- There were only 6,786 unsold homes on the market at the end of February.
- Inventory levels are the lowest on record.
- Home prices, contracts and closings soared in February.
The inventory of unsold homes in the Denver area have fallen to the lowest level in decades.
At the end of February, there were only 6,786 unsold homes on the Denver area market, according to a report released today by independent broker Gary Bauer.
Bauer’s analysis of Metrolist data shows that the number of unsold homes has fallen 32.7 percent from the 10,086 available in February 2012. Inventory levels have fallen 4.3 percent from the previous low of 7,094 in January.
“From 1985 to the present, it has never been this low before,” said Bauer, who is the current chairman of Metrolist, but released his report based on his own analysis.
“I can’t say with any certainty when it has been lower,” Bauer said.
To put that into perspective, the Denver metro area’s population grew by 77 percent from 1980 to 2012.
Just about every other metric in February reflected an extremely strong market, Bauer said.
“February was just a great, great month for the housing market,” Bauer said. “We saw another decline in available listings, but the rest of the market is up… but February was a nice kick-off to the spring season.”
In fact, “The spring market came early this year,” Bauer said. “It usually starts in March. But spring is here.”
“We continue to see decreases from already historic low inventory levels,” says Kirby Slunaker, CEO and president of Metrolist. “Denver’s inventory situation reflects the trends we’re tracking nationally. We’re carefully watching the available inventory to see if these trends drive more potential sellers to list properties as we approach the beginning of the spring selling season.”
By the numbers:
- There were 5,033 homes placed under contract, a 21.3 percent increase from the 4,130 in February 2012 and up 13.6 percent from the 4,431 in January.
- There were 2,967 home closings in February, a 18.9 percent increase from the 2,495 in February 2012 and a 0.5 percent increase from the 2,953 in January.
- The average price of a single-family home sold in February was $302,475, a 11.7 percent increase from $270,821 in February 2012 and slightly above the $301,827 in January.
- The median price of a single-family home sold in February was $255,00, 15.9 percent more than the $220,000 in February 2012.
- The average price of a condo sold in February was $175,351, 8.8 percent higher than the $161,143 a year earlier.
- The median price of a condo jumped 19.8 percent from February 2012 to $143,750 last month from $120,000 a year earlier.
“We’ve noticed a continual increase in average sale prices, and I expect that trend to continue throughout the summer buying season,” Slunaker said. “Denver’s current housing market could be summed up by a basic economic principal—it’s supply and demand.”
One metric that was a bit atypical was that the median, or middle, prices showed a bigger percentage gain than the average price.
“I think the median prices are showing a bigger percentage gain than the average prices because of the mix of homes being sold,” said Chris Mygatt, president of Coldwell Banker Residential Brokerage of Colorado.
“We have been seeing a big increase in the sale of expensive, luxury homes,” Mygatt said.
The driving force for rising prices in most price ranges is the extraordinarily low inventory, Mygatt said.
“It is just amazing,” Mygatt said. “I think that is the whole story. Most probably all of the other numbers are emanating from the low inventory.”
Mygatt said that consumers seem to be buying off the top. That is, almost as soon as a house becomes available, it is sold.
“The homes that are still on the market, for the most part, have been picked over,” and for whatever reason, have been rejected by the market, he said.
Mygatt said people keep asking him when more homes are going to be hitting the market.
“Selling a home is not like selling a stock,” Mygatt said. “For most people, they sell a stock, either for a loss or a profit, they pretty much go on with their lives. When you sell a home, you must have some place else to live, unless you are moving outside of the area, which is not typical in the Denver area.”
He and others said that opens the door for new homes.
“This low supply of resale homes presents a great opportunity for new home builders,” Mygatt said. “The question is, how fast can developers entitle land? I think the communities that make it easier for builders to entitle land are the ones who are going to prosper the most in the coming years.”
For consumers that want to increase the chances of finding a home, it is a good idea to use a buyer broker who is with a company that has a lot of listings, Mygatt suggested.
“Companies that have a lot of listings, are bringing inventory to the market,” Mygatt said. “They are showcasing that inventory to their pool of buyers first. If you are solely depending on Realtor.com or Zillow.com or other national portals, you probably will miss the best opportunities. Even a very fine agent with a small shop without many listings will be at a disadvantage.”
