When Home Prices Rise Too Quickly, They Must Fall
Sunday’s Denver Post had a great story written by Aldo Svaldi on how hot housing neighborhoods have gone cold and vice versa according to a ranking of 90 metro area zip codes from DMAR using first quarter data. According to DMAR only 7 metro area zip codes showed price declines last year in the first quarter. This year, 26 counties or about 29%, saw their median values drop.
Aldo writes, “The shift shows up in homes spending more time on the market, more listings adjusting lower in price, and more homes selling below the original list price.” This is all true and we are seeing it in SMDRA’s data too. You MUST price your home correctly for its age, location, and condition.
Trulia senior economist Cheryl Young said, “Things are getting better for buyers, even so, momentum moving in favor of buyers isn’t the same thing as a buyer’s market.” According to DMAR about 90% of neighborhoods are moving towards buyers today versus only 25% a year ago. I don’t know how this is being measured though. Now let’s look at some examples–
First, Lowry saw the second highest appreciation rate in our market a year ago, now Lowry is dead last. Home prices had risen 58.8% from 2017 to 2018 and prices have since dropped by 23.7% this year. Why did this happen?
According Ann Torgerson, a Realtor with HomeSmart Cherry Creek who lives in Lowry, said, “It was mainly due the new construction at Boulevard One, which raised the dollar amount and the overall number of homes sold.” She noted that 9 new homes sold in the first quarter 2018 in Lowry from $710k to nearly $1.1 million. Whereas, this year fewer expensive homes are on the market as there are only 2 new builds are on the market.
One thing I see in common for every market seeing a big downward price change is this—those same neighborhoods experienced HUGE gains in the previous year and these types of gains can’t continue. For example—
- Hampden South and north DTC saw a 67% price increase last year and this year prices are up only 3%.
- After seeing a 28% price increase last year Greenwood Village prices dropped 18% this year.
- Valverde, Baker, & Athmar Park last year saw a 38% price gain, this year prices are down 12.5%.
Still a dozen zip codes saw double-digit price increases this year. Where? Sedalia and Deckers in the foothills, Logan Park/Broadway Heights, Bear Creek/Bear Valley, Conifer, and Henderson.
Steve Danilyw, a member of DMAR’s Stats Committee said, “The flipping of the script is a clear demonstration of the affordability crisis that we are starting to face.” I am not sure I agree with this as I know no neighborhood can maintain prices increases above 20% for more than a year or two before those neighborhoods see prices flatten out or drop. It’s the law of averages at work. Plus, a “hot” neighborhood gets too expensive so buyers look for homes in a neighborhood next door for example.
I had this exact conversation with a buyer who recently moved here on Friday who is thinking of buying a new home in Sloan’s Lake. I told him you are paying a hefty premium to buy in Sloan’s Lake now. Instead I would buy a neighborhood or 2 away from Sloan’s Lake and watch home prices rise there after you buy. This is very similar to stock investing. Often we buy hot stocks or sectors too late and then prices drop. Instead, buy stock in companies that had a terrible year last year as often they see out-sized gains the next year.
The Denver Post and DMAR provided an amazing chart showing the changes in prices in each zip code. You will want to save this link