Denver Remains in a Seller's Market

A two-faced market. Updated, single family homes in desirable neighborhoods are in high demand. These properties are selling in a weekend with multiple offers over asking. Most homes, however, remain on the market upwards of a month and sell for less than asking. In September, Detached plus Attached homes across the 11 county greater metro sold for an average of 98.91% of the original list price down .48% from August. Last September, Detached plus Attached houses were selling for 101.88% of asking. There is an undeniable softening that increasingly favors buyers.

Days on market now more than pre-COVID norms. Median days on market is 16 up from 11 last month and four in May. Days on market began its climb in June when interest rates increased 3/4 of a point in two weeks. Median days on market was 11 in 2019 and seven in 2018.?

Prices increased slightly in September. The median sold price for Detached plus Attached houses increased .87% in September to $580,000. This modest increase comes on the heels of a 2.54% decline in August and a 2.46% decline in July. This trend is in line with historical norms. Since 2013, prices have typically fallen in the summer and stabilized in the fall. Annual appreciation now stands at 9.43%. ?

New listings down from pre-COVID levels. There were 5,237 new listings in September vs. 5,169 in August. Last year at this time, we had 6,135 new listings. In September 2019 and 2018 we saw 6,038 and 5,851 new listings, respectively. Given the current interest rate climate, we are beginning to see that only those that need to sell are listing their homes. ?

Seasonal decline in closed transactions. The number of closed transactions declined 8.40% compared to August and 27.60% compared to August 2021. This September, we closed 4,113 transactions compared to 5,681 last year. Pre-COVID, we closed 4,506 and 4,408 properties in September 2019 and 2018, respectively. Pre-COVID, the month-over-month decline in sold homes was 20.22% in September 2019 and 28.91% in September 2018. Although the month-over-month decline was less than the historical baseline, we closed 10% fewer properties than normal in September. ?

We remain in a seller’s market. Although the market increasingly favors buyers, we remain in a sellers' market. Inventory is increasing but still low. We have two months of inventory while six months represents a balanced market. We have nearly double the available homes compared to this time last year, but less than pre-COVID 2019 and 2018 levels. In September, there were 7,683 available properties. This compares with 3,971 a year ago, 5,301 in 2020, 9,286 in 2019 and 8,807 in 2018. In a balanced market, with six months of inventory, we would have 23,088 available properties.?

What is all this talk about a balanced market? Industry pundits consider six months of inventory to be a balanced market. Meaning at the current rate of sales, it would take six months to deplete the number of available listings if no new properties came on the market. Some take issue with the six-month benchmark feeling four months is a better measure. Depending on which camp you are in, we have 33% - 50% of the inventory needed for a balanced market.?

Why is the concept of a balanced market so important? The balanced market concept traces its roots to supply and demand which influences price. If we have less than the level of inventory required for a balanced market, we are in a seller’s market where prices are expected to increase. If we have more inventory than the balanced market threshold, we are in a buyer’s market with decreasing prices.?

Will prices rise or fall next year? Grasping the truth about the housing market is akin to understanding what is happening in the political arena. Depending on the source of the information, you can hear widely divergent views. While many are forecasting a sharp contraction, I see modest appreciation in the coming year. Between August 2022 and August 2023, Zillow predicts that U.S. house prices will climb 2.4%. This is in line with my understanding of supply and demand market forces and the balanced market concept. I anticipate the greatest portion of appreciation will occur in the winter and spring of 2023 when prices have historically risen a whopping 11.8%. I don’t have a crystal ball and I have been wrong before (just ask my wife). However, I do not see a dramatic decline in prices as some (who are plausibly smarter than me) have suggested. ?

3-2-1 interest rate buydown explained. Increasingly, buyers are asking sellers to fund an interest rate buydown. This is a solution for buyers who are squeamish about paying market interest rates who plan to be in their house for a short period or are betting that rates will decline in the near - midterm (I am in this faction). Assuming the 30-year fixed mortgage rate is 7%, in a 3-2-1 buydown, the seller sets aside funds in escrow equaling the sum of the difference between the principal and interest payments at 7% and 4% in year one (“3”), 5% in year two (“2”) and 6% in year three (“1”). Although the buyer’s interest rate is 7%, they pay at an effective rate of 4% in year one, 5% in year two and 6% in year three. The escrow funds are used to cover the difference between the buyer’s effective rate payment and the 7% principal and interest payment owed the lender. ?

Advice for sellers. Expect to be on the market for a month or more, sell for less than asking, with buyers requesting credits and repairs associated with inspection. ?

Advice for buyers. There is lots of good news and one big bit of bad news. First the bad news: Mortgage rates are approaching 7%. The good news: ability to negotiate a lower price, seller-paid interest rate buydown, inspection negotiation, less risk of paying over the appraised value and additional time to shop.?

There is a lot of noise in the media regarding the market. If you’d like facts to decide whether it is the right time to buy or sell, I would be happy to help.?