Head and Shoulder Pattern in Denver Real Estate

As readers of my blog know I am somewhat a statistician as I look at various statistical measurements including the well respected Case-Shiller index concerning housing costs. Please note statistics are similar to an appraisal; they are a look back and not necessarily a look forward. I also believe history repeats itself as I have been a broker for 20+ years and have watched with interest the effects of business cycles on our real estate market.

Please note I am not advocating the following analysis concerning a Head and Shoulders pattern adopted from the stock market HOWEVER housing prices in general trend with the stock market. Thus reviewing the latest statistics and graph patterns I noticed a head and shoulders pattern-taking place in the Denver (and other) housing markets: The following is a graphic of a Head And Shoulders Bottom as related to equities:

H_and_s_bottom_new

Per Wikipedia: This formation (Head & Shoulders Bottom) is simply the inverse of a Head and Shoulders Top and often indicates a change in the trend and the sentiment. The formation is upside down in which volume pattern is different from a Head and Shoulder Top. Prices move up from first low with increase volume up to a level to complete the left shoulder formation and then falls down to a new low. It follows by a recovery move that is marked by somewhat more volume than seen before to complete the head formation. A corrective reaction on low volume occurs to start formation of the right shoulder and then a sharp move up that must be on quite heavy volume breaks though the neckline.

Another difference between the Head and Shoulders Top and Bottom is that the Top Formations are completed in a few weeks, whereas a Major Bottom (Left, right shoulder or the head) usually takes a longer, and as observed, may prolong for a period of several months or sometimes more than a year.

Screen Shot 2017-08-11 at 8.41.30 AM

In May 2017 according to the Case Shiller index the average home price in Denver reached $456,100 which is 41%+ higher than the previous peak experienced in Denver in August 2006 which many will remember was the pinnacle before descent into the Great Recession.

While the graph is not the easiest to comprehend yet the visual is strikingly similar to the Head and Shoulders Bottom, the following is the pricing and trend over a 17-year period, which I have mentioned in previous blog posts including the pricing history and activity of a home in Country Club.

  • 17 years: Average Annual Increase: 5.8%
  • 10 Years: Average Annual Increase: 4.6%
  • 3 Years Average Annual Increase: 10%
  • 1 Year Average Annual Increase: 7.9%

The average cost of a home in Denver throughout the past 17 years:

  • 2000: $230,000
  • 2007: $313,500
  • 2010: $290,000
  • 2014: $350,900
  • 2016: $422,800
  • 2017: $456,100

Are times and trends different from the Great Recession at present? Yes. Lending standards have tightened, sub-prime lending seems to be under control and we continue to be in a Goldilocks Interest Rate environment.

However just on a business cycle trend I have some concern and this does not include outside influences i.e. saber rattling concerning North Korea which impacted the equity markets worldwide yesterday with the largest point downtown since May 17th, 2017.

I am not a market forecaster however based on the statistics and graphs presented in this blog my level of concern for a retrenchment in prices is ratcheting upward. We are witnessing price adjustments in the upper-end of the market and if interest rates were to increase we would see affordability challenged further and average prices go down. Not necessity a negative as we continue to be in a seller’s market and average buyers are challenged concerning affordability and inventory, not a positive long-term trend for our housing market. I am not making any predictions, just showing statistics and voicing some concern.

 

 

Metro Denver still in top cities for real estate appreciation

The newest Case-Shiller figures were released and as expected the year-over-year pace of home-resale price gains still led most others for percentage price gains. In real numbers, prices in April 2016 rose 9.5% from one year prior.  If you follow my blog you know 10% has been the average gain over the last few months when compared to one year prior.

Two cities surpassed Denver’s gain by small increments, Portland and Seattle. Of the 20 cities tracked the average gain year-over-year was 5.4%. What si more impressive and yet also possibly troubling is Denver is one of 7 cities with resale prices at an all-time high. The other cities are Dallas, Portland, San Francisco, Seattle, Charlotte and Boston.

 

As an active broker and in discussion with peers we have become a little bit concerned (and it may be a seasonal issue) of the following:

-Homes on the upper-end of the market i.e. above the FHA conventional loan amount (for Denver) of $458,850 seem to be lingering on the market for longer periods of time.

-We brokers are witnessing across the board price reductions in a few specific neighborhoods where inventory has increased exponentially versus true demand. Most of this inventory is oriented towards the luxury market.

-Potential over supply of deluxe and luxury rentals in hot neighborhoods including Cherry Creek and Downtown as well as select suburban communities which assumes the continued influx of residents proceeds unabated.

-Record low interest rates yet buyers still on the sidelines.

