February has been an interesting month, at least for statistical geeks like myself. The inventory of homes for sale in the Denver MLS tightened up at every price point between January and February, signaling that the “tax credit rush” is now on and even though the calendar says February 17, the spring market of 2010 is officially here.For the next 71 days, it’s going to be crazy, especially below $250,000. If the $8,000 first-time buyer tax credit of 2009 pulled in all of last year’s first time buyers, plus many of those who otherwise might have waited until 2010 to buy, the extension of the tax credit is now shoving the 2011 crop off first-time buyers off the fence and probably pulling in some 2012 buyers as well.
The $6,500 so-called "move up" buyer's tax credit is also driving activity, with buyers who have owned a principal residence five of the previous eight years eligible for this credit, which also expires April 30.
Let’s recap the influence the tax credits have had on the market.
As of today, homes priced under $250,000 in the Denver MLS account for 34% of the overall listing inventory, but 67% of all transactions. By comparison, homes above $600,000 account for 18% of the inventory, but just 5% of the transactions. So it’s obvious the activity remains concentrated at the lower levels of the market.
Inventory continues to fall. At the end of January, there were just 17,465 single family homes listed for sale in the Denver MLS. That was down 19% from one year earlier, and 45% from the August 2007 peak, when we had more than 30,000 homes for sale in the Denver MLS.
The absorption rate for homes priced below $250,000 fell sharply this month, from a 4.22 months supply in January to just 3.25 so far in February. That’s the clearest evidence of the “spring surge” I referenced at the start of this post.
There was also significant improvement in the $250,000 - $400,000 category, where inventory dropped from a supply of 9.98 months to just 6.16 months. While six months of inventory is considered a "balanced" market (favoring neither sellers nor buyers), the tightening we have seen suggests that you've got both first-time buyers and move-up buyers hitting this sector of the market in force.
Let’s recap the influence the tax credits have had on the market.
As of today, homes priced under $250,000 in the Denver MLS account for 34% of the overall listing inventory, but 67% of all transactions. By comparison, homes above $600,000 account for 18% of the inventory, but just 5% of the transactions. So it’s obvious the activity remains concentrated at the lower levels of the market.
Inventory continues to fall. At the end of January, there were just 17,465 single family homes listed for sale in the Denver MLS. That was down 19% from one year earlier, and 45% from the August 2007 peak, when we had more than 30,000 homes for sale in the Denver MLS.
The absorption rate for homes priced below $250,000 fell sharply this month, from a 4.22 months supply in January to just 3.25 so far in February. That’s the clearest evidence of the “spring surge” I referenced at the start of this post.
There was also significant improvement in the $250,000 - $400,000 category, where inventory dropped from a supply of 9.98 months to just 6.16 months. While six months of inventory is considered a "balanced" market (favoring neither sellers nor buyers), the tightening we have seen suggests that you've got both first-time buyers and move-up buyers hitting this sector of the market in force.
However, the question must be asked again: what happens to these numbers after the tax credits expire April 30? Keep in mind, as someone who is "out on the streets" every day working with clients at many different price points, it's clear that buyers are driven by price and value, and they simply will not overpay for anything as long as they have fear about the economy.
Above $400,000, the inventory of unsold homes spikes up to 13.77 months. And so you can see how things just start to tail off as you work your way up the pricing ladder (above $1 million, the inventory of unsold homes is nearly 32 months).
What can we expect going forward?
Well, here’s what we have we have for buyers for the next 71 days: 1) a pair of generous (and highly motivational) tax credits that expire for good April 30; 2) interest rates that are still in the low 5’s, but almost certainly headed higher as the Fed stops purchasing discounted mortgages; and 3) enough motivated sellers and bank-owned listings to find a good deal.
And for sellers? It comes down to one thing – motivated buyers. For the next eight weeks, buyers are out in full force, particularly below $400,000. That means the time to be on the market is right now. When the tax credits expire and rates go up, who’s going to buy your home? There’s a buyer for every home, but when the “gifts” of tax credits and low rates go away, it all comes down to price. And that’s not what sellers want to hear.
Make no mistake – 2010 is not a normal year in real estate, and this is not a normal market. The lion’s share of activity this year is happening right now, and both buyers and sellers may find the market a lot less attractive when rates start climbing and the tax credits expire.
Above $400,000, the inventory of unsold homes spikes up to 13.77 months. And so you can see how things just start to tail off as you work your way up the pricing ladder (above $1 million, the inventory of unsold homes is nearly 32 months).
What can we expect going forward?
Well, here’s what we have we have for buyers for the next 71 days: 1) a pair of generous (and highly motivational) tax credits that expire for good April 30; 2) interest rates that are still in the low 5’s, but almost certainly headed higher as the Fed stops purchasing discounted mortgages; and 3) enough motivated sellers and bank-owned listings to find a good deal.
And for sellers? It comes down to one thing – motivated buyers. For the next eight weeks, buyers are out in full force, particularly below $400,000. That means the time to be on the market is right now. When the tax credits expire and rates go up, who’s going to buy your home? There’s a buyer for every home, but when the “gifts” of tax credits and low rates go away, it all comes down to price. And that’s not what sellers want to hear.
Make no mistake – 2010 is not a normal year in real estate, and this is not a normal market. The lion’s share of activity this year is happening right now, and both buyers and sellers may find the market a lot less attractive when rates start climbing and the tax credits expire.
