SOME (TOO EARLY) THOUGHTS ON THE 2025 DENVER HOUSING MARKET

Who wouldn't want to know where things are going in 2025?

To tackle this question just a few days before an incredibly contentious election seems a little foolhardy, but let me play the fool and I'll give you some thoughts.

TRANSACTIONS:  Coming off the lowest transaction counts since the Great Recession, I see some rebound in 2025 as both buyers (who have mostly been on the sidelines for the past two years) and sellers (who will grow slightly less attached to their 3% mortgage rates over time) loosen up a bit and decide to get on with their lives.  

After bottoming out at less than 40,000 transactions in the Denver metro area this year (down from 60,000+ in 2019 and 2020),.. I see an increase of 10% - 15% in transaction counts for next year, leaving us somewhere in the mid 40s.

INTEREST RATES:  Again, who knows?  I have more confidence in where rates WON'T go than where they will... and that means no more 3's or 4's without a global war (which sadly remains an open possibility).  Given the amount of federal debt - currently $35 trillion and rising endlessly - there's simply too much debt in the system for rates to come down much.  High 5's, I hope... mid 5's would unlock a lot of buyer and seller activity.

PRICES:  Well, not quite as optimistic here.  As I have explained in numerous conversations and communications this year, there are only three ways for the market to recalibrate after the past few years:  higher wages, lower rates, or lower prices.

Wages are going up... but reality is to restore affordability with a median home price in the 600s will take another 5 - 7 years.  Higher wages help, but it will be a long-term process for wages to catch up with prices.  

Lower rates would obviously help.  Being $35 trillion in debt has me convinced there is simply too much monetized debt being pumped into the secondary markets for interest rates to come down much.  I think living with rates in the 6's is an uncomfortable reality we are gong to have to accept until there's some degree of fiscal responsibility in Washington, which isn't likely to happen regardless of who becomes President in 2025.

Which means... the potential for lower prices is real.  We're seeing it right now with more than 10,000 homes on the market and barely 3,000 under contract.  There are about 2.5 active listings to each home under contract, and any time that ratio is higher than 2 to 1 you are at risk for price declines.

From January 2012 until July of 2024, we went a mind-bending 151 consecutive months with inventory below this 2 to 1 "active-to-pending" threshold.  That historic run resulted in the median home price rocketing from just $218,000 in 2012 to more than $600,000 today.

I've always said prices rise rapidly on the way up but are sticky on the way don, and that will be the case again here.  Multiple offers and bidding wars create massive, rapid price escalation.  But when the offers dry up, most sellers just sit tight and wait.  It's a fast run up but a slow ride down, and the hop is prices will stabilize once we get into the new year

I do believe we will see more buyers AND more sellers in 2025, which means there will be more competition for the best homes but it will remain very difficult to sell marginal real estate.  The demand that exists for home ownership still remains - it has simply been deferred until affordability metrics are better.  

In summary... it will be a market full of challenges, but not as difficult as the gridlocked market of 2024.  More buyers, more sellers, more transactions and a growing acceptance that owning a home is an expensive, long-term commitment - and not a get rich quick scheme.  

GOING IN CIRCLES

I recently sent out my 2024 Denver Real Estate Fall Market Update letter to about 300 past clients and in that letter I spoke extensively about what I call "The Waiting Room". 

For context, so far this year I have met with over 40 prospective buyers or sellers who have ended up sitting on their hands instead of moving forward with a purchase or sale.

Earlier this week, I met (for a second time) with one of these parties I first connected with back in June.

They are an older couple with some developing health issues looking to downsize, but with 25 years of personal belongings piled into their home and a small mortgage with a 3% rate... the path to downsizing involves a lot of work, a lot of time and a higher monthly payment for a much smaller home.  

These clients are really nice people and we talked over the kitchen table for nearly two hours, brainstorming scenarios.

What if they rented a smaller home or townhome for a year, spent a few months clearing out their existing home and sold with minimal pressure or stress before searching out a replacement home?  

What if they chose to rent out their much larger long-term home, which would keep them from having to considering updating it while also creating positive cash flow above and beyond what they would pay for a rental?

What if they pulled cash out of their existing home, used it for a down payment on the replacement property, moved into that replacement property and then dealt with prepping and selling their larger home?

What if they moved most of their stuff into storage, took a two-month cruise while we updated, listed and sold their home and then found a short-term rental until they could identify a replacement property?  

What about adding a chair-lift and making modifications to this two story home so they could stay in place for the next 10 years?  

What about selling direct to a third-party home flipping operation like Open Door (at a 10% - 12% discount) with a rent-back until they could find a new home?  

