Want to buy a home in Denver right now? Good luck!
After every record for housing was smashed last month, the frenzy simply continued in November with numbers so out of alignment with all historical norms this can only be called a "Hurricane Katrina" moment for the Denver housing market.
- Lowest Number of Active Listings for Sale: 3,145 (all-time record low)
- Previous All-Time Low: 4,103 (December 2017)
- Next All-Time Low: 4,187 (November 2020)
- Lowest Absorption Rate: 0.72 (all-time record low)
- Previous All-Time-Low: 0.78 (November 2020)
- Next All-Time Low: 0.87 (May 2017)
- Lowest Active to Under Contract Ratio: 0.50 (all-time record low)
- Previous All-Time Low: 0.55 (November 2020)
- Next All-Time Low: 0.60 (May 2015)
To provide some context on the catastrophic inventory drought, the number of active listings has fallen by more than half - from 6,317 to 3,134 - in just the past 60 days. In the hottest sectors of the market - the $250k to $400k bracket and the $400k - $600k bracket - there have been more than twice as many homes to go under contract in the past 30 days as active listings on the market.
To put this visually, here is what this looks like with actual numbers:
$250,000 - $400,000:
- Current Active Listings - 625
- Number of Listings to go Under Contract in Past 30 Days: 1,297
$400,000 - $600,000:
- Current Active Listings - 837
- Number of Listings to go Under Contract in Past 30 Days: 1,732
As you can see from these figures, demand is literally swamping supply and bidding wars are to be expected for almost any listing priced anywhere close to reasonably.
This past weekend, I listed a $419k detached home in Lakewood that attracted 57 showings and 12 offers. While I cannot reveal actual terms until the deal eventually closes, I will say that half of the 12 offers came in at $440,000 or higher.
In an environment like this, it really comes down to appraisal guarantees and buyer qualifications.
If you are trying to buy into one of these blazing hot sectors of the market, and you comfortable writing an offer strong enough to compete, you're almost certainly going to have to pledge to pay some amount over the appraised value.
These so-called "appraisal guarantees" often range from $5,000 to $30,000 over list price, but occasionally you will see "uncapped" appraisal guarantees and "uncapped" escalation clauses (buyers willing to agree to pay any amount to beat out the competition and willing to pay any amount over the appraised value just to get a home under contract).
While great for sellers, this type of market is totally demoralizing for many buyers and, frankly, I've been demoralized by it as well. To see this kind of frenzy in the midst of a pandemic, with unemployment near 7% in Colorado, is really hard to process.
As I write this, I must confess that it has now been over five months since I have put any buyer clients under contract, by far the longest drought I have experienced in the 15 years I have been selling real estate in Colorado. Since the pandemic began, I have shifted virtually all of my energy to the listing side of the market, because the value of a good listing has simply never been higher.
My last nine clients have all been sellers, as have 12 of my last 15 transactions.
In an illustrative bit of irony, one of the offers we skipped over this past weekend was from a buyer who had written an offer on one of my listings at a similar price point back in August, meaning that this agent/buyer team are now going on four-plus months of swings and misses.
How long will it last? Nobody knows, of course, and I've never seen anything like this in 26 years as a real estate broker. Eventually, there has to be some reckoning with the unemployment situation. Many of these jobs that have been lost simply aren't coming back.
As of now, federal eviction moratoriums are scheduled to last through the end of December and the federal foreclosure moratorium has been extended until January 31, 2021 (it will likely be extended further, in my opinion, simply because there seems to be no cap on what unilateral actions the government will take during this season of chaos and turmoil).
But one day - one day - executive orders will end and the market will return. Landlords with non-paying tenants will want to sell and those homeowners who have lost jobs (but have plenty of equity) will need to sell.
Will this set off collapsing prices and countless foreclosures? Nope. But it will increase the number of homes for sale, substantially, and at that point buyers should not have to chop off body parts and toss them into a bonfire just to compete.
There is no part of this market that's fun, healthy or good for those who don't already own. If you're a prospective buyer, it's up to you to decide if you want to venture out into this hurricane, or batten down the hatches and wait for the storm to pass.
It can't and won't always be this way. The question is whether or not you're willing to wait it out.
