Tuesday, July 12, 2011


In July of 2008, there were over 26,000 homes for sale in the Denver metro market area.  Today, there are fewer than 18,000 homes on the market. 

Lack of inventory continues to be, in my mind, the big story in the Colorado real estate market today. 

Below $250,000, there are just 1.65 homes for sale to each one currently under contract.  And since that number includes short sales (of which there are many), the reality is that the market is even tighter than that. 

When half of the homes listed for sale in any price range are under contract, you have an inventory problem.

Above $1 million, the story is 180 degrees reversed.  In the luxury market, you have nearly 13 homes for sale to each one under contract, reflecting a continuing trend in which the high end of the market will continue to lose value for some time to come. 

Absorption rates help to tell this story.  The absorption rate, as we have explained before, is a mathematical calculation intended to show how many months of inventory exists on the market today.  Real estate economists will tell you that six months of inventory reflects a balanced market, favoring neither buyers nor sellers.  Below six months of inventory reflects a tight market, generally favoring sellers, while inventory above six months indicates that a buyers' market exists.

Check out these current absorption rates:

* Below $250,000... 4.03 months
* $250,000 - $400,000... 6.48 months
* $400,000 - $600,000... 8.00 months
* $600,000 - $1 million... 13.86 months
* Above $1 million... 40.25 months

That's about all you need to see to understand today's market.  The low end of the market has a shortage of inventory, but no shortage of buyers.  The middle of the market is okay, but hardly robust.  And the high end is a mess, and will continue to stay that way for quite some time to come.

I don't think that articles which discuss the overall market serve much purpose at all, because the $200,000 buyer has virtually nothing in common with the $1 million seller.  When The Denver Post and other news outlets report on overall trends, I think the information is often misleading and skewed.

Markets are about price point, condition and location.  And frankly, I am working with no shortage of buyers at the entry level who feel a disconnect from what they hear on the news when there is no inventory to look at and the nicest homes come off the market in days, not weeks or months. 

Successfully navigating this market requires specialized knowledge, and that's what competent brokers are supposed to provide.  The agents who are closing deals are the ones who understand the market.  Now more than ever, competence matters.