For now, we haven't resolved anything other than it's going to be work and it's going to take time.  They also have a $1,400 per month payment on a $900,000 home with a fixed income and any downsizing formula would raise their payment by at least 50%.  There are a lot of reasons to simply stay in place, but that still leaves them feeling stuck and housebound in a property that no longer meets their needs.  

 

In the end, we were simply spinning in circles, which is how so many client meetings have finished up in 2024.

A big part of the issue with these clients (and the housing market in general) is that not a lot of things make sense.  First-time buyers are looking at mortgage payments that are much higher than rent - doesn't make sense.  Long-time owners who want to downsize are looking at higher mortgage payments for half the house - doesn't make sense.  

And so we go in circles, thinking and thinking but never acting.  

"In 2020 and 2021," I said at one point in our conversation, "most buyers and sellers had motivation levels that were 14/10.  Today, most of the people I meet with have a motivation level that's a 4 or 5... and it takes a motivation level of at least 7 or 8 to actually move forward in this environment."

More circles.

One of the things I have tried to educate people about this year is that the housing market is going to remain dysfunctional until we have better affordability than we have today.  And there are only three ways for that to happen - higher wages, lower rates or (gulp) lower prices.

Higher wages are going to take years to catch up with today's affordability numbers.  Right now, a household making the median income in the Denver metro would need to spend about 54% of that income to service the mortgage on a median-priced home... far above the upper limit of 36% most lenders observe in their underwriting guidelines.  While wages have been rising, it will likely take 5 - 7 years for wages to catch up to where prices are today.    

With $36 trillion (and counting) in federal debt... rates aren't coming down much, if at all.  There is simply too much debt in the system and with so much securitized debt in play, both the government (through Treasury bond sales) and lenders (through mortgage-backed securities) are having to offer higher and higher yields to attract willing buyers.  

Maybe... maybe... rates get back down into the 5's in 2025... but the rates that brought record affordability in 2020 and 2021 are not coming back, ever, in my opinion.  

And so we are left with option 3... falling prices.  

This is the most likely scenario, although we all hope price reversion is minimal and things stabilize quickly.  In most housing markets, prices rise rapidly but fall slowly.  That's because bidding wars can revalue neighborhoods quickly to the upside... but when demand dries up sellers are slower to adjust, which means properties linger and inventory rises but prices remain sticky for longer.  

Unfortunately, nowhere in this menu of options is higher prices, and that's a real killer on buyer motivation.  It's a market adrift at sea, listing aimlessly like a sailboat with no hint of a breeze in sight.   

The Federal Reserve threw a massive (over-indulgent) party in 2020 and 2021 and the hangover affect is going to last for years, if not the rest of this decade.

Which means fewer transactions, way fewer real estate agents and lots of people stuck in place, including both owners and renters, going in circles.  

KEEPING AN EYE ON HOA FINANCES

With higher insurance costs, higher maintenance expenses and another round of burdensome regulatory requirements coming down from the Legislature, I'm seeing more and more HOAs in financial conditions that are downright scary.

This is especially an issue for HOAs governing older communities with significant deferred maintenance.

There are different types of HOAs.  For many upscale single family detached communities, HOA fees are nominal and simply cover covenant enforcement, managing a few greenbelts and perhaps a community pool.

For townhomes and condos, though, HOAs can have responsibility for structural insurance, garages, roof and exterior maintenance and significant common areas (which is often the difference between an HOA that's $60 - $80 per month and one that might be $400 or more).

There's a large HOA community in Littleton which just had its master insurance coverage dropped because this complex (built in the 1970s) has a large number of Federal Pacific electric panels, a brand that was sued out of existence in the 1980s.

Individual panel replacements are $4,000 or more, and this HOA will either have to find a new carrier (at significantly higher rates) or impose a special assessment and force panel replacements down on the individual owners in order to have an insurable complex.

There's another older townhome community in North Denver where 30% of the units are currently delinquent on HOA dues and the HOA is considering bankruptcy.  To remain solvent with the large number of delinquencies, this HOA would have to raise dues from $350 to nearly $600 per month.

Either of those scenarios would be devastating to community residents and would likely freeze sales activity for some time, resulting in significant price declines.

Very few people want to volunteer to be on an HOA board.  I was president of an HOA for over a decade and I can tell you it's a thankless job.

But just because you're prone to ignore it doesn't mean it isn't important.  If you own a condo or townhome and your dues have been rising, find out why.  Attend a board meeting, read meeting minutes or talk to the community manager.

