2020 Year End Housing Market Review & Predictions for 2021
To say last year was crazy would be an understatement. From toilet paper to vacations, Covid affected everything around us, including the housing market. So,
What Did the Market Do Last Year?
"Can we honestly even compare the 2020 housing market to previous years, considering a global pandemic significantly influenced it? Yes, but we may need a few footnotes for the historical record. Ultimately, 2020 was a record-setting year for housing. Almost every major trend we track broke or smashed a record. While the overall U.S. economy experienced significant difficulties in 2020, the housing sector showed its resilience, and one could argue even benefited from the pandemic. In the end, 2020 forced us to reimagine our relationship with our home." - Steve Danyliw, Past Chair of the DMAR Market Trends Committee and Denver REALTOR
The Denver metro area saw a significant decrease in the number of homes for sale at the end of the year, in fact we set a record for the least number of homes on the market ever and fell under 3000 total listings for the first time. The increased influence of the pandemic should not be underestimated as active listings are a product of two factors: new listings entering the market and listings exiting the market through closings. New listings dropped in 2020 by 1.8% from 2019 and closed listings increased 7% from 2019. Some of the key factors influencing low inventories are record-low mortgage rates increasing buyer demand combined with insufficient new housing creation (read: builders aren't building enough and it shows).
Months of inventory (MOI) is another great indicator of market direction as it looks at active and closed listings. We finished December at 0.53 months, meaning if nothing new came on the market we'd be out of homes in less than a month. As we examine yearly averages, 2020 posted the lowest yearly total of 1.05 MOI which broke our previous record low of 1.17 MOI in 2017 and if you recall, that was also a very busy year in real estate! 2020 represented a new record high for closings in Denver metro history. We finished with 62,985 closed transactions, which represents an increase of 6.95% from 2019.
The 2020 national housing trends, for the most part, mirrored state and local trends. In the first quarter of 2020, the Denver metro area was outperforming 2019 with closings up 4.26% and the average closed price up 5.44%. The pandemic did the most damage during the second quarter, and then the rebound started in the third quarter. The bottom line: buyers who were unable or unwilling to buy during the lockdowns just waited a few months.
So that's for Denver at large, what did Erie look like last year?
Erie was a microcosm of what was happening all across the country last year. Our inventory also dropped significantly, ending with only 14 single family homes active on the market at the end of December as compared to 107 last year, many of those homes over $1mil. Current inventory isn't much better with only 4 previously loved homes under $1mil available.
Year over year statistics strongly favored sellers with median sales prices up 6.3% and days on market down 30.4%. There's a distinct lack of affordable housing (which I'm very loosely defining as anything under $1mil, yikes!) that's resulting in a very competitive market. We're back to seeing multiple offers and homes only lasting a few days on the market before they're snatched up.
What Will the Market Do This Year?
This year looks to be a great year for real estate, albeit slower than last year. Our low interest rates will start to increase in the second half of the year, but will continue to remain relatively low. An increase of people moving to Colorado as well as the aging millennial population all combine for increased real estate demand. Demand usually starts to pick up in mid-late February, but we've already seen it picking up in January - homes are going under contract more quickly than they were in our area even last summer.
Many of the builders in our area have finished their neighborhoods, but there are still new homes available. These are becoming increasingly more competitive though given the lack of available options and builders will continue to raise prices across the board. Builders will also continue to disincentivize using agents since they don't need us to attract clients, but buyers beware that you get what you pay for. Using an agent won't likely save you money right now, but we can save a lot of headaches walking with you through the process! Building a new home gives us a timeline to prepare for to plan to sell your current home and not end up home-less, and though many builders are not currently accepting contingent offers we do have options - read on for more about that.
Market Trends to Watch
Millennials and Gen Z: As our largest population segment, the Millennials have been in the housing market longer than I care to think about, me being a Gen Xer and barely old enough to be in it myself ;) They've now owned homes long enough to think about moving up or investing in rental properties, and Gen Z is right behind them. Our inventory will continue to tighten as more buyers continue to emerge.
Working from home: This is just one area where Colorado definitely outdoes the rest of the country with 46% of our population telecommuting compared to 35% on average nationwide. This means that we can work from more places than ever before, which could mean a few different scenarios. We could see more people moving out of state to less expensive areas (think Idaho, Texas, Montana, etc) or to mountain areas, which also experienced a surge in population this past year, or we could continue to see population growth in our core corridors as other people move in from out of state to take advantage of our weather and scenery. It remains to be seen how it balances out.
What it Means for You
Sellers: If you're thinking of selling, now is a great time! The lack of inventory is driving competition, and therefore prices, up. If you own investment properties you just don't want to deal with anymore, live out of state and want to sell your properties here, or are planning to move out of state, it's a great time to cash in on your equity. If you're thinking of moving within the state and want to know what that looks like, read on.
Buyers: It's time to get ready. Like I said, it's competitive out there. But that doesn't mean despair, it means you need a plan. If you currently own a home you'd sell in order to buy, let's talk about your options for not having a contingent offer. If a seller receives 10 offers and yours is contingent while the others aren't, you have less chance of winning that house. There are lots of options for staying in your own house while looking for a new one, we just need to be prepared in advance to do that. It's always been important to talk with a lender before finding a home and now it's not even optional. You must be pre-approved before you start looking for homes, if you find the one you want you must have already had that conversation about the financials otherwise you'll be behind before you even begin. If you're planning on keeping your current home then it's also important to know what that financial picture looks like. A great lender will also talk to you about options to make your offer stand out. With their cooperation and my advice we can have a really great chance to getting you the home you want! I was just in this situation with some of my clients - they found the home they wanted and we were competing with 8 other offers, but we were able to structure their offer such that they won the house! Can I guarantee that every time? Of course not, but it definitely helps! Need a suggestion for a great lender? Just ask!
If you'd like a more comprehensive look at your neighborhood, whether you're in Erie or any of the surrounding areas, please let me know. I'd be happy to put together a synopsis for you so that you can be better informed. If you're thinking of selling or buying, let's talk about your goals and how it might look in this landscape.
Thanks to DMAR for the Denver stats!
For additional reading you can check out these articles:
Forbes Market Review and Predictions