As a broker for 25+ years I have been though such cycles prior. We are in a goldilocks period of low inflation, low interest rates and increased supply. Yet there still seems to be a slow down in the upper segments of the market which may eventually trickle down to the larger overall market.

Metro Denver has a history of developing excess inventory during up-cycles. Coupled with the City and County of Denver desiring to increase density in established older neighborhoods there are concerns regarding quality-of-life, congestion and affordability.

With today’s news advising the Federal Reserve may begin to increase interest rates by year’s end we should see fence-sitters locking in historically low interest rates before the election. If interest rates do rise and buyers continue to sit on the side-lines we may have larger issues going into 2017.

Is there a Glut in the Denver Metro Luxury Housing Market

While stories abound concerning newer deluxe and luxury rentals starting to offer incentives to fill their units, little has been mentioned about the ownership market.

If you have driven through Cherry Creek, Washington Park East, Hilltop or Country Club you may have noticed the proliferation of real estate brokerage signs advising homes for sale. Granted we are entering the Spring season which is always a period of increased listings. However for fun I ran some statistical analysis based on our multi-list system.

At present in the Metro Area as of April 8th, 2016 there is 10,934 homes on the market. Breaking down the market by deluxe and luxury price segments for the metro area and separately the City and County of Denver:

$1,000,000+ = 1,400 Homes of which 221 are located within City of Denver

$750,000+ = 2,424 Homes of which 366 are located within City of Denver

$500,000+ = 4,651 Homes of which 740 are located within the City of Denver

Based on the above the luxury market is truly spread across the metro area with the City and County of Denver accounting for approx. 16% of the deluxe and luxury inventory on the market (a percentage I would assumed was higher as the Central City is generally the most expensive PSF real estate however the C&C of Denver does include outlying suburban markets including Green Valley Ranch and Bear Valley).

My concern is approx. 44% of the inventory on the market at present is asking over $500,000. While this number would be considered low for coastal markets, I am concerned as the average income in Metro Denver would translate to a home affordability in the mid $300’s.

Having been through multiple housing cycles during my 30+ years as a resident in Denver historically the deluxe and luxury market is the first to show signs of fatigue, a potential over-bought market, signs of weakness ahead i.e. an increase in inventory and days on the market.

While I am not expecting a serious downturn or correction I believe the deluxe and luxury market is advising us the rampant run-up in prices may be receding. I personally am seeing more listings in Cherry Creek North that last year at this time would have come on the market at $1M+ being presented at more realistic pricing. I am also witnessing a glut of larger homes in Denver’s Hilltop, Washington Park East and Country Club neighborhoods hitting the market.

Yet macro market fundamentals have not changed i.e. the stock market while running sideways seems stable, interest rates continue at historic lows and unemployment rates continue to drop. On a macro level Denver now has the lowest office vacancy rate since 1990 and our unemployment rate is the envy of may rust-belt cities.

Thus something is happening in the market and only time will tell. However if a client asks me to predict the next few months, my advice would be unless you truly love the residence, plan to reside in it for a minimum 3-5 years or its just so attractively priced, my view is sit on the sidelines if you are able.

I will be interested to look at this post one year from today.

 

 

Spring Thaw is in the Air

Wow what a difference a few days makes. Within the last 7 days, 1,395 properties went under contract in the metro area. During the same week 939 properties sold and closed and  there were 735 new listings. In summation, it is still a seller’s market based on inventory and activity.

As I work in the deluxe and luxury market I am seeing some signals that the weakness in the upper-end may be abating OR sellers are becoming more realistic. In Cherry Creek North (I consider 1st Avenue on the south, 6th Avenue on the north, University Boulevard on the West and Colorado Boulevard on the East as boundaries) I noticed listings on the market asking under $1M seem to be generating activity and going under contract.

For fun I ran an informational statistical analysis. In the beginning of January 2016 the average listing in Cherry Creek North was asking $480 PSF above grade. This morning the average asking above grade is $414 PSF. I assume some residences have sold, other listings have been withdrawn or expired. However I believe more telling; listings coming on the market in the last two months have been priced more realistically and many under $1M thus generating additional activity and demand.

While some of my peers may begin to panic, this is the sign of a healthy marketplace or as I suggest coming back to reality. At $480+ PSF one may suggest a bubble was forming. Instead we are seeing a sense of equilibrium heading back into the marketplace. Yes, Cherry Creek North is a unique niche of the market and accounts for a minuscule part of the overall metro area HOWEVER from experience I look to the luxury market to read the tea leaves concerning the overall metro area.