The financial and governing condition of your HOA can have a huge impact on the soundness of your community - get involved!  

LABOR DAY MEANS INVENTORY HAS PEAKED - AND SO HAS BUYER DEMAND - FOR 2024

There's a predictable rhythm to the Denver housing market each year, at least as it relates to inventory.  We start the year with very little for sale... buyers show up early and it's generally very competitive until around Memorial Day... the market then slows and inventory climbs through August, with the number of active listings traditionally peaking around Labor Day... before both buyers and sellers go into hibernation during the fourth quarter.

As we head into Labor Day weekend, we've got 10,068 active listings for sale in the Denver MLS, up from 6,812 homes for sale one year ago at this time.

That's about 48% more listings on the market year-over-year.

Last year, there were 4,021 homes under contract on Labor Day weekend.  This year, is 4,035 pending contracts.

So essentially the same number of pendings, but 48% more listings.  Not a great environment for sellers.

There are currently 2.50 active listings to each home under contract in the Denver MLS.  The last time we had a higher rate of actives-to-pendings was October of 2011... a full 13 years ago.

In fact, from January 2012 until July of 2024, the Denver housing market went 151 consecutive months where there were fewer than 2.00 active listings to each home under contract.  

What does this mean?

For sellers, it means you have competition from other listings and less demand than we have seen in at least 13 years, thanks to high prices, higher rates, election fear and the new buyer-agency rules that went into effect August 17.

The rest of this year is poised to be a slog - and that's putting it nicely.

If you're looking to sell... my very strong advice would be to wait (at least) until January... when rates will likely be 50 - 75 basis points lower, election drama will (hopefully) be behind us and both buyers and sellers will be somewhat more acclimated to the dramatic rewrite of agency rules.

If you're looking to buy... there might be some real opportunity over the next four months... if only because you'll have more leverage than at any time since the Great Recession and most sellers will have no qualm paying your agent the commission (which now defaults to the buyer's obligation under the new rules).  

I do believe, with increasing conviction, that we're going to see a much stronger market to start 2025, with pent-up demand and lower rates leading to a very competitive Q1 - Q2 environment.

These buyers and their desires for home ownership haven't gone away... that demand is simply being deferred.

If I'm selling... I'm waiting for these buyers to return.  But if you're buying, there's a serious conversation to be had about jumping in before multiple offers and bidding wars are once again the norm in the Denver housing market.  

AND SO IT BEGINS...

It's been almost a full year since a jury seated in a Kansas City courtroom rocked the real estate world with a verdict in a case known as "Sitzer Burnett".

After months of legal wrangling and massive financial settlements, the real estate landscape is about to change forever in just a few short weeks.  

Here's what you need to know...

WHAT THE JURY DECIDED:  Rightly or wrongly, the jury determined that requiring sellers to pay real estate commissions as a condition for having their property marketed in the MLS was a violation of the Sherman Antitrust Act.

WHAT'S CHANGING FOR SELLERS:  Despite the massive $1.8 billion verdict, for most sellers not much will change.  Offering compensation to buyer agents will now be optional (not mandatory)... but in reality, I expect 90% or more of sellers will still see the value in compensating cooperating brokers.

WHAT'S CHANGING FOR BUYERS:  For buyers, a lot is going to change.  As a result of this verdict, buyers will now assume legal responsibility for compensating their agents.  And before viewing ANY properties, it will be a mandatory requirement that buyers have a signed, valid agency agreement in place with a buyer's agent.  If a buyer finds a place that checks all the boxes, the hope is the seller will agree to compensate the buyer's agent.  If not, it's either "no deal" or the buyer will have to pay their agent directly, per their pre-negotiated agency agreement.

WHAT'S CHANGING FOR AGENTS:  Listing agents will have to have deeper conversations with sellers about whether to offer compensation to buyer agents, and if so, how much.  But the most uncomfortable aspect of this settlement is that many buyer agents will be forced to seek agency agreements, with pre-negotiated compensation terms, BEFORE touring any homes.  There is potential for high pressure sales tactics from some agents intent on obtaining a signed agency agreement based on a 30 minute introductory meeting at Starbucks... as well as the potential for some buyers to try and "go it alone" in one of the most complex and important financial transactions.  The potential for massive future litigation - think breach of contract, breach of fiduciary duties, conflict of interest, failure to disclose material defects, etc - will keep real estate attorneys busy for years to come. 

Pending any last minute injunctions or renegotiated terms... the new rules take effect August 17.

