At a Chamber of Commerce luncheon yesterday, I had the opportunity to discuss the state of the Denver Metro housing market with local business owners and community leaders.
Here is a summary of what I shared:
THREE MARKETS - THREE REALITIES
There are at least three distinct markets inside the larger Denver Metro housing market, and the realities buyers and sellers find are very different in each group.
RED HOT - $250,000 and below
This remains the red-hot sector of what Forbes Magazine now identifies as the top housing market in the country. Denver homes below $250,000 currently account for 28% of all listings and over 60% of all sales.
The market gets tighter as the prices get lower. The competition for foreclosures below $150,000 is beyond ridiculous. These homes are often attracting 10 or more offers and come off the market as soon as the bank gets around to choosing a winner as reams of paper pile up on the asset manager's desk.
There are three reasons homes continue to fly off the shelves at the lower price points:
1) $8,000 first-time buyer tax credit (currently set to expire November 30)
2) 30-year fixed rates in the low 5's (your payment will NEVER go up - where do you think rents will be in 10 years with all the money the Fed is currently printing?)
3) Value - 80% of Colorado's foreclosures have hit homes priced below $240,000... it's the entry level of the market that's taken the biggest hit in values, so that is where buyers (and investors) perceive the greatest value lies today
Pet peeve: the number of REO homes that continue to be left in ACTIVE status in the MLS when the agents know the banks already have a dozen or more offers and have made a decision. It drives me crazy, and it drives buyers crazy, too.
IMPROVING - $250,000 to $400,000
This segment of the market has shown improvement over the past 90 days.
Homes in this price range currently account for 28% of the listings, and 24% of all sales. That's a fairly balanced market.
The $8,000 FTB tax credit is having some positive impact here, but mostly below $300,000. In some neighborhoods, values are appreciating, but mostly the market is balanced and flat, with just a little appreciation in most areas (although there are always "hot pockets" inside larger markets). Very few foreclosures in this price range, at least at this time.
We'll see if rising unemployment leads to rising NED's.
TROUBLED - Above $400,000
The higher in price you go, the softer this market becomes. It's a new reality - small is the new big. A few years ago, everyone wanted 3,000 square foot new construction homes... today, it's the 1,700 square foot ranch built in the 70's (for half the price) that buyers want.
The market has shifted, and I don't see significant recovery here until 401k's return to their pre-2008 levels. It takes confidence to lay down a half-million dollars for a home, and the market really doesn't have it.
What we have today are a lot of high-end home owners who don't want to be high-end homeowners any more. Consider:
* Homes priced from $400,000 to $1 million account for 33% of all listings and just 15% of all sales
* Homes above $1 million account for 10% of all listings and just 2% of all sales
* Below $250,000, there are just 1.46 active listings (including all the short sales that clutter up the market) for each home under contract
* Above $1 million, there are nearly 21 active listings for each home under contract
The high end of the market is not only being hit with the effects of a down economy, but financing options remain extremely limited. There's just no one who wants to lend to the high end of the market, even if the borrower is qualified.
There is currently a 67 month inventory of homes above $1 million. Below $250,000, it's a 2.65 month supply. Below $150,000 it's less than a one month supply of homes. If it's bank-owned, it's under contract.
People who are locking in payments on affordably priced homes with interest rates in the 5's and receiving an $8,000 tax credit in what is widely identified now as one of the nation's best housing markets aren't taking on a ton of risk. Being able to own an entry-level home for less than it costs to rent is an aberration, and the true risk takers are those who think they are "playing it safe" by staying on the sidelines while interest rates rise and the economy recovers.
At the higher price points, the conversation is different. Maybe the $1 million market will come back some day... but maybe that day is five years off.
The quality of your decisions is based on the quality of your information, and if your agent isn't educating you about your segment of the market, you are at grave risk.
As you can see, there is not a single "housing market" in the Denver Metro region. There are at least three markets, and the realities people are experiencing in each sub-market are very different.
