With the inventory of homes for sale in the Denver metro area now down 16.5% from one year ago and down nearly 35% from three years ago, we are living in strange and confusing times.
Because the Denver Post continues to fail to adaquately explain the realities of today's market (including a pathetic article this week discussing the state of the market in May), I continue to find home buyers and sellers who have no understanding of how different this market is from just one year ago.
Below $250,000, there is hardly anything for sale (just 2.08 homes for sale to each home currently under contract) and lots of buyers are on the hunt. But here's the catch - what buyers want above all else is value, and they simply won't pay retail prices for junk. So you have swarms of buyers pursuing one type of house... the well-priced piece of real estate in good condition which is priced for the market of 2011, not the market of 2008. If you can list this type of home, you'll sell it in a week. But the moment you get unrealistic about price, or if the condition isn't up to par with the competition, buyers move right on down the road to the next house in pursuit of that price/condition combination,
There are two reasons I can see why inventory is down so dramatically. First, banks aren't foreclosing on as many homes, and the ones they are foreclosing on are generally at higher price points. And second, sellers have finally figured out that if your home is in good condition and in a good area, it's no fun to sell it at 2011 prices.
At higher prices, there is going to continue to be distress ("deleveraging" as I call it) for some time. While the absorption rate below $250,000 is just 3.45 months, at $1 million there is an 18 month supply of homes. There is no price support for the high end of the market, and as people continue to hunker down and think smaller about housing, help is not on the way.
In between $250,000 and $1 million, there are pockets of opportunity, but they still call for caution. I regularly remind clients not to count on the market bailing them out if they make a questionable purchase, and to do all pieces of diligence up front. If you're smart about what you're buying and where you're buying it, there are excellent opportunities.
Buyers need to be realistic about the market and the moment we are living in. Prices have come down in many areas (and continue to fall at the higher price points) and interest rates are in the 4's. There's no new construction coming online (it simply isn't profitable to build at these prices) and the population continues to grow. If you're buying a home today and looking at the big picture (and you plan to stay in it for a few years), the combination of discounted prices and absurdly low rates simply shouldn't be passed up.
But it's a professionals' market, which calls for expertise and understanding. Now more than ever, assembling the best possible team to help you with your purchase or sale should be your highest priority.
