Denver’s Luxury Real Estate Market Continues to Break Records

As the upper-end of the Denver real estate market continues to set records have we reached the pinnacle?

In May 2017 according to The Denver Metro Association of Realtors (DMAR) 179 homes priced over $1M sold and closed. This number was 21% above April 2017 closings and 38% over the May 2016. The record-breaking number of sales is coupled with a 1% reduction in overall inventory during a month when inventory surges i.e. summer selling season with at present a 5.8 month supply of inventory.

Yes the luxury market ($1M and above) continues to be active yet headwinds seem to be evident.

In May 2017 the highest priced single-family home sold was $5,850,000 (1991 E. Alameda #6, Denver) representing five bedrooms, nine bathrooms and 7,358 above ground square feet in Denver.

The highest priced condo sold was $1,837,500 (105 Fillmore St #103, Denver) representing two bedrooms, three bathrooms and 2,338 above ground square feet in Denver.

In the $750K-$999K price range there was a 19% increase in home sales month over month and a whopping 50.7% gain year over year.

Yet within the hottest luxury neighborhoods of Central Denver while inventory is historically low buyers are advising pricing by their actions or inaction. A few listings in particular may be showing the upper-end of the market is being challenged. Out of respect for the sellers and their listing brokers I will not be providing exact addresses.

House I: Is a lovely brick Cape Cod style home with 3,600+ total square feet (3,150 SF Finished) on a quiet corner lot measuring 6,250 SF with a 2-car detached garage including loft area. The home is in one of central neighborhoods most coveted historic districts. The home came on the market in March at $1,100,000. At present the listing after three price adjustments is now listed below $950,000.

House II: In hot markets homes located on major arterials or other challenging streets i.e. one-ways and similar seem to come on the market en masse taking advantage of the additional demand in the marketplace. House #II i(located 4 blocks south of House #I is one such listing.

The home like Home #I is located within Central Denver and a Historic District, a neighborhood which commands the highest PSF in the area. The 3,600 SF Finished home sits on a large lot of over 10,000 SF. Built in 1960 the home has more of a suburban design including a 2-car attached garage, a rarity in the historic neighborhood yet attractive to prospective buyers who desire a post-war design and construction within the historic neighborhood. Of issue the home is adjacent to a busy roadway however the lot is surrounded by a 6’masonry sound wall and mature landscaping.

The home first came on the market in April of 2016 at $1,350,000. The listing expired in October of 2016 sans buyer. The listing reappeared on MLS with a new broker in March of 2017 at $1,300,000. In June there was a slight adjustment to the asking to $1,280,000. As of July 1 the home remains on the market.

Home III: A true mansion located on a historic residential street with a landscaped medium has been interesting to watch. Located 4 blocks east of House #II it was last purchased when Denver was showing some life post The Great Recession. The buyers were pretty astute. The 6,600+ SF Finished home sits on 12,800+ SF cornet lot. Again adjacent to a throughfare yet a sound wall and mature landscaping minimize the impact.

Concerning transaction history, this mansion may be a market bellweather (please note I cannot opine on interior renovations or other improvements as that information was not readily available):

  • The mansion first sold in March of 2004 for $1,030,000.
  • The mansion then sold again in March of 2006 for $1,650,000.
  • The last resale was in June 2013 for $1,275,000

After the sale in June 2013 the mansion was placed on the market in March of 2015 for $2,995,000.

Three months later the asking was reduced to $2,595,000. The listing expired in August 2016 sans sale.

In September 2016 the mansion was placed back on the market with a new broker for $2,445,000. Within 45 days the asking was adjusted downward to $2,295,000.

In January of 2017 another downward price adjustment brought the asking to $2,195,000. In March an additional adjustment brought the asking down to $2,095,000. The mansion went under contract as of 3 weeks ago.

The most recent buyers of the Mansion if they sell at close to asking i.e. $2,095,000 will have done quite well as their purchase 4 years prior was $1,275,000 or a gain of $820,000 before commissions and closing costs assuming again sold at close to the present asking price.

However here is a Mansion that in a 2 year span between March 2004 and 2006 appreciated in price by $620,000 yet when sold in June of 2013 LOST $375,000.

Even its most recent listing history, which began in March of 2015 at $2,995,000 and as of June 2017 was listed at $2,095,000 or a $900,000 reduction of the initial asking price.

One can infer their own interpretation concerning this Mansion and pricing as some would argue the sellers were initially too aggressive concerning pricing, the market for 6,000+ SF mansions is finite, the adjacent roadway is a challenge and so forth.

