Thursday, December 4, 2014


Here it comes, again... the inventory of homes for sale in Denver today is down nearly 30% from a year ago, while the number of homes under contract in the past 30 days is up over 24% from the same period in 2013.  

These are strong, strong numbers that demonstrate our market is losing none of its momentum going into 2015.

As you know, I have been a student of housing market data for nearly 20 years.  Every month, I pull my own data from the MLS, studying active inventory, homes under contract and the number of homes that have sold.  I look at distressed inventory, foreclosure filings, and employment figures.  

These charts and spreadsheets form the basis of my buyer and seller consultations, because the numbers always tell an important story.    

When inventory began diving in 2011, I saw it early and encouraged my buyers to get serious.  When inventory continued falling in 2012, I challenged my buyers to swing fast and hard, before prices started climbing.  In 2013, as double digit appreciation became the norm in many parts of town, I showed people it was "real" because demand was far outstripping supply and both job growth and migration supported higher prices.

And as 2014 comes to an end, it is happening again. 

Even in the face of bidding wars, cash offers and record-high prices, inventory is diving again.  It's down 29.50% from one year ago, which again reflects massive demand swamping limited supply.

Here's the trend, month by month, since the summer:

- June.. 7,957 homes on the market, down 3.20% from June of 2013 
- July... 8,663 homes on the market, down 5.70% from July of 2013 
- August... 9,406 homes on the market, down 6.20% from August of 2013 
- September... 8,783 homes on the market, down 17.10% from September of 2013 
- October... 8,302 homes on the market, down 19.80% from October of 2013 
- November... 6,865 homes on the market, down 29.50% from November of 2013

When our market is ready to cool off, it will look 180 degrees opposite from what is happening today.  There are currently 7,470 homes under contract in the Denver MLS and only 6,865 homes for sale, a ratio of 0.92 homes on the market to each one under contract.  In a "normal" market, that ratio would be 2 to 1.  In November of 2010, just four years ago, it was 4.64 to 1.  

Absorption rate, which should be around five months in a normal market, is currently 1.42 months, a strong seller's market.  For entry level homes, below $250,000, it's 0.49 months.  For homes between $250,000 and $400,000, it's 0.92 months.  When absorption rates fall below three months, appreciation is essentially guaranteed.  When it's below one month, continuing price appreciation is automatic.  

It is my contention that the three year period between 2011 - 2013 will go down in history as the best Denver metro home buying opportunity in our lifetime, especially at the lower price points.  Three years ago, there were more than 4,500 homes on the market priced under $250,000.  Today, there are 927.  The reason?  Homes under $250,000 basically don't exist anymore.  

When this market starts to tire out, if it does, the first place you'll see it will be in the inventory.  On a year-over-year basis, it will start leveling off, then climbing slightly.  The minute you see that, you will know it's time to start changing your approach.  (And, factually speaking, that will happen.  The question is, how much higher will prices go before we hit that point of equilibrium?  And what will interest rates look like at that time?) 

The other key indicator is the jobless rate.  With unemployment in the Denver metro area at just 3.7% (and just 4.3% statewide), everyone who wants a job has one.  And when people are employed, they buy houses.

It is confidence, more than affordability, that drives markets.  If affordability drove the market, then everyone buying today would have bought in 2009 or 2010.  Affordability is nice, but employment matters more.

The average Denver area home has appreciated over $57,000 in the past two years alone.  Over $16 billion in new equity has been created in the metro area, unleashing spending power that is creating jobs and opportunity for anyone who wants it. 

Constructions projects are everywhere you look.  Companies are coming to Denver in record numbers.  Consumers are spending.  Oil, gas, technology, tourism... it's all booming.  

There will come a day when this market stabilizes.  When prices level off.  When supply balances with demand.  When things get back to "normal".  I am watching closely for signs of a market top, but right now, there are none.  The numbers say this is real, and it's not done yet.

My last four listings priced under $300,000 have drawn a total of 37 offers.  Thirty three of those buyers are still out there, frustrated, looking for homes.  

If you're not prepared to fight with other buyers, don't bother coming off the sidelines.  Because it's competitive right now, and only the most motivated buyers will prevail.  

If you own, these are the best of times.  And if you don't, it's quite possible you may be watching your opportunity for home ownership sail off into the Rocky Mountain sunset.