I've written extensively about this verdict and its potential impacts throughout the year in several reports I have shared with past and current clients.  I believe these new rules are likely to shrink the buyer pool in the short term and lead to greater liability for agents, brokerages and consumers, particularly buyers.  If you have specific questions, please reach out to me directly and I will be happy to chat with you further about how to navigate these monumental changes.  

SUMMER SLUMBER

As rates remain stubbornly elevated, the traditional summer market slowdown is even more pronounced than usual in 2024.  Inventory is headed for levels not seen since 2019 while buyers remain skittish and uncertain.

For sellers attempting to sell into this environment... price, condition and location (and perhaps a good deal of patience) all matter.  And for buyers, there are more attractive choices and less competition than we've seen in a long time.

If you have followed my market update reports, social media content or we've just had coffee together in recent years, you've heard me clearly articulate that the best time to sell a home in Colorado is between mid-January and mid-May.  

By the time graduation season and Memorial Day weekend roll around, the listing inventory traditionally starts to pile up while the buyer pool begins to thin.

This trend is even more pronounced in 2024, which means many sellers are going to find this to be a more challenging environment than we have seen in several years.

Here are a couple of quick snapshots showing how significantly things have changed when comparing the market today to just one year ago:

Current Active Inventory - 8,439 listings

Active Inventory June 2023 - 5,573 listings

That's an increase of 2,866 active listings (+51%) from June 2023

Current Pendings - 4,524 homes under contract

Pendings June 2023 - 4,759 homes under contract

That's a decrease of 235 homes under contract (-5%) from June 2023

Current Active to Under Contract Ratio - 1.87

Active to Under Contract Ratio June 2023 - 1.17

Current Absorption Rate - 2.33 months of inventory

Absorption Rate June 2023 - 1.52 months of inventory

What you see in these number is not only have we moved past the peak selling season for 2024... things are noticeably slower than a year ago.  And that is concerning as it relates to the rest of 2024.  

A year ago at this time, there was still a sense of optimism around the narrative that the surge in interest rates would be short-lived and that we were all just marking time until mortgage rates fell back into the 5's (or even more optimistically, the 4's) as soon as inflation was in check.

A year later, inflation is not in check and mortgage rates are north of 7%.

At 3.4%, inflation is still 70% above the Fed's 2.0% target inflation rate.  And with $35 trillion (and counting) in Federal debt, there has simply been too much money printing and credit extended into the system for us to get back to 2.0% anytime soon.

If inflation remains high, then the cost of goods and services remains high.  And if the Fed is committed to reigning in inflation (or at least trying to keep it from spiraling out of control) it will keep rates elevated to lessen demand for those goods and services.

Whether home prices can hold up in the face of continued high interest rates is very much an open question, in my opinion.

The bottom line is we're seeing a lot more sellers come online without the buyer-side demand to absorb that inventory.  Higher mortgage rates, higher property taxes and higher insurance costs are making home ownership a very expensive proposition.

To cure it, something is going to have to break.

A more robust housing market is going to require some combination of higher wages, lower rates or lower prices.  Failing that, it's looking like it's going to be a summer standoff between sellers reluctant to lower prices and buyers unwilling (or unable) to pay them.

IN A SHIFTING MARKET, THE FIRST WEEK IS EVERYTHING

May is a pivotal transition month in the Denver real estate market as graduations happen, the school year ends and a much larger number of homes start to hit the market.

As of this week, there are now 6,623 active listings in the Denver MLS, which is up 51.9% from twelvemonths earlier.  With mortgage rates in the mid 7's, affordability is severely burdened and it's very possible we'll see a market that continues to slow through the balance of 2024.

With that being said, there are still buyers out there.  A total of 3,921 homes went under contract in April, down about 5% from the 4,149 homes that went under contract in April of 2023.  

But with 52% more active listings and 5% fewer contracts, you can see that buyers have a lot more choices, which means price and condition mean more than ever.

If you're attempting to sell a home in this environment, the first seven days on the market are absolutely critical to your success.  Consider the following:

* In April, all new listings in the Denver MLS averaged 7.85 showings in the first 7 days on the market.

* For listings that remained on the market at least 30 days, the average number of showings in the first month was 11.20.

* Properties that went pending in the first 8 days on the market averaged 16.35 showings.  

* For all active listings in the Denver MLS (regardless of time on market), the average number of showings per week was just 2.28.  

The key takeaways from this are as follows:

- Homes that went pending in the first week had more than twice as many showings as other new listings (16.35 vs 7.85).

- New listings that didn't sell in the first week averaged less than two additional showings a week for the balance of the first month.  

These numbers are a far cry from the insanity of 2020-2022, when many listings easily cleared 50 or more showings in a single weekend and any property that wasn't falling down generated 5 to 15 offers.