However looking back over the 13 years history of this Mansion’s activity i.e. massive appreciation over a 2-year span between 2004 and 2006 and subsequent equity loss, purchased at a fire-sale i.e. $193 PSF Finished and now on the market asking $317 PSF Finished or a 60%+ return in 4 years somewhat mirroring the overall gain the Denver market during that time period.

Let’s see if House/Mansion III closes and what happens to Houses I and II. I will keep you all posted.

 

 

 

 

 

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Is a certain residence in Denver indicative of the market we are experiencing

On my daily commute downtown I pass a large single-family home that has been for sale for the past year (been through two brokers during that time). This home is gorgeous offering over 6,500 SF of finished space, renovated interior including a chef’s kitchen, well water for the expansive yard, a carriage house all designed by a storied design firm and located within a designated Historic District. Taxes are reasonable considering the neighborhood the residence is located in. It is a corner lot, not to everyone’s liking and does have some traffic impact mitigated by a 6′ masonry sound/privacy wall. Throughout central Denver traffic impacts are not to be unexpected.

At my club last week a fellow member asked me about this particular listing advising she passes it daily, as do I and how it seems to have been on the market for a long time. I knew the residence and while I do not believe it is over-priced at present asking $317psf finished/ $434psf above grade (on a PSF basis actually on the low-end for its neighborhood). This member asked me why it has not sold; I advised in my opinion multiple factors including size as 6,000+ SF is not for most buyers a starter home, the corner lot on a thoroughfare and the design; historic  which for some prospective buyers signals increased upkeep and maintenance.

Thus I decided to review the pricing and sales history; what an awakening as it seems this particular residence has mirrored the Denver market and may forecast what is to come:

  • March 2004: Sold for $1,030,000
  • March 2006: Sold for $1,650,000 (+$620,000) 61% Gain
  • June 2013: Sold for $1,275,000 (-$375,000) 23% Loss
  • March 2016: Placed on Market for $2,995,000 Potential 230% Gain Unrealized
  • March 2017: Price Adjustment now $2,095,000 Potential 160% Gain Unrealized

Please note between March 2004 and March 2006, there may have been a renovation, I have no idea; however a 61% gain is just not a sustainable increase in a rational market. The loss between June 2006 which was close to the pinnacle of the boom and the sale in June 2013 when the market started to again accelerate out of the great recession to the upside shows the house had some resiliency i.e. a 23% loss, far from the losses seen in other markets.

The most recent asking price would still generate a very healthy 160% gain in 4 years. Granted I am not including carrying costs, commissions and so forth. Yet in my opinion a 160% gain in 48 months is a bit optimistic yet not unheard of.

The house continues to sit on the market. A buyer will eventually purchase as the size and neighborhood will eventually negate the issue of the location adjacent to a thoroughfare which I believe is the biggest factor impacting the property. I just thought the activity over the past 13 years was indicative of the Denver market and now being on the market for one year with price reductions, granted from lofty unrealistic heights may be a precursor of what the foreseeable future may be for the luxury market in Denver.

 

 

Is The Country Club Neighborhood Overheated

DSC_00791I honestly don’t know. However for a client request I decided to run some statistics. I pulled resales through the end of 2015 and compared on a per square foot price to the homes on the on the market at present.

I kept the comparison sample as close a possible as follows:

  • Houses priced/sold below $1,300,000.
  • Using only above grade measurements.
  • Avoid listings on busier streets i.e. Downing St., University Blvd., 1st and 6th Aves.
  • The Results:

The Closed Sales came in at: $446 PSF

Active on the Market at present: $481 PSF

Both on a percentage basis and actual sale price, I have some concerns. For example a 2,000 SF house based on the statistics during the 6 months from summer to today would have gone from $892,000 to $962,000. The difference in a mortgage payment is approximately $345.00/month or over $4,140/yr and .and extra $124,000 over the term of a 30-yr mortgage,

Granted, this is Closed  versus Asking, however sold prices have consistently been close to asking. My concern; will appraisals support the values beings presented during this 1st Quarter of 2016 (in general appraisals look backward not forward). Also, for those buyers purchasing at present will equity appreciation continue?

Of course we are in a low interest environment and while this morning’s unemployment rate was positive for the economy there are questions concerning slipping back into a recession based on world-wide economies.

Anyone who knows me knows I am always bullish on central Denver neighborhoods. I believe in location, location and location. However when I see 8% gains in 6 months and some justifying the gain, I become a bit more skeptical.