Unconventional Buyers Break with Tradition

With demand for homes skyrocketing and inventory in short supply, it may be no surprise that people have started teaming up on their real estate purchases. However, what may surprise you are the numbers. According to a recent survey from Realtor.com®, 31% have bought a primary residence with someone they are not married to. That number is even higher among the 18-34 age group at 41%.

Unsurprisingly, many of these buyers are romantic partners who have skipped marriage (16%). With wedding costs also rising, many people forgo a traditional wedding and instead use that money as a down payment on a house. Other co-buyers include parents/grandparents/older relatives (6%), children/nieces or nephews/younger relatives (5%), siblings/cousins/relatives of a similar age (4%), roommates (4%), and friends (4%). Despite the unfortunate market imbalances forcing people to make these complex life decisions, maybe it will bring people closer together in the end. No matter who you are, be sure you like to be around, and especially trust, your co-borrower(s)!

Where Have All the Condos Gone?

Many people feel the pressures of this housing market and the rising costs of living. As a result, there has been much competition for homes, even in the luxury price segment of the market. For example, take a look at our Market Snapshot below. At the end of January, inventory was still meager at 1,291 active homes for sale, down a massive 70% from the end of January 2021, which was already a tight market for buyers.

So, the question on some people’s minds is…

“Why don’t they just build more homes?”

Shortage of new construction

In Metro Denver, there has been a shortage of new construction for about 12 years now. Our city became incredibly attractive to companies and qualified buyers looking to move. As a result, the population increased more dramatically than usual. Construction has not been able to keep pace with all these new buyers. We have discussed some of the limiting factors to new home construction in previous editions of this newsletter, including shortages of everything from supplies to skilled labor and even land shortages. What this issue boils down to is profitability.

From a development standpoint, many investors prefer to put their money into multi-family units (only apartments, NOT condos and townhomes) because the return on their investments is higher. They can rent to more people using the same amount of square footage. If you take a step back and look at the entire scope of new multi-family homes being built, you’ll see that condo construction is near a historic low over the past 50 years.

Condo construction reached an all-time high around 2005 and 2006 when about 50% of the new multi-family construction was a for-sale product. Since then, condo construction has gone from representing approximately 50% of the new multi-family construction to about 5% today. As a result, hardly any multi-family construction money is getting put into condos, and most of it goes into apartments.

There are a few factors for low condo construction, and lack of demand is certainly not one of them. One reason is that there is currently too much uncertainty with the retail and office asset classes. Those properties are much less interesting to commercial investors than they used to be. As a result, much of that money shifted to assets like apartments and warehouses.

Another factor is that first-time homebuyers are being priced out of the market, so they are forced to either rent longer or rent for the long term. This has created much rental demand for apartments. So, unfortunately, rising purchase prices for condos are also creating more demand for apartments.

The final component is probably not consistent for every market, but in Colorado, there is something called a “construction defects” liability problem. Developers that build a for-sale condo are exposed to liability for any defects in construction for up to 7 years after the project is completed. A couple of years ago, there was a little bit of reform on the condo defect law, but it didn’t go far enough, so it’s still financially unattractive for developers to build condos here. Unfortunately, all these factors are likely to be stuck in place for a while, so don’t expect to see a lot of condo construction any time soon.

The post Denver Real Estate News – March 2022 appeared first on New Era Group.