On Wednesday, I posted the most recent snapshot of housing market numbers for Denver during the month of July. Overall, it was not a pretty picture.
But "inside the numbers", there are some interesting stories to tell. For example, comparing July of 2009 to July of 2010, some intriguing trends emerge.
Check out this chart:
JULY 2009 JULY 2010 CHANGE* Listings on the Market 20,890 23,450 +12.2%
* Active / Under Contract 3.38 5.00 +47.9%
* Absorption Rate - Overall 5.71 9.08 +59.0%
$0 - $250k 2.63 6.73 +155.9%
$250k - $400k 6.23 9.61 +54.2%
$400k - $600k 11.53 10.89 - 5.6%
$600k - $1 million 24.68 20.80 - 15.8%
$1 million and up 62.87 28.75 - 54.3%
LISTINGS ON THE MARKET: At the end of July, there were 23,450 unsold single family homes and condos on the market in the Denver MLS. That's a 12.2% increase from the 20,890 homes for sale at end of July 2009.
ACTIVE / UNDER CONTRACT: One year ago, there were just 3.38 homes for sale to each one under contract. In other words, on average, each seller was competing with 3.38 other unsold listings. Today, there are 5.00 homes for sale to each one under contract. That means sellers have 47.9% more competition today than they did one year ago.
ABSORPTION RATES: Absorption rates project how many unsold months of inventory exist on the market, based on the current pace of sales. For example, if 100 homes were on the market and 10 went under contract in the past 30 days, it would take 10.0 months to extinguish all inventory. Real estate economists will tell you that six months of inventory represents a "balanced" market.
Overall, the absorption rate has spiked from 5.71 months of inventory one year ago to 9.08 months today, a 59% increase. But when you break down the numbers into different price points, you see even more profound changes.
Below $250,000, the entry-level of our market, absorption rates have skyrocketed from 2.63 months (exceptionally tight) to 6.73 months, a 155.9% increase. This sector of the market was the target of the first-time buyer tax credit, and clearly it is suffering since so many first-time buyers pushed their purchases forward in pursuit of the $8,000 incentive.
One step up, from $250,000 to $400,000, absorption rates have increased from 6.23 months to 9.61 months, an increase of 54.2%. This is where the $6,500 "move-up" buyer tax credit was aimed, and again, the market is suffering without the tax credit.
But now watch the shift that happens as you get out of "tax credit country"...
At the $400,000 - $600,000 level, the absorption rate has actually FALLEN 5.6%, from 11.53 months to 10.89 months. From $600,000 to $1 million, there has been a 15.8% decrese in the absorption rate, from 24.68 to 20.80 months. And above $1 million, there has been a staggering 54.3% decrease in the absorption rate from 62.87 months (yes, a five-year supply) to 28.75 months.
In the post-tax credit world, the lower end of the market is most definitely suffering from a hangover, while at the higher end of the market, we have seen significant improvement in the fundamentals. So what does it all mean?
At the entry level, for the next few months, the market is going to be searching out a "new normal". At the higher end, sellers have gotten the message: overpriced listings simply will not sell, and sellers have been adjusting their prices down to "meet the market". The result - significantly more sales and tighter inventory at the high end, while many lower-end sellers are attempting to take advantage of a market that no longer exists.
