October is here!
As the seasons have begun to change, we have also begun to see changes in our real estate market. We are seeing increased inventory, gradually returning to the long-term average of 6% per year price increase for homes & condos. This shouldn’t alarm sellers — we are simply coming off of an extraordinarily strong sellers’ market. The increased inventory we have seen the past few years or so is certainly what we would expect to be the precursor to a slightly cooling market. A higher inventory of properties on the market will eventually lead to a market more favorable for buyers. Let’s dig into the stats:
Average Sales Price
Condos have increased in price slightly faster than houses (over the past few years), 9.6% for condos compared to 7.2% for houses. Prices increased for condos 6% over the past year, right on par with the long-term average. Prices increased 4% for homes in the past year, just a little below average. We expect to return to the normal 6% increase per year for both in the future.
Months of Inventory (MOI)
Months of Inventory is 1.9 for both homes and condos, very similar to where it was one year ago. As a matter of fact, it has been very similar over the past four years. Six months of inventory in the market is considered normal and balanced, so 1.9 months of inventory represents a very strong sales market (i.e. the average home is selling a lot faster than six months). A well priced home will go under contract almost immediately.
Under Contract (UC)
Under Contracts give us a good idea of the number of sales we’ll have in our market. For both houses and condos, we have a very similar number of properties under contract this year as compared to last year. Something helping buyers this year is falling interest rates. Today’s interest rates are low, down about .90% from the beginning of the year. This contributes to a strong sales market as it makes the majority of home purchases (for those who get a loan to buy) cheaper since the interest rate is lower.
The number of units sold declined -3% for houses and -4% for condos compared to one year ago. In a market where the population is increasing about 1.5% per year, this is somewhat surprising. This statistic is beneficial to buy-and-hold investors in relation to rentals.
Inventory levels of homes on the market are finally increasing from historically low levels, especially for smaller homes. Home inventory on 7/1/19 was up nearly 25% from the prior year, and condo inventory was up nearly 60% (a majority of these units being a part of the luxury market). All buyers are welcoming the increase. It is still a sellers’ market compared to a few years ago, but slightly better for buyers than it was in the past.
To put the inventory of homes for sale in better perspective from the past few years, take a look at the chart below. The light purple line shows the number of properties on the market every month going back to January 2007. The dark purple dotted line shows the number of sales every month going back to January 2007. What you saw during the downturn between 2008 and 2010 was an astronomical number of properties for sale (over 26,000 at its height!). This caused an incredibly favorable buyer’s market (and a crash in prices). Starting around 2010 and picking up in 2011, the inventory began falling and in turn the sales market became super hot. Since 2012, there has been a shortage of properties on the market resulting in our hot seller’s market. This is exactly how markets are supposed to work, ebbing and flowing over time.
Now, what you can see from the graphic above is that recently there has been an uptick in the inventory – a small but noticeable rise in the numbers of homes on the market. In fact, 5,449 houses and 2,413 condos (July 1, 2019) on the market are the highest numbers we have seen in years. From the chart you can see we still have historically low inventory, but if the number of homes on the market continues to rise over time up to the 15,000-17,000 mark, we will eventually return to a balanced market.
The last graphic we want to show you is a metric that compares the average number of showings per listing per month (see below). The higher the number of showings, the stronger the real estate market. A higher number means there are either more showings per month, fewer listings on the market, or both. The opposite is also true. A lower number means either there are fewer showings per month, more listings, or both, which translates to a weaker market. As you can see, the light purple line is just below where we have been the past few years. This suggests a strong sales market, just not quite as strong as the past couple of years. For example, receiving one offer on your home instead of five.
Putting all of this data together would suggest that the market may be a little slower than years past, yet it remains strong. No one (no matter what they say) knows for certain what will happen over the coming months and years, but you can rest assured we will be tracking the Denver real estate market closely and reporting back to you every step of the way.