Thursday, August 18, 2016


As the days begin to shorten and we see the first tinges of fall color, the Denver housing market is also transitioning into autumn.  
Nothing dramatic or worthy of extreme anxiety… but a shift, nonetheless.

The market is in the process of a seasonal slowing, and it’s apparent at all price levels.  But before you panic, you must first understand how overheated and frenzied this market has been during the first half of the year (and for most of the past five years, for that matter).

Let’s start our dissection by looking at the market in terms of price points.  

Below $250,000, which is always the most heated sector of the market, there are 814 listings for sale  in the greater Denver metro area and 1,904 under contract.  Under normal market conditions, which means 2% - 3% appreciation and 45 to 60 days to sell a home, you would see about twice as many homes for sale as you have under contract.

With 814 active listings, that means 407 homes under contract would represent a balanced market.  There are 1,904, or nearly five times that amount.  Listings continue to generate multiple offers, bidding wars, and record high prices, with little relief in sight. 

In the $250k - $400k price bracket, there are 1,942 homes for sale and 4,077 under contract.  Again, a balanced market would have about 971 homes under contract… there are four times that many.  Prices will continue going higher.

From $400k - $600k, there are 2,538 homes for sale and 2,464 under contract.  A balanced market would have about 1,232 under contract.  Here you can start to see the market drifting toward more modest appreciation.  It might take a few weeks to sell a home in this price bracket, even if it’s priced right and shows well. 

From $600k - $1 million, there are 1,866 listings and 992 homes under contract.  That’s a noticeable change from the patterns with the less expensive homes, and it suggests that price appreciation is stalling out above $600,000.  Here, you need to mentally budget for 45 to 60 days of market time.  

Interestingly, while the inventory of homes in the $600k - $1 million price bracket (1,866) is very similar to the $250k - $400k bracket (1,942), in the past 30 days there have been nearly five times as many homes placed under contract in the $250k - $400k range than in the $600k - $1 million bracket.  

Selling a home in this price range is work, it will take patience, and the buyer pool will drive a harder bargain. 

Above $1 million, you have 1,127 homes on the market and just 280 under contract, which is not a positive indicator.  In fact, here you have 4.03 homes for sale to each one under contract, well above the 2-to-1 baseline ratio of a balanced market.  Despite the great economy in Denver, selling a $1 million home is a very difficult proposition and there is little evidence that prices are going to move higher anytime soon.  

There is nearly eight months of inventory here, so if this is your bracket and you’re looking to sell, you had better be ready to start carving on price because there is much more competition among high-end sellers than you may realize. 

The best way to interpret these numbers, in my opinion, is on a year-over-year basis.  There are lots of seasonal fluctuations in the Denver market, and you can get faked out pretty easily if you compare spring numbers to numbers in the fall. 

When you look at this market on a year-over-year basis, the similarities to August of 2015 are pretty remarkable. 

The overall inventory one year ago was 8,358 homes for sale… today it is 8,287, a decline of 1.2%.

The overall absorption rate one year was 1.29 months of inventory… today it is the exact same 1.29 months.

And one year ago, marketwide, there were 0.90 homes on the market to each one under contract… today that ratio is 0.85. 

In fact, the trendlines also look almost exactly the same as they did a year ago.

The overall absorption rate has increased from a low of 0.87 months in May to 1.29 months today.  A year ago, it increased from 1.00 months in May to 1.29 months in August. 

In July of 2015, 6,456 homes went under contract.  In July of 2016, the number was 6,423.

The fact is, when you study the numbers, you can see what’s coming… a seasonal slowdown that may very well mirror what happened last year.  By October, homes that attracted 5 to 10 offers in the spring may only draw 1 or 2, which gives buyers a lot more leverage than they had just a few months ago. 

But I do think the headlines are going to be more ominous than they were last year, and I think the election will play a role in that.  There is an unprecedented amount of negativity in our political arena today, and while you could probably say that in every election of the past 20 years, this one really does take the cake. 

I believe the psychology of the market is more fragile now that it was 12 months ago, and so it will be very interesting to watch what happens here in Colorado during September, October and November. 

As always, the numbers tell a story.  Right now the story is… things look just like they did 12 months ago, no better and no worse.  Entry-level homes will remain in high demand, while high end homes carry much more vulnerability to a market correction.