As rates remain stubbornly elevated, the traditional summer market slowdown is even more pronounced than usual in 2024. Inventory is headed for levels not seen since 2019 while buyers remain skittish and uncertain.
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If you have followed my market update reports, social media content or we've just had coffee together in recent years, you've heard me clearly articulate that the best time to sell a home in Colorado is between mid-January and mid-May.
By the time graduation season and Memorial Day weekend roll around, the listing inventory traditionally starts to pile up while the buyer pool begins to thin.
This trend is even more pronounced in 2024, which means many sellers are going to find this to be a more challenging environment than we have seen in several years.
Here are a couple of quick snapshots showing how significantly things have changed when comparing the market today to just one year ago:
Current Active Inventory - 8,439 listings
Active Inventory June 2023 - 5,573 listings
That's an increase of 2,866 active listings (+51%) from June 2023
Current Pendings - 4,524 homes under contract
Pendings June 2023 - 4,759 homes under contract
That's a decrease of 235 homes under contract (-5%) from June 2023
Current Active to Under Contract Ratio - 1.87
Active to Under Contract Ratio June 2023 - 1.17
Current Absorption Rate - 2.33 months of inventory
Absorption Rate June 2023 - 1.52 months of inventory
What you see in these number is not only have we moved past the peak selling season for 2024... things are noticeably slower than a year ago. And that is concerning as it relates to the rest of 2024.
A year ago at this time, there was still a sense of optimism around the narrative that the surge in interest rates would be short-lived and that we were all just marking time until mortgage rates fell back into the 5's (or even more optimistically, the 4's) as soon as inflation was in check.
A year later, inflation is not in check and mortgage rates are north of 7%.
At 3.4%, inflation is still 70% above the Fed's 2.0% target inflation rate. And with $35 trillion (and counting) in Federal debt, there has simply been too much money printing and credit extended into the system for us to get back to 2.0% anytime soon.
If inflation remains high, then the cost of goods and services remains high. And if the Fed is committed to reigning in inflation (or at least trying to keep it from spiraling out of control) it will keep rates elevated to lessen demand for those goods and services.
Whether home prices can hold up in the face of continued high interest rates is very much an open question, in my opinion.
The bottom line is we're seeing a lot more sellers come online without the buyer-side demand to absorb that inventory. Higher mortgage rates, higher property taxes and higher insurance costs are making home ownership a very expensive proposition.
To cure it, something is going to have to break.
A more robust housing market is going to require some combination of higher wages, lower rates or lower prices. Failing that, it's looking like it's going to be a summer standoff between sellers reluctant to lower prices and buyers unwilling (or unable) to pay them.
