this is the recipe for a competitive housing market
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By Maurie Backman | November 2, 2020
The overall housing market has been hot for much of 2020, but some cities are seeing a higher surge in demand than others. Take Denver. Earlier this year, median sale prices for single-family homes and condos in Denver hit record highs of $510,000 and $334,752, respectively. In fact, Denver now has one of the most competitive housing markets in the country, and several factors are contributing to that. Take a look to see if this recipe for a competitive housing market applies to your next investment.
1. Limited inventory
In September, Denver's housing inventory was close to half its usual size, leading to an uptick in competition. That month, there were 3,041 single-family homes available for sale, down from the previous low of 5,693 in September 2017. So it's not surprising homes are being bought quickly -- the median number of days on the market has fallen to a record six. By comparison, the previous record was nine days in September of 2015 and 2016.
Of course, limited housing inventory is a national trend this year. Many property owners have held off on listing their homes due to the uncertainty brought about the coronavirus pandemic, but the result is the same: Limited supply is only fueling demand.
2. High demand
The basic laws of supply and demand state when a commodity is in short supply, demand automatically rises. But that's not the only reason why Denver's housing market is so hot.
Right now, mortgage rates are sitting at historic lows, with the 30-year fixed loan holding steady at well under 3% since summer and the 15-year fixed loan hanging tight at under 2.5%. Prospective buyers are therefore eager to get their hands on homes to secure these great deals, which is leading to a total demand crunch -- not just in Denver, but throughout the country.
3. Unique value propositions
Competitive housing markets tend to offer local benefits other areas don't. For Denver, those include glorious scenery and relatively spacious homes with proximity to ample amenities. By contrast, a number of big cities (notably, Manhattan and San Francisco) are struggling with home sales now as buyers seek out added square footage and space to spread out, since working from home is a continuing trend. Other value propositions that lend to buyer demand include nightlife, low crime, and highly rated schools.
How to navigate a competitive housing market
From an investing standpoint, hot housing markets pose a challenge. While you could make money with an income or investment property, you could also wind up paying a substantial premium for that property that can eat into your bottom line. A better bet is to seek out housing markets on the verge of being competitive but not quite there yet. That way, you can get in when home prices are moderate and benefit when they begin to skyrocket.
In fact, that's why it's so important to know the recipe for a competitive housing market -- so you can get in at just the right time, get a relative discount on the property (or properties) you're buying, and then make a killing through rental income or resale.