How will coronavirus affect the Denver housing market?

Let me start by skipping ahead to my answer: I expect prices to stay the same and fewer sales through 2020. Now for a little background.

As a Colorado mortgage professional, I'm often asked my thoughts on the Denver housing market. In the era of COVID-19, I'm being asked more than ever before.

We are now in the early stages of one of the most significant public health events in the history of our country. I am thankful and inspired by the tireless work of medical professionals as they fight on the front lines against a global pandemic.

Beyond the impact on our health, the impact on our financial well-being is on the top of many of our minds. It appears clear that the economic consequences will be far reaching. I'm hopeful that this time won’t closely resemble the Great Depression or the Great Recession, but will be remembered economically as a less dire Great Pause. State and Federal government programs are being rolled out quickly to assist struggling businesses. Stimulus checks have been mailed to help American citizens weather this storm. Many people have strong opinions about these programs and their implementation. For a moment, I'm going to ask that you put that aside as we consider the possible effects on the Denver housing market.

There's one thing we know for sure right now: the government is implementing programs to delay the economic consequences of coronavirus.

I believe that it is highly unlikely that there will be a drop in Denver home prices for two simple reasons.

1.) It's difficult for prices to go down if nobody is selling.

2.) There is no pressure to sell or move. In fact, there's incredible pressure to stay put.

A lot of this comes down to basic economics. That doesn't mean this is a simple idea, it just means that supply, demand, and government intervention can help us understand what happens next for the Denver housing market.

You may remember that during the last financial crisis, the problem itself started with mortgages going into default. There were millions of homeowners with adjustable rate mortgages who couldn't refinance. Folks were seeing their 2 year teaser rates of 6% adjust to 9% overnight. In many cases, this was hundreds of dollars a month that people simply didn't have. When they couldn't make their payments or refinance, they were foreclosed on. Soon, more and more people started having the same problem. Banks were foreclosing, people were losing their jobs, complicated and incredibly widespread financial products built on the foundation of these bad home loans started to unravel...and the cascading effect soon began to spill into every area of the global financial system. Nobody knew how to stop the crumbling or how deeply the foundation was truly damaged.

So what's different this time?

Well, the big thing is that we understand the problem better from the start. The economy is struggling because of coronavirus. That's a simpler, though certainly no less insidious, problem than collateralized debt obligations (a primary culprit of the last crisis and still difficult to understand financial instrument for most people).

The government is immediately rushing money out to people so that bills continue to get paid. They are also placing a moratorium on foreclosures and evictions. This is the key element of my argument.

Last time, millions of people were kicked out of their homes by banks and the banks were forced to sell those homes. But nobody was buying. And certainly not for the prices that had been artificially inflated with adjustable rate mortgages with 2 and 3 year teaser rates.

This time, nobody is being kicked out of their homes, at least not for the next twelve months or so. Even then, the foreclosure process takes months. We're a long way away from when massive supply would start hitting the market and pushing prices down. Also, keep in mind that people are mostly in fixed rate mortgages these days paying amounts that they can afford with their current jobs.

It's not all sunshine and roses. There are real concerns over what happens if people don't return to work quickly. I'm optimistic that we may see a "V-shaped" recovery, and perhaps even set up nicely for economic growth in 2021 and 2022. However, regardless of whether the economy returns to form quickly, there will be little pressure for anybody to sell their home below current market value.

Ask yourself, what's the scenario that somebody sells the $300k house they bought in 2019 for $200k? Why would anybody do that unless they absolutely had to? And why would they have to?

If you've been waiting on the sidelines for a buy opportunity, I don't think there's any reason to believe that coronavirus will cause the housing market to decline in the foreseeable future. For better or worse, if you're already a homeowner, or if you're considering buying a home now, the next few months could be incredible proof of the long term resiliency of the Denver housing market that may one day resemble the trajectory of cities like New York, San Francisco, and Boston. I continue to believe that the best time to buy in Denver was 30 years ago and the second best time to buy is today. Pricing pullbacks are rare in Denver, so if you want to live here long term, a huge chance to buy cheap may be much less likely than you believe.

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