7 minutes reading time (1381 words)

Couch Chat with Brian Lehnerz, Realtor at New Era

Friday, 12 October 2018

Why are houses in Colorado so expensive?

Brian enjoying the mountains with his family

There are countless reasons if you ask me. The first and foremost is that Colorado is a “destination state” where people WANT to live, regardless of their walk of life, professional background, ethnicity, or otherwise. Talking specifically about Denver Metro, we are the “hub” of the beautiful Rock Mountains and we are amongst the top, if not THE top, in most national rankings related to quality of life. Denver is one of the most progressive cities in the U.S. and also one of the smartest – we have nearly every major industry represented including rocket scientists (Lockheed Martin), manufacturers (Arrow Electronics), financial powerhouses (Charles Schwab), countless Oil & Gas companies, and the list goes on. That equates to low unemployment rates regardless of what is going on with the rest of the country Plus more industry = more wealth. With all of the people flocking to the “It” city in the U.S., our city won’t stop growing anytime soon, nor will the State. We have seen a constant flux of people moving to Colorado for decades now. They all come for the beautiful weather, recreation, low unemployment and “forward-thinking” mentality that I believe is our State. All of those people need to live somewhere and when demand exceeds supply, as it has for many years now, rents rise and home prices follow suit. Eventually builders might catch up to the overall housing demand in our market, in both rental units and new construction, but I don’t foresee that happening soon, at least here. We just returned from a vacation to Vancouver B.C. and if you want to live anywhere close to the city, you are paying $1,500 U.S./per square foot for a home or condo. Do the math on that with YOUR home to see what it would be worth in Vancouver! Denver still has a long way to go.

In 2018 11,173 homes were sold which was 5.6% drop compared to 2017, why do you think this occured?

When looking at real estate, I like to focus on volume more than anything. Volume has been down in the City simply because a lot of current homeowners are happy sitting tight, leaving less “resale” inventory on the market. Builders are also still trying to catch up since the last real estate downturn in 2008-2010 when they all had to downsize. So less homes coming on the market = less volume (or # of sales). I don’t think demand dropped during that time period, I just think we didn’t have enough properties to sell. And overall, I would consider a +/-5% change in a given market year-to-year quite normal and healthy!

Do you think home sales continue to slow due to low inventory levels?

Brian Lehnerz

Builders can’t keep up with demand and municipalities can’t process permits quickly enough. That is probably the biggest factor. Remember, people are still moving here at a good clip and that won’t slop anytime soon. They have to live somewhere. Some choose to rent, some choose to buy, but they have to live somewhere and the population growth trickles up through the housing market. I do think interest rates will potentially slow the housing market if they rise too quickly. Let’s just hope the feds take it easy and not move the dial too quickly. We got spoiled in this country with sub-5% interest rates for more than a decade now. That can’t continue forever and eventually soon-to-be home buyers will come to terms with paying a “higher” interest rate; even a 6% rate is still a low rate though on a mortgage historically speaking!

Would you say less homes are going up for sale compared to a few years ago? Current homeowners are happy staying put, sitting on lots of equity in their homes. And if the home is financed, many are in sub 4% loans. Some of the really smart ones refinanced their mortgages into 15 year notes under 3% a few years ago! If you are going to move locally, generally you will be spending a lot more to buy essentially the same home you currently own (at least that is the way many of my clients see it). But if you are looking to make a larger upgrade and can afford it, this isn’t a bad time to pull the trigger!

Why do you think the number of days it took to sell a house dropped by three days when compared to 2017?

A 3 day change really isn’t enough to consider. But the overall trend of the Denver market being in the 30 days of inventory range for several years is indicative of the strong demand for our market.

Do you think house demand remains strong?

Locally? Yes and for many years to come. We will see our ups and downs, but I believe the overall trend for Denver and Colorado as a whole is for steady and significant growth. Housing demand follows suit. Nationally? That’s a conversation for another time and there are other cities far more susceptible to recessions than ours!

Do you think more houses will go up for sale in 2018 and how do you think this will compare to 2019?

I don’t think we will see more houses go up for sale, rather we might see a slight downtick in demand, thus increasing inventory I think we have some buyers out there who are coming to terms with higher interest rates right now. Some who have been looking for a long time and didn’t find anything, so they took a break. But demand will come back, and some of this is seasonal. So I do think we may see more inventory come 2019, but that will be a GOOD thing for all of the frustrated buyers out there, most of whom are paying a fortune in rent!

How will the real estate be impacted from rising interest rates and increasing cost of living?

There is no-doubt that a rise in interest rates may slow the housing market, but the housing market needs a cooling off period if you ask me. Homeowners get overconfident thinking their homes are worth a fortune, owners start using their homes as piggy banks (equity lines) and things get out of control. The rise in cost of living has a long way to go in our market, in my opinion. People adapt to cost of living by moving somewhere more affordable if need-be. In cities like the San Fran, Seattle, Vancouver, etc.the cost of living is still much higher than here, yet they are historically the strongest cities nationwide for growth. (and now we can include Denver on that list)

How much do you think the value of homes will go up within the next year?

For all of the reasons above, I do think values will go up, but it may be in the single digits… which is perfectly fine! There is still more demand than supply in the Denver Metro area and the entire Front Range. And I don’t foresee builders catching up on new construction by next year either.

What made you interested in this career choice?

Oh that’s a good one; a whole biography in itself! Long story short, I hated by career in the Tech Industry, I was laid off 3 times in a span of 2 years and I decided it was time to control my own destiny. I always wanted to work for myself and own my own business anyway. Real estate allowed me to do that with a low barrier to entry (but a much higher barrier of entry to success!). In real estate I leverage the personal and professional relationships established over 40 years of living here. I like to think my clients really like me and I do good for them. I enjoy being around people instead of staring into a computer all day long. Real estate can be very stressful and is not for the timid, but for the right person it can be a great career choice!