Metro Denver is heading into another peak home-selling season with empty shelves and rising prices, but don’t be too quick to use the “B” word — bubble.
“Denver is in a good spot. It is a strong market,” said Lawrence Yun, chief economist with the National Association of Realtors, during a visit to Denver on Wednesday.
The median price of a home sold in metro Denver reached $353,600 at the end of 2015, up from $310,200 in 2014 and $280,600 at the end of 2013, according to the NAR.
Over a two-year period, median home prices in Denver-Aurora are up 26 percent. That’s the eighth-fastest pace among more than 176 cities tracked by the NAR, the fastest of any major metro area, and nearly double the U.S. average two-year gain as measured by the association.
Historically, home prices over the long term rise at the pace of inflation plus 1 or 2 percentage points, and Denver’s off-the-chart acceleration has raised fears of a bubble.
But Yun notes that some key ingredients needed to create a bubble are missing.
Easy credit was a driver in the excesses last decade, creating artificial demand that resulted in an excess supply of homes.
Credit remains so tight now that many potential buyers can’t qualify for a mortgage, either because their credit scores are too low or they lack an adequate down payment.
Another driver of the last bubble was excess construction, and multiple signals show that not enough homes are being built. The chief signal is the lack of homes available for sale.
Metro Denver’s inventory of homes available for sale could quadruple and still would be around the historical average. There were only 3,963 active listings at the end of February, down dramatically from the 30-year average for that month of nearly 15,000, according to the Denver Metro Association of Realtors.
It would take a sevenfold increase to bring listings to the levels seen in the last bubble, when builders were willing to go gangbusters.
And yet, builders are pulling single-family permits only at a pace to match historical averages, despite a strong influx of people relocating to the region.
A shortage of construction labor, lack of close-in and affordable land to build on, and conservative construction financing are holding builders back, Yun said.
Another reason the for-sale supply remains tight is that many foreclosed properties after the housing crisis were snapped up at discounts and converted to rentals.
One way to boost the inventory of homes for sale would be for those rentals to come back onto the market. But with interest rates so low, investors are hard-pressed to find alternatives that can earn a comparable yield.
And as long as prices keep rising, investors don’t have an incentive to let go, Yun said. If prices start to level off or go the other way, then more of those homes might end up as listings.
Aldo Svaldi: 303-954-1410, asvaldi@denverpost.com or @aldosvaldi