For example, he said at a typical Coldwell Banker meeting, agents might say that they have listings in places such as Lowry, Country Club, Cherry Creek North and Washington Park that are about to hit the market within the next few weeks, once they are in tip-top shape.
“After the meeting, I might say to one of the agents that I have a buyer looking for a home in Washington Park, who would like to see the home before it is on the Metrolist,” Mygatt said.
“I’ll get the address, the buyer will look at it and often will make an offer before it is even listed on Metrolist,” Mygatt said.
“Really, we are selling a record number of homes, given such a low inventory,” Mygatt said. “Part of that is because we have this pretty substantial shadow market of homes that are selling before they even officially hit the market.”
Mygatt said a lot of consumers feel more confident buying a home a safer long-term investment than stocks or bonds.
“The bond market is one of the safest investment vehicles, but the bond market is terrible,” offering almost no yield, he said.
“Homes, typically, are seen as only slightly more risky than bonds, yet the latest Case-Shiller numbers showed an 8.5 percent, year-over-year return, which is a stock-like return,” Mygatt said.
“I think a lot of people are still nervous about the volatility in stocks, while I think we are still in the early part of the recovery stage for homes,” Mygatt said.
“I think people can still ride a pretty nice wave of home appreciation for the next four to six years.”
Peter Niederman, CEO of Kentwood Real Estate, also believes that the low inventory is the most important factor in the Denver-area housing market.
“It is absolutely crazy that a marketplace of 2.9 million people has fewer than 7,000 homes on the market,” Niederman said.
“There is the story,” Niederman said. “We can talk about how great the market is, we can talk about how great demand is, we talk about how great interest rates are. But the real story is the lack of inventory. And the real question is, when will inventory levels rise?”
Rising prices, in part caused by the low inventory, which has increasingly led to bidding wars, at some point should bring more sellers to the market, Niederman said.
“It sounds crazy, but we need more houses to come on the market to have more houses come on the market,” Niederman said.
Part of the reason that demand is so strong for homes is that typically a person who lost their home during the Great Recession needed to wait three years before they could financially qualify for a new home loan.
“That means that people who lost their homes in 2009, really started coming back in 2012,” Niederman said.
He said he expects another wave of buyers to come from renters.
“With apartment vacancy rates so low, rents are rising very quickly,” Niederman said. “I think more and more people are going to tire of paying rent and will want to buy.”
Of course, that will put mean even more demand on a low supply of homes, but it will also push up prices.
“As home prices go up, more people who are underwater may finally feel comfortable in selling their homes,” Niederman said.
Indeed, homes are selling so fast now, that increasingly new homes will be the best, and maybe, the only option for a large number of sellers.
“Even though we compete with new homes to some extent, they really are the most important part of the market for filling the void left by the low supply,” Niederman said.
Pat Hamill, CEO of Denver-based Oakwood Homes, said that 12,000 resale homes on the market would be considered “equilibrium” between the traditional supply of new and resale homes.
“So we could almost double the supply of resales homes from its current level,” Hamill said. “That is basically what is putting pressure on the market and driving up price.”
However, some homeowners are still not able to sell their homes for a profit, he warned, making it difficult for them to move up.
“You have to be a little cautious about it, because the housing resale market is not fully recovered,” Hamill said. “Some people who bought at the peak are still underwater and can’t sell their homes. I think the good news is that Colorado is one of the top five states, I think in terms of price appreciation.” This week, Hamill heard of a woman who put her home on the edge of Washington Park on the market.
“In one day, she sold her home for $20,000 above the asking price,” Hamill said. “That is a really good sign. Colorado is a great place to live, we’re getting job growth and we’re still getting 40,000 people a year migrating here. Both the mayor of Denver and Colorado’s governor are very pro-business, which is very helpful in bringing new companies here.”
Also, home builders aren’t going overboard in adding to the supply, despite the shortage of resale homes.
“We are going to deliver about 5,500 new single-family homes this year,” Hamill said. “Historically, we had many, many years when we delivered 15,000 new homes this year. We are still near our historic lows in terms of numbers. It feels good where we are today. I think we are in a good place, but we have a long way to go.”
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.
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