Denver home buyers and Denver home sellers have many questions about how the current Denver real estate market is doing. Below are typical questions and answers for Denver home buyers and Denver home sellers.
1) What types of properties are selling fastest/slowest in your market area, and why?
Overall, the Denver market is relatively healthy. Our average months of inventory (MOI) is 5.3, below the 6 month level of inventory that is traditionally considered a balanced market – giving a slight advantage to buyers. What’s very interesting is how completely balanced and uniform the market is under $300k. For example, MOI for homes under $85k is 4.6. MOI for homes from $85 – $135k is 4.3. MOI for homes from $135 – $210k is 4.5. MOI for homes from $210 – $315k is 5.1. These numbers suggest a very even, unexciting, normal market! Homes from $315 – $460 have a slightly higher MOI at 6.1 (almost perfectly balanced). Only when you isolate properties above $460k do you see a definite buyer’s market in place with 9.1 MOI. In the luxury market, the higher the home price the higher the MOI.
What this means is that there is no relatively fast-selling segment of the market. However, on the buy side there is a niche that is very active. The longterm, buy and hold investors who are picking up properties under $150k are buying up everything they can, helping to support this segment of our market. These investors are taking advantage of a unique combination of circumstances including: record high home affordability, record low interest rates, reasonable lending guidelines, record low vacancy (1.4%!), and consequently rising rental rates. Never before have we seen a more favorable combination of factors that better support a longterm investor’s goals.
2) What are recent trends with prices/sales/inventory?
From April to May of 2010 our average sales price for single family homes leaped up $25k, driven entirely by buyers chasing the tax credit. Since then home prices have fallen back to where they were before the stimulus. Currently, the average home price in Denver is about $279k, and for the past 3 months (March, April, and May) prices have tracked almost exactly with 2009 levels.
Our inventory for singly family homes stands at about 14,000, which by historical standards is low. We believe there are a significant number of sellers who would like to sell their home to trade up or down but will not put their properties on the market until they feel they are in a seller’s market (the vast majority of folks in Denver say they believe it’s still a buyer’s market). That will occur only when we see a sustained period of rising home prices and when the media begins to trumpet the turnaround, finally affecting market psychology in a positive way. Until then, this large group of potential sellers will stay in their properties and await a better time to sell, keeping inventory low.
In addition, it appears that the large banks and GSEs (Fannie & Freddie) are doing a good job monitoring our market and NOT flooding it with properties. They continue to trickle properties onto the market to maximize their return (or minimize their losses) as they reduce their inventory (otherwise known as the dreaded Shadow Market).
Finally, there is very little residential building in our market so there is no chance of a significant number of new homes entering the market for the foreseeable future.
3) Are you seeing changes in the market share of short sale properties? REO properties?
For the past 4 – 5 years the share of distressed sales (REO’s and Shortsales) sold in the Denver market has consistently been in the 35% – 45% range as our market has suffered through an unprecedented downturn. While the share of distressed sales is still in the 40% range, the MIX of sales has changed over the past several years. Since 2008 the share of REO properties sold in our market has steadily fallen while the share of shortsale properties has steadily increased. For example, in 2008 about 1/3 of all sales were REOs but only 10% were shortsales. By 2010, REO’s and shortsales each made up about 20% of the sales. This change in the mix of sold properties reflects the concerted effort of the U.S. government and the large banks to intervene with home owners before their property goes to public sale. Clearly, these efforts have met with mixed results but the data do support that there has been a slow transition away from REO’s and towards shortsales.
4) What worries you most about the current state of the market, and what represents a sign of optimism/opportunity for the real estate market?
The market is going through an unavoidable hangover from the go-go days of 2000 – 2006. There is clearly no easy solution to the problem and the more misguided government intervention is foisted upon the market the longer the inevitable recovery will take. Worrying about the market will not help. Dealing with the reality at hand is the only way to proceed. Our market will recover in pricing when demand outstrips supply.
Here is one way we see that happening. The longterm investors who are picking up properties in the under $150k range are buying up everything they can, helping to support this segment of our market. They are taking advantage of a combination of record high home affordability, record low interest rates, reasonable lending guidelines, record low vacancy (1.4%!), and consequently rising rental rates. Never before have we seen a combination of factors that more effectively supports a longterm investor’s goals. As rental rates continue to climb they make home prices relatively more affordable. Already, it is cheaper to buy than rent in many portions of our market, especially under a $200k home price. Sooner or later, renters will overcome their resistance to purchasing a property (brought about by the psychology of the downturn) when they realize they can buy cheaper than renting. This will be one of the main factors that will begin to put upward pressure on home prices. We expect this phenomenon to unfold over the next couple of years.
5) How have you changed your business to mirror the market and to capitalize on market trends?
RE/MAX Alliance has traditionally been a leader in the residential (1-4 unit) investment market, representing about 30% of our closings in any given month (about 1/3 of our agents are both investors and real estate agents). The market for longterm investors is very favorable and this fact has helped continue our company’s growth. Another decision we made a number of years ago was to not focus exclusively on the high-end of our market, above $400k. We deliberately put our resources to best service the middle of the residential market, between $200k – $400k. This potion of the market is relatively healthy and robust, with a balanced 5.7 Months of Inventory.
We had 23 agents on March 1, 2006, and have grown to 323 agents. We are the 10th largest real estate company in the Denver Metro area and the 2nd largest independent (non-franchise) company in our marketplace. We are also the 12th fastest growing real estate company in North America (U.S. and Canada) according to the latest RealTrends 500 analysis. Two of the reasons for our success are that we have a deep tradition of strength in the investor market and we tailored our offering to a section of the residential market that has remained relatively strong during the most recent downturn.
6) What are some overall economic trends you are seeing in your market area that will guide the real estate market?
The Denver Metro market is relatively balanced. Overall, there is 5.3 months of inventory, reflecting a market that is not in major distress. We have experienced several years of correction and price drops as we travel through the downturn caused by the price and sales bubble leading up to 2006. Our jobless rate is hovering at about 9% which is clearly putting a damper on our housing market. Traditionally, the job market correlates very closely with the health of the residential real estate market. On the plus side, Denver Metro has had a very beneficial 25% increase in population since 1997, and even during the worst of the downturn our population has continued to grow. This phenomenon has helped mitigate the worst of our downturn since all these folks moving to our market have to live somewhere. But, since the housing market is inextricably tied to the job market we won’t see a significant recovery in housing until more jobs are created.
One of the major trends we are seeing in our housing market is a dearth of rental properties as many would-be buyers choose to rent instead. This has prompted longterm, buy and hold real estate investors to buy up everything they can, helping to support this segment of our market. These investors are taking advantage of a combination of record high home affordability, record low interest rates, reasonable lending guidelines, record low vacancy (1.4%!), and consequently rising rental rates. Never before have we seen a combination of factors that better support a longterm investor’s goals. As rental rates continue to climb they make home prices more relatively affordable. Already, it is cheaper to buy than rent in many portions of our market. Sooner or later, renters will overcome their resistance to purchase a property when they realize they can buy cheaper than renting. This will be one of the main factors that will begin to put upward pressure on home prices. We expect this phenomenon to unfold over the next couple of years.
Originally posted at: Metro Denver Real Estate Market Statistics