Is The Bubble About To Burst On The Denver Real Estate Market?

Mathew: All right, so if I’m an investor and I’m coming to the market, like, one of my biggest fears would bubble (Is The Bubble About To Burst On The Denver Real Estate Market?).

Hey, Denver is a bubble. Yeah, there’s people coming, but… And just the fear of 2007, 2008, 2009 happening again.

Can you talk about… I see you have some charts here. Talk about why Denver is not a bubble.

Chris: Well, I’ve Gotten That Question, Like, One Or Two Thousand Times In The Last Week.

So yes, I can talk about it. This is probably my favorite chart of everything that I look at throughout the month.

This top dark-purple line is the total number of inventory for Denver metro area.

So this is single-family homes, so detached properties, condos, and townhomes, not multis or anything bigger like that.

And this is starting in 2007, then all the way up to the middle of last year. This dotted blue line is actually the number of sold properties.

So Going Back To 2007 Timeframe!

I think we peaked at a 40,000 inventory, usually right around, you know, 30,000 inventory up here, with all this inventory when the world was falling apart.

And you can see here, even back then, all this inventory, great time to be an investor, you got your pickings.

But we still sold about 5,000 properties per month on average.

So and you’ll see this go up and down here on the sold properties because, I don’t know how it is with you guys around Alabama, but in Denver we have seasonality.

Hottest Selling Time!

Our hottest selling time is late winter, spring, early summer, you know, good weather, and the people want to move, you know, in between school years.

And then things definitely start slowing down late summer, fall, winter-type timeframe.

So what I always like to point out is from 2007 to 2018, the last 10 years, we’ve really sold about the same amount of properties every single month.

It’s ticked up slightly a little bit, but nothing significant. I mean, if you think about what’s happened.

The Economy Has Recovered!

I don’t know how many hundreds of thousands of people have moved into Denver since here, but, you know, many hundreds of thousands have.

A lot more demand has come up, but not that many more properties have sold.

So as demand was picking up, inventory started going down, down, down, down, and it takes a couple of years to do that.

And then, ever since, like, 2013, 2014, we’ve been in historic lows for inventory.

If you go back to all the data I’ve seen, nothing comes this low. The seller’s market of ’90s, it was higher inventory, higher everything.

This Has Just Been Record-Breaking!

And so this has just been record-breaking historic lows for Denver. So from a very high level, what I look at it is supply and demand.

We have very limited supply and lots of demand. What does that do? That causes prices to go up for both rentals and prices.

So that’s why we’ve seen a big ramp in price appreciation. I mean, it’s just because of that simple supply and demand.

And go talk to any loan officer out there, like, if they’ve been around, you know, back then, they will tell you the difference in the loans they were underwriting.

You know, they’re not running junk loans now, or selling junk loans, whatever you call it.

One Or Top Five !(Is The Bubble About To Burst On The Denver Real Estate Market?)

And you look at Colorado’s foreclosure rate, we are consistently among, like, the number one or top five lowest in the entire country.

There’s just not that many distressed sellers. Part of it is the economy, and part of it too is when people do hit bad times.

A lot of people are actually saved by their equity from the market, great.

Someone starts falling behind on their payments and they have to sell six months later.

Well, they’ve gotten the gift a lot of times, of $5,000, $10,000, $20,000 in the market, so they have time to sell out and get out of that before they go into foreclosure.

A Very Interesting Chart!

So this is a very interesting chart here that shows, great, inventory is just going down, and that’s why we’re seeing a ramp in prices.

And up here is another chart. Actually it says, “Waiting for the bubble to burst.”

So the first column is comparing 2002 to 2006, the second column is 2013 to 2017.

And some really good stats here. So homes for sale by the end of the year…well, the average five-year back then was 22,000.

Most recent period, it was about under 6,000, so a huge, huge difference.

Balanced Market!

Months of inventory, and usually, you know, we would say a balanced market is somewhere right around five months of inventory.

You’re at 6.1 months of inventory up here. You got 1.8 in the last couple of years.

And then, total new homes built. So in 2002 to 2006, there were 93,000 homes. This next five-year period was about 30,000.

So supply, very, very low. And then look at job growth, 85,000 back then, 180,000 in that next five-year period.

Net migration in Denver, 24,000 back then, almost 200,000 now. And here’s a really interesting one.

People Migrated To Denver! (Is The Bubble About To Burst On The Denver Real Estate Market?)

So homes built over people migrated to Denver. Back then 3.9 homes for every one person, 2 homes for every one person now.

I know this data is, like, you know, now two years old. And look, guys, we’re not economists, we’re agents and lenders and stuff out here. So whatever…

Mathew: You are property managers.

Chris: Oh, property managers, yeah, thank you. The numbers have not changed that much.

Where Are They Working?

Mathew: Talk to me a little bit about, like, what industry…like, you have all these people coming into Denver, like, where are they working? Where is everybody working?

Chris: It’s all over the place. So you know, Denver used to be very much oil and gas industry in ’70s and ’80s. It’s now a very diversified industry.

We’re getting a lot of tech workers, which are happening, there’s different booms around up in Boulder, of course, and there’s pockets in Denver.

So A Lot Of Tech People Moving Here From California. (Is The Bubble About To Burst On The Denver Real Estate Market?)

Because as those companies expand, you know, they’re wanting to get out of California, they want to go where their employees want to go, and Denver’s always one of those top places.

Got a lot of tech workers, got a lot of financial companies as well.

Charles Schwab, if you guys drive down through Lone Tree, right where, like, 25 and 470 Intersect, there’s a gorgeous, big, brand new Charles Schwab building.

Last Year, Or Two Years Ago!

And just…I think to start last year, or two years ago, they moved something close to 5,000 employees here from California.

So it’s a pretty diversified economy. A lot of it is health care and then airlines as well from the airport.

But other than that, it’s just a lot of the other general stuff as well. So to give another perspective on the whole like, “Hey, is Denver gotten too expensive? Is it in a bubble?”

My Best Guess Is No!

You know, again, my best guess is no. I think the market has set the price for Denver.

But another way to look at it is the average debt-to-income ratio for people’s money compared to what they’re paying on their monthly payments.

Because a really good way of looking at properties is not the total price but almost every single person finances their properties.

Even if they buy cash, a lot of times they’re financing the back end and they’re doing a finance thing.

Geared Towards Owner-occupant Numbers! (Is The Bubble About To Burst On The Denver Real Estate Market?)

So this is obviously geared towards owner-occupant numbers, but what makes up most real estate market are owner-occupied people.

This dotted line here in the middle is the max lending guideline of 45%.

Now, I think it’s gone up to 50%, in the last year or so, for some lenders and some programs, but 45% to 50%.

So this is taking the person’s average debt, total debt-to-income ratio for Denver Metro area.

And you see back here in the ’80s when interest rates were…and I’ve had my parents’ friends talk about how they were buying places at 13% interest rate.

Now, Luckily We’re Not Seeing That Now.

But even coming down here, part of the reason people complain and say, “Oh, my gosh, Denver is so unaffordable,” is because in 2007, 2008, this was the most affordable time to buy in Denver because prices dropped so much.

Of course, a lot of people weren’t buying back then, but that was the most affordable time.

And what happened? Prices have gone up, and we’re, kind of, going back to a more norm as far as the debt-to-income ratio.

So, from a very big-picture standpoint, prices are still affordable compared to people’s incomes.

Mathew: Awesome.

Chris: So we’re not way up here for things being out of whack.