May 16 2016 10392 1

Dated: 05/16/2016

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4 Issues That Will Impact the 2016 Real Estate Market

After a record-breaking 2015, local experts look ahead to tell us what to watch for in Denver's real estate market this year.

BY JANUARY 20 2016, 12:40 PM

—Courtesy of Shutterstock

The Denver real estate market posted a record-breaking 2015, with $20.16 billion in home sales for the year—an increase of 14.5 percent over 2014, according to a report from the Denver Metro Association of Realtors. “The Denver metro area continues to be the number one real estate market in the country,” says Anthony Rael, chairman of the Denver Metro Association of Realtors’ Market Trends committee. 

 With 55,509 total homes sold for the year, the median home price increased 14 percent to $314,000. Inventory grew slightly to 65,872 new listings, a six percent increase over 2014, although that number still isn’t enough to satisfy demand in the region. “Inventory was the big story in 2015,” says Rael. “A balanced market needs five to seven months of inventory, and in Denver, we’re looking at just a few weeks.”

Looking ahead to 2016, local real estate agents don’t expect a dramatic shift in the white-hot market. That said, the city sees movement toward a more balanced landscape. Here are four issues that are sure to come into play in 2016:

INVENTORY

Supply of homes didn’t come close to market demands in 2015, especially in the city’s older neighborhoods. That meant homes were getting snapped up very quickly, often above asking price. In Denver, the luxury market—anything above $1 million—is especially tight, says Jill Schafer, a Denver-based real estate agent specializing in the luxury market and a member of the Denver Metro Association of Realtors’ Market Trends committee. “There are just not a lot of choices," Schafer says. "It’s definitely a seller’s market unless you are willing to go to the suburbs.”

INTEREST RATES

The Federal Reserve has already signaled that interest rates could increase—again—in 2016. Steve Blank, managing broker of LIV Sotheby’s International Realty's downtown office, says this will impact the market in two ways: First, when the rates start inching upwards, both buyers and sellers are motivated to take action. “People are afraid of timing the market wrong,” Blank says. “When the rates start to go up, they realize, ‘OK, now it’s really time to make a move.’” Blank believes the rate increase will spur consumer confidence, which took a hit during the recession, and encourage those sitting on the sidelines to take action (which could increase both supply and demand). That said, as rates increase, so will mortgage payments, which will certainly impact prices.

CONSTRUCTION DEFECT LAWS

The legislation regulating the responsibility builders have to homeowners is currently in flux. Rael says this has discouraged new building development—especially in the condo market—further straining inventory levels. “Condos are very important to the market as a whole,” Rael says. “Young people can’t jump into single-home ownership, and right now there’s very little inventory in the starter condo market.” With the lack of statewide action on this complicated issue, many municipalities are moving forward with their own regulations for builders. Look for this issue to make headlines in 2016.

APPRAISAL REQUIREMENTS

Licensing requirements have dramatically changed for appraisers, resulting in a shortage of the professionals. Closing timelines are impacted by the challenge of getting appraisers on-site. The result? Buyers are scheduling appraisals before inspections, which means paying for appraisals on deals that might not go forward. Schafer expects these types of professional hassles to impact the sales pipelines and advises buyers to prepare for bumps in the road.

Although our experts don’t expect major market shifts in 2016, the picture will become clearer once the buying season begins in late March. “Of course every market will change; the only constant is change,” Blank says. “But I see 2016 as a move toward a balanced, healthy market. The interest rates are a wild card, but we have nice job growth and a diversified economy, and we continue to attract millennials with college educations. That’s all good for the market.”

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