Denver Condo Market Update November 2024 - Rising Demand & Key Trends for Buyers

Are we witnessing a surprise surge in Denver's attached home market, like despite soaring affordability challenges? Well, it appears so. While many expected condo sales to stagnate under the weight of higher taxes, increased insurance premiums, and rising HOA dues, November's DMAR market trends report is telling a slightly different story. The condominium market is undeniably facing significant hurdles. Let's start with higher property taxes. Property values, as determined by the county tax assessor's offices, showed an increase of 27% statewide in 2023, leading to a direct impact on the property taxes assessed. Today, 63% of Coloradoans pay above the United States average in property taxes. And this trend is set to continue, with 2025 bringing an increase in the assessment rate from .067 to .0715, and the elimination of the $55,000 exemption. Then there's the increased insurance premiums. Colorado's homeowners insurance has skyrocketed by 46% in the last two years. And this spike adds a substantial burden to condo ownership, where insurance costs are burdened both by the individual as well as the shared community. And last but certainly not least is the rising HOA dues. Colorado now ranks number four in the country for the highest HOA dues, averaging $401 per month. Astonishingly, 43% of our state's population resides within an HOA, collectively paying a total of $3.9 billion annually. Now, you'd think these factors would drive Denver homebuyers away from the attached market and towards single-family homes. But here's the twist. Denver's attached home market is defying the odds. Now, despite financial headwinds, there was a significant increase in activity within the attached home sector in October's data. In the $500,000 to $749,000 bracket, pending home sales for attached surged 24%. Moving up the price ladder, the $750,000 to $999 bracket witnessed closed home sales jumping by an impressive 41%. The close to list price ratio edged up from 98% to 99%. And the average days on market decreased by 41% compared to September. Additionally, the price per square foot increased by 16.34%. In the $1 million plus market, pending home sales soared by 63%. Days on market dropped by 72%. The close to list price ratio nudged up to 96.73%. And the price per square foot saw a 15% increase. So what's driving the surge? Buyers are seizing opportunities in the attached home market, capitalizing on seller discounts and the dip in mortgage rates we saw during September, which hit a 19-month low of 6.1%. This rate drop spurred a market-wide 2.35% increase in closed home sales, 1% increase in pendings, and 1.57% decline in active inventory as buyers snapped up some of those stale listings. New listings, however, were down 7% across the market, as would-be sellers appear to be waiting for spring. Understanding the financial hurdles attached buyers face is a crucial step in supporting their success. Agents need to present clear statistics on the escalating costs associated with condo ownership to set realistic expectations. For listing agents, be proactive in your due diligence. Ensure that the condo project is pre-approved for either warrantable or non-warrantable options. Working closely with a lender who can provide specific solutions for the common issues is absolutely crucial. These issues could include wind and hail deductibles greater than 5% or reduced pre-sales on new projects, non-structural and safety litigation, rental ratios up to 100%, or HOA delinquencies up to 35%. Given the increase in attached activity, my team has been working closely with agents to pre-approve projects and navigate these hurdles with ease. For buyers' agents, pre-vet the projects your clients are most interested in. If you're working with a VA or FHA buyer, obtaining a single unit approval can make all the difference. In fact, the Ruth team goes the extra mile by getting the entire project approved. Having access to a strong and creative internal condo department, along with traditional non-QM financing flexibility, supports a smooth closing, no matter the market difficulties. Apart from the attached home data, one data point that jumped out at me for October was the resilient home price increases. The average closed price increased 5% for residential, 4% for detached, and 2.3% for attached. Looking at year-to-date average home prices in Denver, they increased 3% year-over-year. Median home prices year-to-date increased 2% year-over-year. Even with inventory levels dating back to 2011 and higher for longer mortgage rates, home prices continue to remain strong. This will keep the affordability conversation alive and well. Yet, despite affordability challenges, a bubble continues to be highly unlikely, as 56% of all mortgage holders have a rate locked in under 4%, 84% are locked in under 6%, and 40% of all homeowners don't even have a mortgage at all. These factors, along with a record-breaking $32.8 trillion in home ownership equity, provides a cushion against widespread defaults that typically precede a market crash. Homeowners with low fixed rates are less likely to sell, restricting supply and keeping home prices stable. Additionally, lending standards have remained tight since the last housing crisis, meaning buyers are more qualified and less likely to default. The recent dip in mortgage rates provided a glimpse into how quickly the market can shift. That temporary drop to 6.1% significantly improved affordability, sparked buyer demand, and the effects were immediately visible in the data. It serves as a powerful reminder that in every market, no matter how challenging, there are windows of opportunity. Whether you're an agent guiding clients through these complex times, or a buyer looking to make your next move, let's embrace the opportunities that exist in today's market. Feel free to reach out with any questions or for personalized advice. Together, we can turn challenges into successes and find the right path forward in any market environment. Until next time, this is Nicole Ruth, proud sponsor of the DMAR Market Trends Committee and SVP with Movement Mortgage.