In multiple conversations I've had with buyers lately, I've said the same thing.  There are two types of homes on the market today - those that will sell in 7 days or less, and those that may not sell at all.

It's up to sellers to decide which column they want to land in.  For attractively priced homes that show well, showings are plentiful and multiple offers are still happening.

But for the mushy middle of the market - those homes that are just okay, possibly overpriced and not particularly interesting - being able to sell at all is no sure proposition.

For sellers, all focus right now needs to be on the first seven days of activity, when motivated buyers are coming through and interest is at its highest.  It's in this initial surge of activity that the market will pass judgement on your home.

If your value proposition is strong, interest will be also.

And if it's not, the market will let you know, often with silence. 

INVENTORY IS RISING QUICKLY... AND SO ARE INTEREST RATES

Hope you enjoyed the "spring market".

It showed up early, hit hard and is now headed for the door.

We see a pattern similar to this most years.  The year begins with very low inventory while buyers show up in larger numbers.  That creates an imbalance between supply and demand which often results in multiple offers and bidding wars until more inventory shows up, which invariably happens as you get closer to graduation season and the end of the school year.

This year, we began January with just over 4,000 active listings on the market in the metro area.  As of today, we are up to over 6,500 active listings, and that number will continue climbing all the way until the end of August.

With inflation persisting (due in large part because of never-ending government deficit spending) and rates now firmly into the mid 7's, the buyer pool is being thinned even further while inventory will continue climbing.  

It's hard for me to see how prices hold up in the second half of the year with rates north of 7.5%.  

By understanding the dynamics of this market and educating my clients well, I've listed five homes this year and all five ended up with multiple offers... 17, 5, 4, 4 and 3... to be exact.  Those homes sold $50k over list, $40k over list, $31k over list, $10k over list and $7k over list.  

If you detect a trend here, it's because we understand that pricing a home attractively drives activity, which drives showings, which drives offers, which drives up the final price.  

You must have showings to be successful, and to have showings, your listing must stand out.

I've told my sellers repeatedly this year, there are two types of homes on the market - those that will sell in 7 days or less (often with multiple offers)... and those that won't sell at all.

Market wide showing statistics in April bear this out.

Over the past 30 days, all new listings in the Denver MLS averaged 7.85 showings in the first seven days on the market, according to data from RE Colorado.

But for properties that went pending in the first seven days on the market, those listings averaged 16.30 showings.

What you see here is, if you are a seller, the first seven days are absolutely critical to your success.  The homes that are going under contract are averaging twice as many showings as those new listings not going under contract... which means those prospective buyers are showing up for a reason.

And what drives showings is pricing, condition and marketing.

You've got to price your home realistically - no more pie in the sky nonsense.

Your home has to pop - it needs to be clean, uncluttered and at least relatively updated.

And you need to display a serious commitment to marketing and promotion - which means staging, professional photography, aerial images, walkthrough video tours and extensive pre-market awareness campaigns.  

If you can do that, there are definitely buyers, and those buyers will often compete (and compete hard) for your listing.

If you follow the non-descript "4P" approach to selling a home... put a sign in the yard, put it in the MLS, put a lockbox on the door and pray for a buyer... good luck to you.     

Once we get past Memorial Day, and barring some unforeseeable plunge in interest rates, I predict we're going to see the slowest real estate market we've seen in at least a decade during the second half of 2024.  And it will be made worse by the new buyer agency rules coming in July, when buyers will be required to take more direct responsibility for compensating their agents due to the NAR settlements.    

If you are thinking of putting a home on the market and you don't have an iron clad commitment to getting your home sold, it's likely to be a long, hard slog through a slow, hot summer with fewer buyers, fewer showings and at least some degree of price damage until interest rates come down, if they do at all.  

The buyer pool is fragile right now, and sellers (most with huge amounts of equity) have far more motivation to sell than buyers do to buy.  That only changes when interest rates come down, which only happens when inflation comes down, which only happens when the government shows some fiscal restraint.  

Which hasn't happened since the printing presses were fired up in the 2020 Covid pandemic, and certainly won't be happening in a contentious election year.  

AVOIDING THE MUSHY MIDDLE

I listed a home this week which has booked over 40 showings (!!) in just over 24 hours on the market.  We've got two offers in hand already despite the fact we plan to spend four more days on the market before making any decisions.  

The prospects for a bidding war are excellent and in some ways, this whole experience feels a lot more like the market of 2021 than the market of 2024.

So what gives?  In short, it’s about value. 

