The headlines are all good.
But beneath the surface, other storylines are starting to emerge:
So what is the reality of the Denver housing market?
In May, the absorption rate in the Denver MLS fell to 0.87 months, obscenely below the 5 month baseline economists look for in a balanced market and another all-time low for the region. For homes below $400,000, the frenzy is even more intense – just 0.48 months of inventory – meaning that at the current pace of sales, every home listed before $400k would be snapped up in less than 14 days, regardless of price, condition or location.
Research I recently conducted on some popular west-side neighborhoods showed that over one-third of the homes sold in May closed at $10k or more over list price. Already this year, I have listed homes with top offers $73k, $51k, $33k, $24k and $21k over list price, not to mention four others that all went over list. In fact, only one of my 11 listings during the first half of this year failed to sell above list price, and that was a supersized home in a more modest neighborhood that established a highwater pricing mark for the subdivision.
Appraisals are now an issue all over town. Prices have risen so much and so fast that appraisers can’t keep up, and buyers who don’t have extra reserves to deal with a low appraisal are at a significant competitive disadvantage.
The hot new trend among buyer agents isn’t escalator clauses (that’s so 2013), but rather appraisal triggers (“If property fails to appraise at contract price, buyer shall pay $5k, $15k, $25k, etc. over appraised value”).
It’s all good, right?
I said in a post last year that I would track two key numbers in 2015 – inventory and unemployment – to gauge the health of the Denver metro housing market. And both of those numbers are still holding up well.
But those numbers are numbers I would use to support current value, not the crazy offers that are coming in thousands of dollars beyond current market value on some properties.
The truth is, it’s not healthy when your market is appreciating at 15% per year. That simply isn’t sustainable. I am increasingly convinced that many buyers are making bets on the future when writing their offers today. And while that may work out, it may not.
To some people, being a good salesperson means persuasively guiding people to take certain actions so that the salesperson gets paid. To me, it means setting people up for success. And that’s a very different definition.
In 21 years as a broker, I have coached my clients to make reasoned decisions supported by numbers and logic. Now, many buyers rely on elbowing their way to the front of the line by willingly overpaying in order to get a house. Not the same thing.
I am hopeful that our market stays strong and that Denver keeps shattering records for home values and appreciation. That would be great. Right now, the fundamentals still look strong. But they also looked strong four years ago, when prices were far more affordable than they are today.
Buying a home can still be a good investment, but the margin for error is not what it was 12, 24 or 48 months ago. An investment of this size should be supported by logic, but many buyers are simply doubling down on a hot market.