In the end, markets boil down to two things: supply and demand.
Now supply can be affected by many things, including the economy, tax laws, materials shortages, labor shortages (or surpluses), weather patterns, government mandates... lots of things can affect supply.
Demand can also be affected by many factors, including demographics, the economy, interest rates, and psychology.
The point is that supply and demand are living, breathing concepts and their intensity varies with time. You could almost say that supply and demand is like a weather pattern, in that it will always be changing to some extent.
Through the first five weeks of this year, the temperature in the market has definitely gone up, again.
As of mid-January, our inventory of homes for sale in Denver has fallen to fewer than 7,000 and it's getting dangerously close to the all-time low (dating to 1985!) of 6,682, which was the inventory count on March 31, 2013.
Meantime, buyers have come charging out of the gates again in 2014, fearing that rates are bound to go up and that prices will continue to rise.
Marketwide, there is just 2.52 months of inventory today. Two years ago, at the start of 2012, we had 5.88 months of inventory on the market in Denver.
The chart accompanying this post is quite telling. The blue line shows the number of homes for sale (supply) at any point in time going back to 2004. The red line (demand) shows the number of homes under contract at any point in time.
I tell my clients that the white space in between the two lines reflects your ability to negotiate. Notice anything?
Of course, it's plainly obvious that the market today looks absolutely nothing like the market of 2007, or 2009, or 2011... in fact, in two decades as a broker (including 11 years in a red hot California market), I have never seen the velocity that we have seen in this market over the past 18 months.
I listed a home last week that had 12 showings and multiple offers within 48 hours. I put a home under contract for a buyer on Friday that had three offers within 24 hours.
When you consider that a good number of the homes on the market are either conspicuously overpriced or suffering from piles of deferred maintenance (or both), the universe of homes that are actually salable is even thinner than these numbers suggest.
In a normal market (which we haven't had in over two years), you will normally see a ratio of about 2 homes on the market to each one under contract. Today, we have 6,800 homes on the market and 5,700 under contract. That's an overall ratio of 1.19.
Below $250,000, however, that ratio falls to 0.64. From $250,000 to $400,000, it's 1.23.
What that means is that below $400,000 there literally is nothing for sale and yet buyers are seemingly everywhere.
And what does that mean?
For 2014, it means prices are going higher. Again.
We truly are living through a golden age for real estate in Colorado. And depending on whether you own or rent, you are either loving it or hating it.