This is a single owner home dating to 1972 with lots and lots of “original” inside of it.  Original kitchen, original baths, original windows, original paint and carpet.  There are security bars on every window, heavy duty steel security doors on every entrance and it takes about 13 different keys to navigate through all the random installed deadbolts that have been added to the home through years.

 

You would think this is a dangerous neighborhood, but it’s not.  It’s actually a super nice neighborhood, and a quick look at the comps shows that homes routinely sell in the $600k - $700k range with any updating at all. 

 

It’s an estate sale situation, and rather than take four months fixing it up and sinking $50k or $60k into it, the family wants to move on.  So it’s listed at $525k, making it a true “value play”. 

 

There are two types of homes right now that are drawing lots of attention in our early spring market.  Elite homes in great locations which simply stand out regardless of price… and fixers priced well below market but with the promise of instant equity for anyone willing to do the work.

 

Between these two extremes is what I call the “mushy middle”, and that’s a much harder space to navigate. 

 

If your home is an okay area with some updating but also some not updating or it backs to a busy road or if it’s priced based off a comp from April of 2022… you are in the mushy middle and that a very tough place to be.

 

At the high end of the market, rates are not as big of a factor.  Reality is there is tons of money sloshing around in this economy and most of it sloshed up to those who were already well off.  For them, it’s see it, like it, buy it.

 

At the lower end of the market, properties that have the ability to generate instant equity constitute value.  In challenging economic times, value is gold. 

 

But in the middle, it gets mushy.  And that’s where 75% of the market resides.  Sellers pricing off a market (and interest rates) that no longer exist, and buyers deliberating endlessly over the actual cost of buying a home in a 7% rate environment where house payments are often 25% or more higher than rents, even with a 20% down payment.  That formula leads to doubt, fear, uncertainty and delay.  Sometimes endless delay.   

 

So you have to know what you’re doing and what segment of the market you are shooting for when you list a home for sale.

 

We’re leaving our Centennial property on the market for a full five days before looking at any offers.  I’ve told agents to back twice… go back three times… do whatever you need to do to make sure you and your buyers understand what you’re getting into and are willing to own whatever offer you ultimately submit… because the sellers are not making repairs and will not renegotiate once we go under contract.

 

Measure twice, cut once. 

 

I’ve already received two offers on the home from agents trying to beat the rush (again, we’ve been on the market for all of 24 hours).  The last thing we want is a rushed offer from a buyer who spent 15 minutes in a home and made an emotional decision to engage with a property that needs a lot of work. 

 

Slow down.  Count the cost.  And for the agents, understand that your reputation is made or broken by the behavior and decisions your clients make while under your tutelage. 

 

What we want is a solid offer from an educated buyer with a knowledgeable agent who has run the numbers and counted the cost.  For a bunch of buyers, this deal will make tons of sense.  For others, it won’t. 

 

As an agent, the fastest way to disqualify your buyer is if I get the impression you want/need the deal more than they do.  And there are a lot of agents right now who desperately need deals.

 

That’s why we’re riding this out for five full days and will take 60-plus showings on a property that has lots of upside, but which will also entail a lot of work. 

 

The last thing we want is to choose the wrong buyer, go under contract and then see the whole thing blow up in a week when the buyer’s inspection reveals the home needs pretty much everything we said it would need in the MLS, in our property disclosures and in the dozens of conversations we will have had with agents.    

 

It’s exciting to have a listing that the whole world seems fired up to see.  We’ve had very few listings like this since the spring of 2022, when rates zoomed past 5% and then kept right on going. 

 

Today, it takes either the right property or the right value proposition to get buyers to compete.  And if you aren’t aware of this, you’ll be one of the hundreds of sad, sad agents in the mushy middle with listings they can’t sell, sellers they can’t please and closings that never arrive. 

LIVING WITH THE MARKET WE ACTUALLY HAVE

For the past 20 months or so, the real estate market has been in a state of upheaval.

In reality, it's been a state of upheaval for about four solid years now, since the pandemic and subsequent rate cuts unleased the biggest real estate surge since the Oklahoma Land Rush of 1889.  

Buyers were everywhere, most every listing had five to 15 offers in a weekend, prices went up 40% or more and then... around Memorial Day of 2022... the music stopped.

We all know what happened.  Two years of record money printing, deficit spending and supply chain issues caused the inflation monster to roar, driving up the cost of living and prompting the Fed to slam on the brakes with the fastest series of interest rates increases in modern history.

I called it the Crash Test Dummy Market.

For nearly two years, transaction volume has been cratering.  In the Denver metro area, there were 64,000 closings in 2021... about 51,000 in 2022... and just over 40,000 in 2023... representing a 36% drop in sales (and commission checks).

