Happy New Year!
2020 has finally come to an end. When the year started, few of us expected to live through the worst pandemic in a century. It’s been a mixed year of tragedy, setbacks, and small victories. Many of us have had to totally alter our lifestyles to adapt. Considering how hard this year has been on local families, communities, and our great state of Colorado, all of us at the New Era Group at Your Castle want to thank you for your continued readership and patronage. We are immensely appreciative of each and every one of our clients. As vaccines begin to distribute and we see a glimmer of hope transitioning into 2021, continue to stay safe and be kind to one another. Try to help someone out in their hour of need if you are able. As always, let us know how we can better serve you.
Misleading Statistics for 2020
Regarding real estate, many have asked us recently, “What will 2021 bring for our market?” Although we can never predict the future, if we look at trends from the past year it can guide us to a better understanding of what the new year might bring. DMAR (The Denver Metro Association of Realtors) puts out a year-end report detailing various real estate metrics. In November 2020 the number of Active Listings (attached + detached) on the market was just above 3,400. That is about 50% down from where it was in 2019! By comparison, over the past 15-20 years the average was around 14,000 active homes & condos. These extremely low levels of inventory are driving a sense of scarcity in the market, thus average prices are going up. How much are they going up, you ask? Based on the data, home prices are up about 13% on average so far from 2020 (Jan-Nov) vs. the same timeframe in 2019 (Jan-Nov).
As shocking as these numbers may seem, they can be misleading for several reasons. Entry-level inventory is much lower than normal, while the number of luxury homes ($1MM+) and near-luxury-homes is about normal according to historical trends. Additionally, the more affluent buyers in our market have been the least impacted by the recession, so they are still able to buy homes and are taking advantage of record low interest rates. The result is that we have sold a rather extraordinary number of luxury and near-luxury homes this year. However, we have not sold nearly as many entry-level homes as you would expect. This is because the supply for entry-level homes is simply not available in our market. The entry-level buyer-pool has been much more impacted by the recession than those in the luxury/near-luxury pool. In summation, when you see that home prices were up 13% in 2020, remember that the mix of homes sold has skewed statistics towards a more luxurious product.
A Much Different Year to Come
So what will happen in 2021? The recent developments with vaccines have a huge role to play. As of writing this newsletter, two vaccines were approved by the FDA. With the availability of two vaccines, the projection seems to be that the majority of people in this country who want to receive one should be able to do so by around early summer. Our expectation is that the economy is going to improve after that. People who have so far been reluctant to sell their property because they do not want strangers bringing the Coronavirus into their homes, will start to feel more comfortable doing so. A stronger economy, more consumer confidence, and more inventory as a result, should lead to an increase in the number of homes for sale in the lower end of the market.
All the homeowners who would have sold in 2020 and did not do so will be listing in 2021. This inventory will be in addition to all the people who would have been selling in 2021 anyway. The net result should be a large increase in the number of entry-level homes that get sold. Due to appealing financing conditions this year, we have already sold a lot of luxury homes to people who would have originally bought one next year. Therefore, what should start to happen is the dramatic price increase from 2020 will begin to plateau. In fact, it would not be surprising if the average home price goes down. It will not mean everybody’s home value went down, it will just mean that we are selling more entry-level product and less luxury product. The number of total units sold may remain flat—to perhaps increasing slightly. The marketing time for homes should stay near historic lows, so if you’re thinking about selling a home, 2021 should be a great time to do it!