Will the Bubble Burst in 2022?

Posted By: Derek Marlin ICOR Blog & News,

We’ll jump back into our property redevelopment content for February’s article, but one of the most important topics for investors is the direction of the market in 2022. We absolutely do NOT have a crystal ball, but ELEVATION is bullish on continued strength in the real estate
market for metro Denver. Inventory Levels – The most important data point we focus on are the number of properties listed for sale in each month. When inventory is low and demand is high as we’re currently experiencing, prices rise very quickly and sellers are at more of an advantage. When markets shift to favor buyers there are quite a few more properties for sale and demand for those properties are lower resulting in decreased or flat home prices. Here are a few key data points to consider:

• 2,250 total properties for sale in November 2021 which includes all SFR’s, condos, and townhomes. The metro Denver market has almost 3 million homes and only 2,000+ homes in all price points were listed for sale in November
• 14 Days of inventory on the market in November 2021
• 5,500-6,500 homes for sale 2017-2018 which may be the “new normal” for inventory levels

Hedge Fund Buyers - Denver is one of the most desirable markets for hedge funds, venture capital and large institutional investors in the
country. A major focus for these companies is to purchase single family rental properties with a 5-10+ year hold timeline. During Q3, institutional buyers purchased 25% of every home in metro Denver. These funds are injecting billions into the market for these acquisitions and will gobble up much of the available inventory adding another “level of safety” to keep the market from crashing in 2022.

Population Growth & Migration - Our population saw 20% growth between 2010-2020 as our MSA is now almost 3 million people. Many projections have our population adding another 1.3 million residents peaking at 4.3 million people by 2040. Many of the new residents are millennials who are looking to purchase property. This subset of our population makes up the largest percentage of prospective buyers in the country.

Inflation - We’re also dealing with the highest inflation since the 1980’s. While government subsidies have pumped more money into the economy, it’s caused housing prices to increase significantly in the past three years. Real estate has historically been one of the best hedges to inflation which lends another stabilizing factor to our housing market.

Key Takeaways

Market cycles typically don’t peak and immediately crash but are more of a rolling change. Increasing inventory and less competition will
actually make it a little easier for investors to acquire properties. We like to think that the Denver market is moving from a scorching hot sellers market to a more normalized market instead of the “crash” that a few prognosticators are mentioning. We think a data driven approach will help all investors make the best real estate investing decisions.

Data from the DMAR, Denver Business Journal, Denver Post, US Census