Agents, lenders, title reps, stagers, inspectors and appraisers have all left the business in big numbers.  Many of the survivors are still wandering around like accident victims, trying to figure out what just happened while holding out for the next big market surge. 

My advice:  get over it, and get used to it.  

Like many of my colleagues, I have fallen into the trap of sometimes saying my business has declined by 20%, 30% or more depending on how I'm feeling on any given day.  

That's not the way to look at any of it.

The market we have today is the market we're going to have for a while, in my opinion.  Rates are elevated and it's my contention they are likely to stay that way until something in the economy seriously breaks or the government dials back its deficit spending.  

Hoping for lower rates is not a strategy.

The reality is, if you are an agent, you need to look at the 41,000 transactions inside the marketplace last year and assume that's the new baseline.  We're not going back to 50k or 60k transactions unless rates go back to 3%, and that's not going to happen.

So rather than say your business is down by some percent (and feel glum about it), the better way is to be grateful for the market we had and to say that, in the old market, your business was actually UP by some huge amount.  

My hope is, for those of you still struggling to come to terms with the new reality, that you saved some money, lived conservatively and didn't buy a bunch of dumb stuff.  If you did, then your anxiety level right now is fully justified.

But if you lived within your means, understood it was only going to last for a season, and are prepared to let go of your old paradigms... your transition into the new reality will go much better.

The season we are in calls for evolution, innovation and determination.  Nowhere on that list is sadness, remorse or regret.  You've got to shift your mindset into moving forward and not looking back, because every moment you spend looking back causes you to fall further and further behind. 

THE WAITING ROOM

A new year is upon us and like so much of our world in general, the housing market seems to be suspended in midair, waiting for something to happen.

Rates are once again pushing 7%, there are more than four times the number of homes on the market that were for sale at the beginning of 2022 and uncertainty continues to abound.

It's a standoff between a shrunken number of sellers, a shriveled pool of buyers and a large (but rapidly declining) number of agents fighting over an ever-smaller pool of transactions.

The number of closed sales in the Denver MLS has plummeted from 64,000 in 2021 to 51,000 in 2022 to just over 40,000 in 2023.  

Welcome to The Waiting Room.

Interest in housing hasn't gone away, it's just been put on hold.  Aspiring buyers still want to buy.  Many with changes in life circumstance or economic situations still want to sell.  But with all the uncertainty, they simply wait.

I have a white board in my office which I use to keep track of my (prospective) buyers, sellers and current contracts.  If we meet together and discuss buying a home, you become a prospective buyer.  If we meet together and talk about selling a home, you become a prospective seller.  And if we do the deed and actually embark on the buying or selling journey, you become a contract. 

It's not uncommon, historically speaking, to have 4 to 6 prospective buyers, 4 to 6 prospective sellers and (in the good old days) 4 to 6 contracts working at any point in time.  

But as we begin 2024, the status of my white board reflects the current status of the market.

Prospective buyers: 9

Prospective sellers: 13

Current contracts:  I'd rather not say

The point is, there's a lot of repressed demand to both buy and sell that just keeps building up in our market.  Pressure has been increasing since the spring of 2022, as more and more buyers and sellers "think about it" instead of taking action.  

There's a high cost to 7% mortgages, for both buyers and sellers, and it de-motivates both sides.  

So people wait.

In my view, there are two ways this pent up demand gets released.  The first, and quickest way, would be for interest rates to drop.  While different people have different opinions about what it would take to unlock this demand, I feel like the magic number is around 5.5%.  If mortgage rates could get to 5.5%, you would have robust and engaged interest from both buyers and sellers.  The number of transactions would soar and the market would boom.

Will we get there this year?  I have my doubts.  

I personally feel like the inflation fight is far from over.  The consumer price index (CPI) bounced back up to 3.4% in December after falling for 10 straight months.  And while 3.4% may sound a lot better than the 4.7% of 2021 or 8.0% of 2022... it's a long ways from the Fed's stated target of 2.0% inflation.

Seventy percent higher, to be exact.

If the Fed is committed to getting back to its 2.0% inflation target (and who really knows, because it's the Fed)... I don't see how rates fall as much as many of the optimists feel they will.  It's more likely, in my view, that inflation remains sticky, the government continues deficit spending, and all that debt floating around on the secondary market requires continued higher yields to find buyers.  

All of it feels pretty stag-flationary to me.  

