We’ve had a few April showers, so let’s hope we get those May flowers along with some added moisture as we head into the summer months. It’s been a busy Spring, so my apologies I haven’t had the chance to write one of these market updates for a couple of months as the real estate market has been very active. Let’s jump into this update and see what has been happening in the Denver market since our last communication:
Denver Metro Area Home Report: March
Back at the end of January when I did my last update, active listings were sitting at 4,263 homes which represented an all-time low for the Denver market. As of the end of March, that number has ticked up to 4,921, but this represented an almost 10% increase over where we were at this time last year. While this market still has some room to run, higher homes prices may be starting to back some buyers away. The trend lines since 2014 look almost identical year over year, where active listings in this historically low inventory range ramps up through July, and then trends back down as we head into the Fall. Here are also some other interesting tidbits worth looking at:
a. We saw 6,810 new listings going active in the month of March. It appears people are starting to get on the market sooner after we get into the new year to avoid added competition with other listings. I actually suggested this in one of my prior updates.
b. Of those 4,921 active listings through the end of March, 75% of the current active inventory represents homes valued at $400k and higher. The higher end price range ($500k and higher) is a totally different story versus home valued at $350k and less which remains the active price range for many buyers. That has been the case for some time now, as you have to wonder when affordability becomes the bigger issue as wage growth hasn’t grown to match higher home prices.
c. Many people are using the equity they’ve made in their homes over the last few years to upgrade into bigger, nicer homes.
d. Many buyers are also starting to look at new construction homes to avoid bidding wars when deciding to move. This also gets them into newer more energy efficient properties where many resale home sellers have lots of updating to do that may not be justifying the higher prices being listed in the marketplace.
e. The Federal Reserve is expected to raise rates 2 to 3 times more this year, so the trend line is starting to tick higher with rates. However, for comparison purposes 10 years ago the 30 year mortgage rate was at 6.125%, so we are still well below historical norms. If you are looking to make a change, taking advantage of these historically low interest rates is advisable.
f. Coinciding with interest rates starting to tick higher, refinancing activity is starting to decrease.
How long can this hot market last? I wish I had a crystal ball , so all I can do is speculate at this point. I’ve heard ranges all over the place and as high as the next 4-5 years, but I personally do not agree with that assessment. The challenging component we have facing us is we still have lack of inventory to contend with, which continues to bid up these lower priced homes. On the flip side, affordability remains a major hurdle as the lower end price point continues to be bid up forcing many buyers out of the marketplace. While we are in building boom, many home builders are building homes in the $400k and higher price range, so that isn’t helping the lower end price point at all. The good news is they are looking at passing some legislation to help encourage builders to start build condos again, which should help alleviate the lack of supply in in the lower end market. I’m thinking we have another 12-24 months left, as rising rates should help cool things off a bit and hopefully with many people upgrading into bigger homes will help bring some much needed supply back to the lower end price range. Time will tell….
Maintaining Realistic Price Expectations – Appraisals: Something else I have been seeing a lot of is homes not appraising at the elevated levels many sellers are expecting due to this hot Denver real estate market. If you have a cash rich buyer that can absorb that difference in appraisal value vs. contract price that is one thing, but the more important note to make here is make sure you keep realistic price expectations if or when you decide to sell your home. That will be one of the biggest factors in getting your home sold in a timely manner and will also help ensure a smooth real estate transaction for all parties involved. ALWAYS remember the three things that will determine the successful sale of a home; location, condition, and price.