The last 12 months have been exciting for Denverites. We’ve seen further developments from the Zeppelins, proposals for a new neighborhood called River Mile, and plans for new commercial buildings that will hold offices, stores, restaurants, apartments, and a new World Trade Center campus. Alongside all this, we’ve seen strong appreciation in Denver’s home values.
Will 2019 be as strong a year for Denver’s housing market as 2018 has been? We certainly hope so, and there are solid reasons to be optimistic, along with a few reasons to be cautious. As we head into the new year, we thought we’d share our educated guesses about what Denver’s housing market might do in 2019 and how various factors might affect it.
Denver Home Inventory and Values
Denver’s home inventory has been low—below 10,000 active listings—since late 2013. It’s followed a steady up-and-down path over the last four years, sometimes dipping as low as 3,900 active listings and never cracking 9,000. The highest inventory we experienced this year was in September, with 8,665 active listings. Denver looks poised to end the year with a lower housing inventory than it had in 2017 and higher median and average sales prices, looking at data from the Denver Metro Association of Realtors.
Metrostudy, a Hanley Wood company, expects Denver to enjoy a healthy demand for homes in 2019. The supply of new homes is likely to remain tight, with a low supply of lots, not enough labor and rising building costs.
Two trusted industry sources expect Denver home values to increase in 2019. Realtor.com predicts they will rise by 6.8 percent, while Zillow predicts they will rise by 5.0 percent. At the same time, Realtor.com predicts a decline of 6.7 percent in sales volume.
With higher prices and rising mortgage rates, more homeowners may be reluctant to sell, since getting a new mortgage could mean paying a higher rate.
Apartment inventory also continues to be low despite Denver’s ranking third in the nation for new apartment units in 2018. Luxury units are easier to come by than mid- and low-priced units, creating an affordability challenge for many renters.
Denver Mortgage Interest Rates
The national average mortgage interest rate on a 30-year, fixed-rate mortgage in early December was 4.720 percent, according to Bankrate. Many lenders were offering rates around 4.50 percent in Denver for a 30-year loan, while 15-year loans could be had for as little as 3.80 percent. By comparison, 30-year rates were at their lowest in July 2016, at 3.4 percent.
The Federal Reserve has been raising the fed funds rate target throughout 2018 to keep inflation low and is expected to continue to raise it in 2019, which will push up mortgage rates. Higher rates can make it harder to qualify for a mortgage and make it harder for prospective homeowners to afford monthly payments, especially if home prices continue to rise. But the good news is that some borrowers will qualify to borrow more next year under the new, higher conforming loan limits in Denver from Fannie Mae and Freddie Mac, as long as their financial situation supports it.
Denver Business Climate
Denver has a strong business climate, especially in aerospace and defense, biotech, health care, finance, telecommunications, hospitality, technology and recreational marijuana. A healthy local economy helps support the housing market. Here are some areas where Denver stands out.
Colorado’s wages and economy are growing faster than the national average. The most recent data show our state’s wages growing 5.5 percent year-over-year versus 4.1 percent for the nation. And Denver workers enjoy higher earnings than the national average.
The state’s unemployment rate is low as well: unemployment claims were at their lowest since 2000. Denver’s unemployment rate has been well below the national unemployment rate since 2007.
On the downside, while the Mile High City has been a popular destination for workers relocating from other states in recent years thanks to its strong economy, migration to Denver could slow because of the affordability gap between wages and rent.
Companies moving to Denver
The number of new businesses in the state has been growing significantly, according to the Colorado Secretary of State’s office. In the third quarter of 2018, more than 30,000 new entities filed paperwork with the state, a 9.3 percent increase from the same period in 2017.
The Denver metro area is especially popular with tech companies. As reported by Mile High CRE, the following businesses, many of them based in pricier markets, recently opened offices here:
Denver scores high marks in quality of life, strength of the job market, and overall value -- the city placed third in U.S. News and World Report’s most recent Best Places to Live -- and is especially popular among young professionals. Its educated workforce and international airport, recently ranked the best large airport in the United States by the Wall Street Journal, are attractive to employers (read more on the latest companies moving to Denver).
Commercial Real Estate
The data on Denver’s commercial real estate market show no signs of a downturn, writes Richard Sarkis, CEO and cofounder of Reonomy, a New York-based commercial real estate analytics firm. In his Colorado Real Estate Journal article, Sarkis points out that this market has shown “remarkably steady” annual sales volume and sales price growth since 2000, with “no reason to think this will change anytime soon.” Denver’s population and job growth continue to be high, both of which are good signs for the commercial real estate market.
Denver cracked the top 10 tech talent markets in North America this year as ranked by CBRE and ranks admirably in terms of the quality of tech labor quality while being only moderate in terms of labor cost. It beats out numerous East and West Coast cities for office rent prices and should continue to be an attractive location for tech businesses as a result.
Finally, according to Cushman & Wakefield, Denver ranks third nationally for net office absorption, which measures the total amount of space tenants physically moved into minus the space out of which they moved.
While the stock market is down nearly 5 percent since the beginning of the year—a potentially troublesome sign for 2019—and we do need to be concerned about supply and affordability for both renters and prospective home buyers, other indicators show reasons for optimism. Denver has low unemployment, strong wage growth, new businesses, and steady commercial and residential real estate demand.
These broad indicators largely look positive, but they’re also economic abstractions for most people. They help to explain, though, why Denver residents can look forward to further exciting developments in 2019 that will continue to improve our city, including eight new breweries to quench our endless thirst for craft beer, at least two new hotels to serve our strong tourism market, five new food halls where visitors can enjoy myriad cuisines under one roof, and large new apartment buildings, including at least one for students. Overall, we expect Denver to continue to thrive in the coming years.