US.
Page 8
- “I’m not feeling it”. I think you hear this from clients. GDP growth in this recover hasn’t been as strong as prior economic recoveries. I’m not an economist, but I think the sluggish rebound in construction plays a big part in this.
Page 9 (top)
- The % number that want to be working that are working has been pretty constant at 58% for six years. So while the national economy has added about 12 million jobs (and Denver has added 300,000), the US population growth grew as fast as employment. We’re the outlier in Denver, since we’re adding jobs 2x as fast as population growth. That’s a big driver for our real estate and rental market.
Page 9 (bottom) and Page 10
- The home ownership rate peaked at 69% in 2004. Easy loans (stated income! No verification / no doc!) drove ownership from the historical 64% range to this artificial peak. The big recession we endured was the correction of all of those bad loans going through the foreclosure process. Since that peak, the homeownership rate has steadily gone back down to 64%, the long term historical average.
- I don’t have this stat for Denver, but I bet it’s comparable. For the US, I would expect it to stabilize here. In Denver, given home price increases and the scarcity of inventory for first time buyers, I’d expect the home ownership rate locally to drop further. That means that the renter % of households (100%-64% = 36% rent) will increase in Denver.
- We have not built enough rental units to keep pace with population growth in Denver since 2001. It’s going to be a while before it’s a tenant market again, in my opinion. Particularly for entry and mid-level rental product.
Page 10
- The average house hold (HH) net worth of a family that owns their home/condo is about $200,000. For a renter, the average HH net worth is around $5,000. Owners are 35x wealthier than renters. It’d be interesting to see this stat for landlords. I’d imagine their average net worth would be 3-5x as much as the house hold that only has their primary residence.
Page 13
- Home construction is sluggish. I think the slides I’ll show you at the company meeting next week make the case in a more compelling manner.
Page 14
- Reasons why construction has been slow to rebound. In Denver metro you can add (1) lack of available land on which to build, (2) cost for water tap fees, and (3) extremely backlogged city construction permit offices.
Page 20
- Still not much evidence of inflation on the horizon
Page 22
- Dr Yun thinks mortgage rates are heading up. We’ve all thought that for years. Maybe he’s right this time. We have such an oversupply of buyers relative to inventory, I don’t think (reasonable) increases in mortgage rates would have much impact on our local market.
Page 24
- Great slide on pent-up demand. For the entire US, between 2000 and 2014
o Existing home sales dropped from 5.2 to 4.9 MM -6%
o The US population grew from 280 to 320 MM +13%
o Based on population, you’d expect that home unit sales could increase +19% to be in line with historical averages. For the entire US, that’d be about 1,000,000 incremental sales. That’s a lot of millennial kids living in basements!
Page 26
- Long term, there is a good correlation between consumer confidence, household wealth, and sales of vacation / 2nd homes. This bodes very well for the mountain resorts.
- Vacation home sales have doubled in the past two years..
Page 27
- Continued economic growth, a little faster (3%) than past few years (2-3%)
- Continued strong US job growth, and probably the same here in Denver metro
- Dr Yun sees inflation picked up from 1.5% range to 3.2% in 2016. I don’t agree, but he’s an economist and I’m not.
- Continued improvement in consumer confidence.
- Increasing mortgage rates
