As the days
begin to shorten and we see the first tinges of fall color, the Denver housing
market is also transitioning into autumn.
Nothing
dramatic or worthy of extreme anxiety… but a shift, nonetheless.
The market
is in the process of a seasonal slowing, and it’s apparent at all price levels. But before you panic, you must first
understand how overheated and frenzied this market has been during the first
half of the year (and for most of the past five years, for that matter).
Let’s start our dissection by looking at the market in terms of price points.
Below
$250,000, which is always the most heated sector of the market, there are 814
listings for sale in the greater Denver metro area and 1,904 under contract.
Under normal market conditions, which means 2% - 3% appreciation and 45
to 60 days to sell a home, you would see about twice as many homes for sale as
you have under contract.
With 814
active listings, that means 407 homes under contract would represent a balanced
market. There are 1,904, or nearly five
times that amount. Listings continue to
generate multiple offers, bidding wars, and record high prices, with little
relief in sight.
In the $250k
- $400k price bracket, there are 1,942 homes for sale and 4,077 under
contract. Again, a balanced market would
have about 971 homes under contract… there are four times that many. Prices will continue going higher.
From $400k -
$600k, there are 2,538 homes for sale and 2,464 under contract. A balanced market would have about 1,232
under contract. Here you can start to
see the market drifting toward more modest appreciation. It might take a few weeks to sell a home in
this price bracket, even if it’s priced right and shows well.
From $600k -
$1 million, there are 1,866 listings and 992 homes under contract. That’s a noticeable change from the patterns
with the less expensive homes, and it suggests that price appreciation is
stalling out above $600,000. Here, you
need to mentally budget for 45 to 60 days of market time.
Interestingly, while the inventory of homes
in the $600k - $1 million price bracket (1,866) is very similar to the $250k - $400k bracket
(1,942), in the past 30 days there have been nearly five times as many homes
placed under contract in the $250k - $400k range than in the $600k - $1 million
bracket.
Selling a home in this price
range is work, it will take patience, and the buyer pool will drive a harder
bargain.
Above $1
million, you have 1,127 homes on the market and just 280 under contract, which
is not a positive indicator. In fact,
here you have 4.03 homes for sale to each one under contract, well above the 2-to-1 baseline ratio of a balanced market. Despite the great economy in Denver, selling
a $1 million home is a very difficult proposition and there is little evidence
that prices are going to move higher anytime soon.
There is nearly eight months of inventory here,
so if this is your bracket and you’re looking to sell, you had better be ready
to start carving on price because there is much more competition among high-end
sellers than you may realize.
The best way
to interpret these numbers, in my opinion, is on a year-over-year basis. There are lots of seasonal fluctuations in
the Denver market, and you can get faked out pretty easily if you compare
spring numbers to numbers in the fall.
When you
look at this market on a year-over-year basis, the similarities to August of
2015 are pretty remarkable.
The overall inventory
one year ago was 8,358 homes for sale… today it is 8,287, a decline of 1.2%.
The overall
absorption rate one year was 1.29 months of inventory… today it is the exact
same 1.29 months.
And one year
ago, marketwide, there were 0.90 homes on the market to each one under contract…
today that ratio is 0.85.
In fact, the
trendlines also look almost exactly the same as they did a year ago.
The overall
absorption rate has increased from a low of 0.87 months in May to 1.29 months
today. A year ago, it increased from
1.00 months in May to 1.29 months in August.
In July of
2015, 6,456 homes went under contract.
In July of 2016, the number was 6,423.
The fact is,
when you study the numbers, you can see what’s coming… a seasonal slowdown that
may very well mirror what happened last year.
By October, homes that attracted 5 to 10 offers in the spring may only draw 1
or 2, which gives buyers a lot more leverage than they had just a few months
ago.
But I do
think the headlines are going to be more ominous than they were last year, and
I think the election will play a role in that.
There is an unprecedented amount of negativity in our political arena
today, and while you could probably say that in every election of the past 20
years, this one really does take the cake.
I believe
the psychology of the market is more fragile now that it was 12 months ago, and
so it will be very interesting to watch what happens here in Colorado during
September, October and November.
