“Day of Reckoning Coming for Overvalued Housing Markets Like Denver”

This was a big headline story in The Denver Post last week written by Aldo Svaldi citing a study done by Florida Atlantic University and Florida International University. This study shows that “Denver ranks 37th out of 100 metro areas with home values 38.5% above what would be expected on the long-term trend.” This study is based on trends in the Zillow Home Value Index going back to 1996. Based on Zillow numbers our home values should be $486k; but instead are $639k.

“A reckoning is due. Home prices and rents can’t separate as significantly as they have from their long-term fundamental trends without major issues arising in the marketplace,” says Ken Johnson and economist at Florida Atlantic University.

Is Ken correct? Yes, but he and nearly every other “expert” calling for housing “doom” have totally forgotten about point 3 below and they probably don’t know the data in point 4 and how this will impact demand for housing for the next 2 decades.

In 2020 and 2021 we had 2 major Black Swan events and first was Covid and second was the Fed causing mortgage rates to drop into the 2’s. Covid changed where people work and live by a large margin. We can’t change this. Now tens of millions of Americans have a mortgage rate < 4% who may never move thus greatly reducing housing supply whick will cause home prices to remain high. A third factor locally and nationally is we have a HUGE housing supply crisis as we need an additional 4 to 5 million housing units TODAY! Fourth, we have on average 4 million adults turning 21 for the next 18 years and a similar amount turning 33 every year for the next 18 years. This means huge organic demand for housing whether rentals or purchases until 2040. Our country has never experienced this much housing demand for such a long time period and we are just getting started. We saw similar numbers for Baby Boomers for 13 consecutive years and that caused a huge explosion in housing demand. I am afraid that the housing supply crisis may get worse which means home prices and rents will continue to soar by double digit percentages. And remember everyone NEEDS A PLACE TO LIVE.