Yesterday, I
had a client contact me about a home on Utica Street in Denver. Built in 1907 and just one block from Sloan’s
Lake, it’s a sharp little 3 bed, 1 bath bungalow measuring 1,360 square feet with a 330 square
foot cellar.
Listed on Monday,
it went under contract Tuesday at what is surely something close to its listed
price of $350,000.
“It’s
already under contract”, I sighed last night, repeating the most often used
phrase in Denver real estate for the past 18 months. “But let me do some digging and see what else
I can find out.”
What I found
out was this this home had an interesting, and telling, sales history.
Foreclosed
on in 2009, it was sold by the bank to a cash investor for $157,000 after being
on the market for 22 days. A few months
later, it was flipped for $255,000, this time after 25 days on the market. And now, at $350,000 in the hottest real
estate market ever, it was gone in one day with multiple offers.
I have three
separate listings under contract right now that were each purchased in 2011
which have seen more than $100,000 in equity gains in less than four
years. Two of the three were bank-owned
when my clients purchased them, and the third was an estate sale. Each languished on the market for weeks in
2011 before my clients bravely stepped forward to claim them.
Today, those
same homes drew eight, 19 and 32 offers, respectively. The property with 32 offers had 128 showings
in four days.
All three of
those listings were starter homes, priced below $250,000, which is clearly the
insane-zone in today’s market. With no
condos for sale (thanks to Colorado’s construction defects law) and nothing being
built under $400k, the demand for anything resembling entry-level housing is
over the moon.
The numbers
in today’s market are so mind-blowing that it’s hard to comprehend.
For example…
- Four years
ago, there were nine times as many homes for sale under $250,000 as there were
homes listed above $1 million. Today,
there are more active listings priced above $1 million (720) than there are
homes for sale under $250,000 (531).
- Four years
ago, there were more than 19,000 homes for sale in the Denver MLS. Today, there are 4,414.
- Four years
ago, marketwide, there were four times
as many homes for sale as there were homes under contract. Today, there are nearly twice as many homes under contract (7,297) as there are homes for sale (4,414).
- Five to six
months of inventory is considered a “balanced” market. Four years ago, there was 6.20 months of
inventory. Today, the inventory of homes
for sale in the Denver MLS stands at less than one month (0.92), which is the tightest inventory I have seen in two decades as a real estate broker.
If you are
trying to buy a home in this firestorm, you had better start by figuring out
how to make your offer competitive in an environment where the conversation often
begins and ends with the appraisal.
Cash buyers
have huge leverage because they can waive their appraisal clause altogether. All things being equal, cash wins every time.
Large down
payment buyers with reserves in the bank (to cover a potential shortfall on the
appraisal) are next in line. Then come
smaller down payment buyers willing to pay some fixed amount over the appraised
value ($3,000… $5,000… $10,000… whatever their comfort level is). Then comes smaller down payment buyers who
may not be able to cover an appraisal shortfall. Then comes FHA, VA and whatever down payment
assistance programs are in circulation at any given time.
There is a
hierarchy of buyers, and if you don’t have the ability to deal with a property
that may fail to appraise, you’re likely to keep losing until the big dogs have
all come through.
For years, I
have said that I would judge the market by the quality of buyers in the front
seat of my car. And truthfully, that
quality is still pretty good.
But
eventually, all the cash and large down payment buyers will cycle through,
opening up the market to smaller down payment buyers, who buy at higher prices. Then, once they’ve cycled through, the market
will open up to FHA and VA buyers, who buy at yet higher prices. And then, if the banks are stupid enough to
do what they’ve always done in the past, there will be low or no down payment
programs for those stragglers who have lost out altogether, and these buyers
end up shelling out absolute top dollar when the market finally stalls
out.
You can
guess what happens next.
We're not close to this point yet. For 20 years, I have always said that the numbers tell a story. And today, the numbers are still telling us that this market has legs, and that will continue as long as people keep flocking to Colorado.
