I’ll be the
first to admit I’ve had challenges adjusting to the current housing boom in
Denver. Call me crazy, but I lived
through 2006 – 2010 and I saw what it looked like. 31,000 homes for sale in the Denver MLS. Seventy percent of the inventory bank-owned
or short sales. Retail sellers with no
prayer of being able to sell in the face of gutted, discounted
competition.
You should
have seen it!What, you were there? You saw it? Really?
That’s hard
to believe, because the people overrunning the Denver market these days bear no
resemblance to the people I was spending all my time with from 2006 to 2010,
the ones who swore that buying a home was like standing over a trap door. The ones who would never offer “full price”
for anything. The ones who said that smart
people rented.
So how do
you reconcile that with today?
Already this year, I have listed homes that received 32 offers, 19 offers, 14 offers, 12 offers and 8 offers. Those homes had top offers $33k, $24k, $21k, $12k and $11k over list price. (Not that we accepted every “top” offer… if you don’t address the appraisal clause in an offer like that, you’re not being serious)
This is the
most emotional housing market I have ever seen in 21 years as a broker. Buyers (and their agents) are literally
making crazy offers to try and get homes under contract. Often, I have to wonder if the agents want
the deals more than their clients.
Working with
buyers in this market has become darn near impossible, at least under $300k. That’s because crazy now makes the
market. All too often, well-qualified,
well-counseled, legitimate buyers get completely blown out by crazy agents with
crazy buyers who write offers that make no sense at all.
But too many
sellers and their agents are enticed by the siren song of a crazy offer,
significantly over list price with no chance to appraise. I’ll say it again – if the buyer’s offer
doesn’t speak to the appraisal clause (i.e. waiving the appraisal clause
altogether, or willing to go $5k over appraised value, or whatever the buyer
feels is appropriate), then you are asking for trouble.
I am
spending a lot of time right of now trying to project 12 months into the
future. This kind of emotion can’t last
forever. Right now we’re number one in
the country for home price appreciation.
Next year, we won’t be. Even if
we were number four or number five among all fifty states, the headlines in the
Denver Post will ominously read “Denver Market Losing Steam”, or “Denver
Housing Cooldown Continues.” It’s
predictable.
There will
come a tipping point, probably something that none of us can see. It could be an international event. It could be a shake up on Wall Street. Or maybe it will just be a surge in interest
rates.
With all of
the new construction in the metro area six to 12 months from completion, what
would happen if rates went to 5.5% this fall?
How many buyers under contract right now (with rates in the 3s) would
fail to qualify at 5.5%? If that
happened, what would happen to the new construction market? How many buyers would walk away? How much unsold inventory would there
suddenly be? Who would make payments at
5.5% when the guy across the street closed on the same home 12 months earlier
at 3.5%?
Do I
anticipate this will happen? No, I
don’t.
But could
it? Yes, it could.
I am
disturbed at how “drunk on housing” everybody seems to be right now. I realize that rents are skyrocketing and rising
home equity is creating a massive wealth effect. But everything has a season.
How long
will this season last? As I wrote
earlier a few months ago, the two numbers I will be watching in 2015 are the
number of active homes on the market and the area unemployment rate.
Right now,
unemployment in Denver is 3.5%, statewide it’s 4.1%. We are at the top of every national list for
jobs, growth, consumer confidence and projected future appreciation. If the employment market remains strong, then
housing should continue to march in lockstep.
Today,
buyers have real jobs, real credit scores and real down payments. That wasn’t always the case in 2006, and that
means our buyer pool is significantly stronger today than it was then. Even if some of their offers are crazy, at
least buyers are employed.
The inventory of homes - currently about 5,300 - is down 15% from a year ago. The ten year average for homes on the market during the spring is around 16,000, so inventory remains incredibly tight.
But I still
have to listen to that still, small voice that says nothing lasts forever. When everybody is heading east, you have to at
least give some thought to heading west.
Or at least take a few steps in that direction.
Twelve
months from now, we’ll all know exactly what we were supposed to be doing in
the spring of 2015. Buying. I mean selling. I mean moving to Fort Collins. I mean moving to Charlotte.
It’s not
easy to make decisions in the moment, just as it wasn’t easy to leave
California in 2005 after a ten year run on housing and move to Denver. People said I was crazy. I wasn’t.
I’m not
leaving Denver. I love it here. And I think our market is still legit. But it’s less legit that it was a year ago,
and certainly a lot less legit than it was three years ago, when people
unknowingly walked into small fortunes just by signing on the dotted line.
