Currently there are some indications that the Denver real estate market is slowing down and prices are stabilizing. According to the Denver Metro Association of Realtors February Market report, there is a greater inventory of homes for sale now then a year ago and the average time on market is up noticeably over the same time frame.
Most people realize that a greater supply of homes than demand makes it a good time to buy. But it also means it’s an even better time to invest in single family homes with the intention of renting them.
To understand this, let’s consider that last year we saw slower sales at the end of 2018, thanks to many factors, including the midterm elections in November, some stock market volatility, rising mortgage rates, and a looming government shut-down. With most of those factors no longer affecting the market and mortgage rates falling, more sellers are putting their homes on the market.
In the Denver market, we are also seeing a resurgence of buyers as seen in the rapid increase of homes under contract in January. Aiding this trend is the fact that mortgage rates are dropping, even though long-term interest rates have risen (little known fact: mortgage rates tend to trend with bond rates, not the interest rate set by the Fed). The pent-up demand for homes coupled with more available inventory means that more people are able to buy single family homes at this time.
In many places, the normal pattern is that as more people purchase homes, there are fewer people needing to rent. But Denver is still seeing a larger than normal numbers of people moving into town, thanks to Denver’s continuing growing job market. This is keeping the rental markets strong. In a market such as Denver, when more people are buying homes, there are fewer single family homes available to rent. As a result, it’s likely that even as house prices flatten, rents will continue to increase.
Most people who are looking to rent will probably land in an apartment, since there are so many apartment buildings being built in the Denver metro area. But there is always a solid percentage of renters who would prefer renting a single family home because they have dogs or kids or like to garden for example. This provides an opportunity for the savvy investor.
As the rise of home prices in the metro area begins to stabilize, purchasing a single family home with the intention of renting it will allow investors to capitalize on the continued influx of people who are moving to the Denver area.