Looking for three current themes in the Denver area housing market? Try these:
1) LACK OF INVENTORY
The latest snapshot of inventory showed that there are currently fewer than 18,000 homes listed for sale in the Denver MLS. That's a reduction of 14.8% from one year ago, and it's a drop of more than 30% from just three years ago. So where did the inventory go?
First, you don't have as many foreclosures as you have had in years past. A small part of that is the processing delays many servicers have incurred as a result of last year's "robo-signing" scandal, but the larger part is simply that we don't have as many homes being foreclosed upon. At some point, the orange runs out of juice, and that's what you're seeing at the entry level of our market, where most of the foreclosures have occurred.Now I will say that foreclosures are increasing at the higher price points, and I expect this trend to continue. But the fact is from a shear numbers standpoint, there are more entry level homes than luxury homes, and at the entry level we've seen most of the foreclosures already pass through the system.
2) FALLING ABSORPTION RATES
Looking for evidence of more stability in the market? Start with absorption rates.
The absorption rate, as discussed here many times, is a hypothetical calucation that seeks to show "how many months it would take to sell all inventory on the market, based on the current pace of sales, if nothing new were to come on the market." Economists will tell you that six months of inventory represents a balanced market... higher than that reflects a surplus of inventory, less than that reflects a shortage of homes.
Below $250,000 the absorption rate has fallen from 9.05 months in January to just 3.75 months today. That's a drop of nearly 60% in just five months! From $250,000 to $400,000, the absorption rate has fallen from 11.83 months in January to 5.71 months today. Above this, the drops are not as dramatic, but that's because the market simply lacks enough buyers for higher end homes, so you are going to continue to see a different picture once you work your way beyond about $350,000 to $400,000.
The point is (and I have current buyers experiencing this), there is not much out there right now up to about $300,000. There's less bank-owned inventory, and sellers have finally realized that this is not a great market to sell into unless your motivation is very, very strong.
A lack of inventory, however, does not automatically equate to a seller's market - what is in demand is well-priced inventory in good condition.
A lack of inventory, however, does not automatically equate to a seller's market - what is in demand is well-priced inventory in good condition.
Price it right and make it show well, and your chances for a sale are very, very good. Price it wrong, and the parade just passes right on by and continues looking for the next well-priced, well-maintained home.
3) INTEREST RATES REMAIN STUBBORNLY, BEAUTIFULLY LOW
As of this writing, 30-year fixed rates have dipped back down below 5.00%, which continues to be the gift that keeps on giving. A Japanese earthquake and tsunami, stubborn U.S. unemployment, and continued pessimism over recovery are keeping bond yields low, despite $2 trillion of government spending, $100 per barrel oil and rampant inflation in commodity prices.
Are we on borrowed time with interest rates? Yes, just like we've been for the past two years. There will come a day of reckoning with interest rates, and it will likely be this year, but I will admit I have been bracing for higher rates for the past 18 months and they've yet to arrive in the way I expect we will eventually see them.
I do believe when rates bump up it will happen quickly, without warning, and it will be for good. 30-year fixed rates in the 4's are totally contrarian to current economic policy and global commodity price inflation. Whether your interest rate is 4.50%, 5.00% or even 5.50%, one day soon you will look back in amazement at this golden era for cheap money.
What does it all mean? In reality, we have a very functional market. There is less sales activity, which is bad for brokerages and salespeople who rely on "the market" to bring them business. But there are fewer "dead listings" and plenty of motivated (but value-oriented) buyers who are keeping the good agents exceptionally busy.
Sellers can sell and buyers will buy, but only if there is value in the deal. That's the bottom line.
