Thursday, October 25, 2018


There's a palpable chill that has fallen over the Denver market in recent weeks, and nowhere is it more apparent than in the surging number of active listings.

There are currently 8,882 active listings for sale in the Denver MLS, the highest number of listings for sale in October since 2013.  That total represents an increase of 17.80% from one year ago and an increase of 95% from January, when there were just 4,554 homes on the market.  

Rising interest rates are the clear culprit.  

Since last fall, interest rates have spiked from the high 3's to the low 5's, sending shockwaves through the market and pricing many buyers out entirely, especially at the entry level.

The surge in rates is likely a result of the tax bill passed last December, which created record corporate profits and drove expectations for the economy higher.  With the DJIA north of 25,000 and US unemployment at a generational low of 3.7%, making 30-year financing commitments in the 3's no longer makes sense in the financial markets... hence, a new era of significantly higher rates.     

Hardest hit by the increase in mortgage rates are high cost markets.  On a $400,000 loan, the 1.5% jump in rates over the past 12 months increases the initial monthly payment on a fixed-rate loan by more than $350.  That's significant, and it's taken the starch out of our market.

Here's a look at how active listing inventory has fared nationally on a year-over-year basis versus locally here in Denver since spring:

Month                    NAR (National)          Denver MLS
March 2018                - 7.20%                        - 10.00%
April 2018                   - 6.30%                        - 1.60%
May 2018                   - 5.10%                        + 0.40%
June 2018                  - 0.50%                        + 1.00%
July 2018                   + 0.00%                        + 6.80%
August 2018              + 2.10%                        + 7.90%
September 2018        + 1.10%                       + 17.80%

It's clear that higher cost markets are feeling the greatest impact.  In California, which has a median price nearing $600,000, active listing inventory in September was up 20.4% from one year earlier after starting the year down 12%, a trendline very similar to what we have seen here in Denver.  

The fact of the matter is that higher interest rates are deflating the market, and what has been manifesting as higher prices in the past is now being absorbed by significantly higher mortgage payments while more and more buyers are simply tapping out.

The only path back to growth like we've seen in the past is rates that look like what we've had in the past, and the odds of that kind of sudden rate reversal are remote.

In the span of a few short months, buyers have pulled back and the market has lost its punch.  Buyers who have spent the last several years frantically chasing after something, anything in order to get on the right side of an appreciating market have suddenly become a whole lot choosier, demanding good condition, reasonable pricing and value supported by relevant comps in exchange for having to make monthly payments that are now hundreds of dollars higher.

For sellers, we're at a crossroads.  Get in line with current realities, or cover your eyes and pretend it's still the low-rate market of six months ago.  Sellers who choose to live in the past will quickly find, however, that the market they are dreaming of no longer exists.  

Thursday, October 11, 2018


While I've come to embrace Colorado weather as a mysterious and glorious blend of beauty, elements and seasons (which often manifest in the same day)... there are two months that take the prize above all others when it comes to randomness and sudden change:  April and October.

Ironically, these happen to be the months where homeowners need to start their sprinklers for the spring/summer and shut them down for the fall/winter.

Last year, we had an extremely mild fall and many homeowners waited until early November to drain and winterize their systems.  This year, the weather has turned cold suddenly and on Saturday night, the temperature is expected to dip into the mid-teens, which will cause untold damage to thousands of unprotected irrigation systems all over the metro area.

Because I've seen this cycle play out again and again during my 12-plus years in Colorado, I adopted a mantra several years ago that has become a way of life:  I will be the last person on my block to turn my sprinklers on in April and the first person on my block to shut them down in October.  

As a real estate broker, I've spent a literal fortune on trying to spare my clients the headaches of freeze damage.  In fact, for eight years I hired a service every April and every October that would facilitate start-ups and shut downs for all of my past clients, at my expense - which eventually grew to be $4,000 - $6,000 per year.  But as the number of clients grew and the list of homeowners with yards continued to expand, it simply became unmanageable over time and so I shifted into taking care of first-year clients only, helping them start their system up in the spring and then shut it down in the fall. 

With so many transplants in Denver from other areas of the country, there are a huge number of new homeowners who have no idea how much damage a hard freeze can do.  And one of the occupational hazards of selling homes during the cold winter months is that it is very hard to determine what kind of shape a sprinkler system is in until it is de-winterized and fired up in the spring. 

Truth is, almost every year I deal with homes sold in the winter which need extensive sprinkler repairs during the spring.  And because it's not my clients' fault that the previous occupants were oblivious to the climate and/or their own home ownership responsibilities, I usually try to find a way to mitigate their cost in getting systems repaired or rebuilt. 

The net effect of all these sprinkler repairs (other than the obvious financial hit) is that I tend to be hyper-obsessed with the vagaries of spring and fall weather, and every year my clients know they are likely to receive a panicked ALL CAPS bulletin from me the first time fall temperatures unexpectedly drop to dangerous lows.

Because of the exceptionally strong seller's market we have experienced over the past several years, getting sprinkler repairs (or any other repairs) made by the seller prior to closing has been a difficult challenge for buyers.  Now, as the market softens and buyers have more choices, expect repair negotiations to become a lot more contentious for sellers as buyers demand value commensurate with the record high prices they are being asked to pay.

And that includes fixing those jacked up sprinklers that were installed after watching four minutes of video on YouTube and downing a six pack with your buddies.  

This year, I proactively had sprinkler systems at all four homes I currently have under contract blown out and winterized at the start of October.  I did so at my expense and with my own vendor, because I'm tired of paying for repairs caused by overconfident do-it-yourselfers and Craig's List cowboys.

On winterization day, temperatures were in the mid-80s and skies were blue.  Neighbors looked on in puzzlement as water vapor spewed up from the sprinkler heads and the air compressor thumped away.  We drained supply lines in the basement and declared ourselves ready for whatever may come, even while dressed in short sleeves and wiping beads of sweat from our brow. 

That was eight days ago.

Today it is 35 and snowing.  Sunday's Broncos game will be played before a national audience with temperatures in the 20s.  Before Halloween arrives, I have no doubt we'll have at least a few days where the temperature pushes 80 degrees.  Coupled with more nights in the teens.  

October.  Colorado.  Ugh.

The lesson in all of this is to realize that the $50 it costs to winterize your sprinklers now is a lot cheaper than the $1,800 you'll pay to have your yard dug up next spring. 

Next year, don't wait.  Calendar it now.  When the first hard freeze shows up out of nowhere and the neighbors are all scrambling to get last-minute help, those who were proactive will feel a calm and knowing sense of contentment because in Colorado, Mother Nature always has the last laugh.