MAY MARKET UPDATE - RECOVERY IS HERE

The tightest real estate market in at least a decade got tighter last month, as inventory continued to fall to unprecedented levels and buyers continued storming the market as Denver's powerful real estate recovery rolled forward.

At the end of April, there were just 10,254 homes for sale in the Denver MLS, a drop of 43% from one year earlier.  A total of 4,721 homes went under contract during April, up from 3,775 during the same period a year ago.

But it together and you have a 43% drop in listings with a 20% increase in the number of contracts, pressure which is driving prices higher below $400,000 and sparking bidding wars through much of the metro area.

Below $250,000, the change is even more remarkable.  The number of listings for sale - 2,818 - is down 65% from the 8,007 homes that were on the market in this price range one year ago.  A total of 4,675 homes are currently under contract in this price range, which basically means three out of every five homes listed for sale below $250,000 is currently under contract.

The overall absorption rate, which was 5.37 months one year ago, is at just 2.22 months today.  Below $250,000, the absorption rate is just 1.37 months, which means at the current pace of sales it would take less than six weeks to sell every single home on the market today, regardless of price or condition.  

Foreclosures are now back to 2002 levels in Colorado and the state currently ranks 44th in the country in terms of mortgage delinquencies... a far cry from when Colorado led the nation in foreclosures per capita during 2005 and 2006.

First-time buyers continue pouring into the market, driven by soaring rents and incredibly low interest rates that make owning significantly cheaper than renting in most parts of town.

A shaky economy has capped the so-called "move up" market, which means there are fewer privately owned homes coming on the market at the same time bank-owned inventory has dwindled.

And, in an interesting twist, many of the more than 40,000 households that were foreclosed on back during those dark days of 2005 and 2006 are cycling back into the market, eager to own once again but approaching things much more conservatively this time around.

Add it all up and you have the formula for an amazing inventory crunch, the likes of which we haven't seen in many years.  As long as rates stay low, rents keep rising and builders stay mostly on the sidelines, you can expect it to continue for some time to come.