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Market grapples with record-low inventory

Historic look at housing inventory in the Denver area. Source: Metrolist

Historic look at housing inventory in the Denver area.
Source: Metrolist

Highlights:

  • Inventory of homes plunges to 7,094
  • Brokers worry low supply driving up prices too quickly.
  • Prices near record highs, while demand soars.

The Denver-area housing market is grappling with the lowest number of previously-owned homes on the market on record.

At the end of January, there were only 7,094 homes on the market, a 7.9 percent drop from the 7,706 unsold home unsold homes in December.

The inventory is down 32.1 percent from the 10,443 available in January 2012, according to reports released today by independent broker Gary Bauer and Metrolist.

Both reports are based on Metrolist data.

Bauer’s report reaches back to 1990 and never have there been fewer homes available in that 23-year stretch.

To put January’s inventory numbers in perspective, there were 14,753 unsold homes on the market in January 1990, when the housing market was about 50 percent smaller than it is today.

By most other metrics, however, the market was soaring.

The median price of a single-family detached home sold, for example, set an all-time high for a January. The average price of a home sold in January was only second to the record price set at the market’s peak in January.Meanwhile, demand was strong.

There were 4,431 homes placed under contract in January, a whopping 43.4 percent jump from the 3,090 in December and a 27.1 percent increase from the 3,480 in January 2012.

Year-over-year closings also were well into double-digit territory.

There were 2,953 closings in January, a 19.6 percent increase from the 2,470 in January 2012. Closings were down from the 3,400 in December, which were unusually strong as consumers rushed to take advantage of record-low interest rates. Sellers also wanted to close by year-en for fear of potential changes in tax laws.

“Can we repeat January? The Denver area has not seen a January like the one that we just finished for years and years and years,” Bauer said. “The weekly sales rate at 14.43 percent is the highest on record for the same time period.”

He said January also is bucking a traditional seasonal slowdown from December. Typically, the market doesn’t start to rebound until March.

“This was the best January on record for many individual Realtors and real estate companies,” Bauer said.

“To give you an example, I know one big brokerage house that last year closed on 600 homes and this January closed on 730,” he said. That equates to almost a 22 percent increase.

Still, the super-low inventory is troubling to Bauer and others.

“The low inventory is the story,” said Peter Niederman, CEO of Kentwood Real Estate.

“Clearly, there is a lot of pent-up demand,” Niederman said. “Mortgage rates have been rising during the last few weeks and people want to close on homes while they are still extremely low. I expect as the economy gets better, rates will continue to rise.”

With bidding wars for homes becoming increasingly common, Niederman wasn’t surprised that the average price of a single-family home hit $301,827 in January, 10.8 percent higher than the $272,328 in January 2012.

The median price of a single-family home rose to $250,000, 14.2 percent higher than the $218,855 in January 2012.

Chris Mygatt, president of Coldwell Banker Residential of Colorado, said that he fears the low inventory will drive up prices too far, too fast.

I worry we are going to become like Phoenix,” which showed a 22.8 percent, year-over-year increase, according to the latest Case-Shiller report.

“I’m stunned more people aren’t putting their homes on the market,” given how favorable market conditions are, he said.

On the other hand, the low-inventory is creating its own vicious Catch-22, he said.

“Most people who sell their homes plan to stay in the area,” Mygatt said. “They know they can probably sell their home very quickly, but then what? If you sell your home and you don’t have any place to move to, you can become homeless pretty quickly.”

Mygatt said that home sellers should work closely with their Realtors in trying to identify a home they can buy, which is no easy task when many well-priced homes are snapped up immediately.

Jerry Kendall, principal of Multifamily Capital Advisors, said many homeowners, who have refinanced into extremely low mortgage rates, have no incentive to sell.

Kendall, who focuses on selling apartments, said that many homeowners who have refinanced, still could not realistically sell their homes for a profit, after the cost of buying and selling.

“They look around and realize they can’t get a better deal than they have, so they stay put,” he said. As interest rates rise, they will be even less likely to put their homes, on the market.

However, today’s market does present a wonderful window of opportunity for homeowners who want to sell, according to Kirby Slunaker, CEO and president of Metrolist.

“The time is now for sellers who have been waiting to put their home on the market,” Slunaker said. “Prices are back up to pre-recession levels and homes that have been priced appropriately are receiving multiple bids and closing at much faster rates.”

Rollie Jordan

Rollie Jordan

Rollie Jordan, a top broker at Kentwood Cherry Creek, knows that first-hand.

“I sold over $18 million in homes in 18 months,” she said.

She spent January concentrating on getting listings and recently landed one for $5 million and another for $9 million.

“I’ve already had two showings, and I haven’t even put them in the MLS  yet,” Jordan said.

He noted the average days on the market at the end of January was 78 days, 25 percent below where it was a year earlier.

Niederman said that while the housing outlook looks strong, there are some potential national clouds that could dampen the market.

“Congress needs to reach a debt-ceiling agreement, or we are headed toward sequestration, with its across-the-board cuts that just about everyone expects will result in a job cuts and a slower economy,” Niederman said.

“So we are facing potential headwinds.”

Even if Republicans and Democrats do reach an agreement, the Denver housing market could see even fewer homes on the market.

“Last year, I predicted we would hit (an inventory of) 5,000 homes in 2013,” Bauer said. “It looks like we are slowly trending that way.”

Have a story idea or real estate tip? Contact John Rebchook at  JRCHOOK@gmail.com. InsideRealEstateNews.com is sponsored by Universal Lending, Land Title Guarantee and 8z Real Estate. To read more articles by John Rebchook, subscribe to the Colorado Real Estate Journal.