Metro Denver Real Estate – A Sure Bet?

Mike Cooke October 11, 2016 Buying Development Improvements Selling

Your odds of winning the Colorado Lottery … 1 in 5.3 million.
Your odds of winning Power Ball … 1 in 292 million.

Your odds of making money when you sold residential real estate in metro Denver over the last 20 years … almost 4 in 5!

That’s right, no matter when you bought or sold a residential property in the Denver area over the last 20+ years, there is an 78.72% chance that you sold it for more than the price you paid when you acquired it.
How do we know this?

At CHR, we have 22 years of historic data on the average monthly sale price of homes. We got to work analyzing that data. We sliced. We diced. We julienned. We used an Excel spreadsheet.

We looked at various ownership periods ranging from 2 years to 7 years during the time frame from August of 1994 through June of 2016.

For example, we looked at buying the average house on August 1, 1994 and selling it on July 31,1996. Then we looked at buying the average house a month later on September 1, 1994 and selling it a month later on August 31, 1996. We kept doing that for every 2-year period over the entire 22 years – a total of 240 separate 2-year time periods.

We repeated that process for every 3-year time period, every 4-year time period, every 5-year time period, every 6-year time period and 7-every year time period. In addition, we looked at each ownership period using two different averaging methods, using both the actual monthly sale prices and the 12-month moving average sale price for each month (both methods gave very similar results).

In total, we analyzed 2,448 different scenarios. In 1,927 of those scenarios, you would have made money. You would have sold for more than your purchase price.
The best ownership period was the 7-year time frame from September 1994 though August 2001. The appreciation over this magical 7-year period was 88.04% (9.44% compound rate of return annually). You’d be most unhappy if you happened to buy in February 2006 and sold in January 2009 as you would have lost 23.8% (8.66% compounded annually).

Another interesting finding of the study is that your chances of hitting a winning time period is better for short time frames but you tend to lose bigger in shorter time frames if you have the misfortune of hitting a down period.

For example, right at 85% of all 2-year time periods showed a gain. While there was only a 15% chance of owning during a losing 2-year time frame, the worst loss was 22.29% (negative 11.85% annually). Ouch … that hurts the team.

In contrast, there was a 22% chance of hitting a losing 7-year time ownership period. However, the worst 7-year loss was just 4.70% (negative 0.7% annually). Losses during any 7-year time frame were small while the average gains were quite large.

Buying a lottery or Power Ball ticket is optional.
But ….. you have to live, SOMEWHERE! So it’s good to know the odds of making money on the place you live in are very much in your favor when you are privileged to live in metro Denver.