The second way to unleash the pent-up demand in the market is through (wait for it) more government intervention in the economy, likely through the tax code.  This, I admit, is unlikely to happen in 2024 with a wickedly divided Congress and totally polarized political environment.

But once we get past the elections this November - and especially if either party takes full control of the levers of power - our broken economic condition suggest this would be the moment for monumental changes to the tax code.  Especially since either Txxxx (the candidate who shall not be named) or Bxxxx (the incumbent who shall not be named) will be starting a final term regardless of who wins.  

With $35 trillion (and counting) in debt, the role of the federal government is at a crossroads.  Investment property rules, capital gains laws and inheritance tax policies could all be under the microscope soon, and any changes would definitely change how real estate is perceived and valued.  

Under the first scenario, which is lower mortgage rates... the effect would be like a strong tailwind coming back into the market.  Under the second, which is a radical rewrite of the tax code, the impact would be more like an earthquake, with lots of things being broken.  

I don't know which path we will take to releasing the pressure that continues to build up inside the market.  And until we have more clarity, it feels like the waiting room is just going to become more and more crowded.  

TAKING CARE OF YOUR HOME IN ALL FOUR SEASONS - WINTER EDITION

The holiday season.  Pretty lights, family gatherings and presents under the tree.  But also one of the deadliest times of the year in terms of house fires.  

Just because the nights are long, the days are short and the temperatures are colder doesn't mean your home maintenance responsibilities have gone away.  

Let's talk about how to keep your home safe during the holidays and all year round.

FIRE SAFETY

- Let's start with having a functioning fire extinguisher in the house, especially if you have a holiday tree or wreath.  Make sure your fire extinguisher is charged and accessible.

- With holiday lights, don't overload your circuits beyond manufacturer recommendations, especially if the outlets have aluminum wiring or are ungrounded.  Use a timer to turn the lights off when you go to bed.

- Test your smoke alarms.  Trees and holiday baking are fun, but also dangerous.  

EXTERIOR

- If you have stucco on the exterior of your home, check for cracks.  This is especially important if you have EIFS stucco, a lighter foam backed stucco material that was popular in the 1990s and early 2000s.  Stucco can crack in freezing weather, and if moisture gets behind it, your issues can multiply in a hurry, resulting in costly repairs.

- Check to make sure all exterior electrical outlets have protective covers.  Snow piling up against a hot outlet can be dangerous when those holiday lights are plugged in.  Make sure the covers are secure.  

- Clean out your basement window wells to get rid of any late seasons leaves that may have fallen.  Also, make sure that if your window wells have drains that those drains are accessible and not buried under leaves and debris.  

- Ensure your exterior hoses and disconnected from the faucet, and it's not a bad idea to make sure you have frost-proof covers on your hose bibs if they are older or north facing.  

HVAC

- Change the furnace filter, again.  This action shows up every time because it's important, both in terms of indoor air quality and because a dirty filter makes your HVAC work harder.  With component prices now significantly higher than they were pre-pandemic, this is the easiest preventative maintenance items in the books.
- Winter is humidifier season in Colorado.  If your furnace has a humidifier, turn it on and let is keep your house (and tree) from drying out.  A 30%-35% humidity setting is appropriate for the dry winter months.

WATER HEATER

- Your water heater is likely getting a workout during the winter months in Colorado.  Most plumbers recommend draining it once a year to flush out any accumulated sediment or mineral deposits that have sunk down to the bottom of your tank.  Remember, if you're having to heat your water through a half-inch layer of sediment, your water heater is going to work harder and likely have a shorter lifespan.  There are plenty of good videos on You Tube that can show you how to do this (and don't forget to make sure the power is off if your water heater is electric!).   

ATTIC

- With all that snow on your roof, take a peek into the attic and see if there is any moisture or dampness.  Ice dams forming on the roof can lift shingles and lead to leaks.  Check to make sure your insulation is not wet.  

CRAWL SPACE

- If you're looking for moisture in the attic, might as well head down to the crawl space too.  If there's snow piled up against your home or if you have poor drainage, this is the time of year when it will show up.  

GARAGE DOOR

- Your garage door gets a lot of use in the winter.  Make sure all hinges, rollers and tracks are properly lubricated.  Also, carbon monoxide poisoning is a greater threat, especially if you're the type who likes to warm up your car in the garage (with the garage door open, please!) before heading off to work.  Your garage entry door coming into the house should have a self-closing hinge and shut securely behind you whether you're coming in or going out.  

Remember, this is not an exhaustive list... these are basic seasonal maintenance reminders.  There are plenty of great sources online or manuals at your local bookstore that you can reference to transform yourself into a home maintenance professional.  

Happy holidays!