As Close to a “Normal” Fall as Possible

 

“Normal is an illusion. What is normal to the spider is chaos to the fly.”

These wise words are fitting this season when it comes to the real estate market. On one hand, you have home buyers, many of whom have had to endure some of the most frenzied bidding wars in recent memory. On the other hand, you have home sellers, who have mostly been able to pick from cream-of-the-crop offers — high prices and incredible terms. However, as we’ve begun to settle into this season, these sellers have had to descend slightly from their place of power and potentially take less-than-optimal offers compared to those of the last 18 months. That’s right – market conditions are finally closer to the “normal” trend for this time of year. Typically, there’s a slowdown in the fall, and thus buyers have an easier time finding houses as the buyer pool thins significantly. After all, who wants to move in the middle of a snowstorm or the holidays?! If you can believe it, buyers might even find a deal if they find an overpriced home that’s been sitting on the market a bit too long. Just beware of becoming overzealous with this information as sellers are much more likely to wait an extra week or so rather than accept a less-than-ideal offer for their homes. In most cases, they do not have the same desperation still felt by buyers in this market!

 

What is Happening with the Low Inventory?

Despite a return closer to normal seasonality, there are still some peculiarities in the market this fall. At the end of September, there were only 3,970 active homes in the local MLS. That means that there are currently about 75% fewer homes to choose from than the 30-year average. This low inventory is expected to persist for years to come. The surge of buyer demand continues, as workers continue to work from home, trading up from their rentals to bigger houses with home offices and backyards. Further, many tech companies have added corporate offices in the Denver area, adding plenty of new people to the buyer pool. You might wonder why we don’t see more new home construction, considering our low inventory and high demand for homes.

 

Shortages and New Construction

One tangible reason for persistent low inventory is that COVID-related material shortages have continued to plague many industries, including construction. Supply chain issues have made it more difficult to get building materials such as lumber, which in turn has driven up the cost of new houses considerably. According to Forbes, increased lumber costs in May 2020 added an average of $34K to the cost of a new home! Thankfully the cost per board has come down by about 64% since then. So now, lumber shortages may only amount to an increased cost of $12,240 per new home constructed. However, that figure doesn’t account for other ongoing material shortages.

The Added Factor of Not Enough Workers

Another significant issue adding to the low inventory problem is a shortage in labor. As reported recently by the Wall Street Journal, US construction productivity has not grown since World War II in terms of gross value-added per hour worked. Even if the material shortages described above were magically solved overnight, the timetable for new home construction would still be delayed due to a lack of skilled (and unskilled) workers to build homes. This is a major issue facing the real estate market that is not likely to be resolved in a hurry.

 

Prices Should Continue to Climb

Other factors for slow home construction include mounting red tape in the process to apply for permits to build new condos/homes, the high cost of water tap fees, a shortage of land available to build per zoning issues, and more. Some of the challenges described above may eventually be solved through legislative action. However, unless there is a mass exodus from Denver due to job shortages or other major concerns, prices will continue to climb upward. They have done so for 44 out of the past 47 years in Metro Denver. Interest rates are also set to increase once the FED stops buying $120 billion in mortgage-backed securities and treasuries in July 2022. The FED has been buying mortgage bonds to help keep mortgage rates low and stabilize the market post-pandemic. When this purchasing comes to an end next year, it will provide upward pressure on rates. That will undoubtedly make homes less affordable and will diminish demand somewhat.

 

With all of that in mind, if you’re a qualified buyer in today’s market, things will only become more difficult. A slower fall/winter season may be the best possible time to act before the frenzied pace restarts in spring 2022 and beyond. If you’re a seller and have a flexible timeline, wait to list your house until the spring when it will sell for a premium! The most important thing to keep in mind when buying or selling any property, is whether the timing makes sense for you personally. I’d love to help you weigh your options so that you can make the best decision for yourself. Don’t hesitate to reach out!