Granted this is far from scientific; however the upper and luxury markets do tend to mirror the economy. I personally know a few retail analysts on Wall Street who visit luxury retailers to gauge the overall activity within the bricks and mortar stores to assess economic health and psychological predictors i.e. spending on attainable luxury suggests an overall positive view of future economic activity.

In speaking with a mortgage lender over lunch this past week; we are both market watchers and agreed at present the market seems to be moving towards equilibrium. With the number of houses on the market still oriented towards a seller’s market; prices may continue to rise yet at an abated rate closer to inflation (which continues to be minimal). Yet once we start seeing a spike in listings i.e. above 10,000 units in the metro area we may be in for a snowball effect with additional listings coming on the market and demand regressing. If this happens and we move into a buyer’s market coupled with potentially higher interest rates the end of our expansion era may happen.

Yet this is not a negative. For many years Denver Metro has been an attractive destination based on lifestyle factors i.e. employment opportunities, weather, recreation and until recently affodable housing. The recent influx of residents has truly strained some of our infrastructure which needs time to catch up coupled with houses prices exceeding average income and decreasing affordability. While positive for an existing homeowner, a challenge for the newly arrived or those who desire to relocate.

While I do not desire a hard downturn, I do wish for a more balanced market including options for first-time homebuyers not being banished to the exurbs for affordability (which only increases metro wide trafffic congestion and lessens air quality), availabile inventory for move-up and move down (empty-nester) buyers and additional options for our aging longer-term resident population.

As one client confided to me “we need to move into a more balanced market so my child can move from our basement to a home of their own”. And I say to that “Amen”.

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.

 

Cherry Creek North Real Estate Recap for 2015

It was another banner year for the Cherry Creek North residential neighborhood (generally considered from 1st to 6th Avenues, University to Colorado Boulevards).

Cherry Creek North: 1st Avenue to 86h Avenue, University Blvd to CO. Blvd:

Average Home Sold: 3 Bedrooms/3 Bathrooms

Average Size: 2,009 SF Above Grade / 2,642 SF Total

Average Days on Market: 62

Average Price: $987,303

As a neighborhood resident since 1989 I am in awe at the numbers.  As a broker I and others were shocked when Paul Kobey developed a row of luxury attached homes called the Georgetown on the 400 block of Columbine Street. At the time of development the asking price of $400,000 was considered the top of the market and unattainable. In today’s market, the lowest priced listing in the neighborhood is in the $450K range, a small tudor abutting Colorado Boulevard.

Will the success last? If I were truly clairvoyant I would not be composing this blog and would be residing on

the French side of St. Martin, however I would be somewhat concerned. While the average sales price is just shy of $1M; of concern is the number of days on the market.  While conventional wisdom does advise the higher the price the longer on the market, coupled with increased inventory available and higher interest rates the pinnacle may have been reached.

Of concern from a brokers perspective is the development of the luxury rentals and condos being developed in the neighborhood. I am just not sure where the demand for such inventory is coming from. While I have represented mountain residents and others desiring a pied-a-terre in Cherry Creek, this market is truly finite. It is not uncommon to look up at the buildings and see few if any lights on.

More positive is the lack of spec houses i.e. those built on speculation. With standard 50′ x 125′ lots pushing the $1M mark, development on those lots is now more commonly bespoke by a buyer versus speculation. While there are a few spec developments, still more common south of 1st Avenue where land is generally less costly.

If I were in the market as a potential seller at present I would place on the market yet price attractively to cut through the clutter on the market and stand out as a value proposition. As a buyer, unless planning to stay a minimum 3-5 years I would seriously consider advising to rent or hold off a few months and keep an eye on inventory and price reductions. Granted I am a conservative broker yet I have also been through three business cycles during my years as a broker and while I am not concerned about a potential crash of value; between forecast increases of mortgage interest rates, the equities market moving sideways the economic issues in China, many pundits are cautious. As one long time client who is a voracious buyer commented to me “I am now a seller”.

 

Congress Park Real Estate Recap for 2015

2015 was a banner year for real estate in Central Denver. From the depths of the Great Recession we witnessed a true market reversal. The neighborhood we specialize in i.e. Congress Park enjoyed continued strong growth. Below is a recap of 2015 real estate activity from our Multilist Service:

Congress Park: 6th Avenue to 13th Avenue, York Street to Colorado Blvd:

Average Home Sold: 3 Bedrooms/2 Bathrooms

Average Size: 1,520 SF Above Grade / 2,269 SF Total

Average Days on Market: 20

Average Price: $561,306

Most Expensive Rentals in Denver

Well, its semi-official, downtown adjacent Golden Triangle neighborhood is the most expensive neighborhood on average for a one-bedroom rental with a median (half were higher, half were lower) of $2,275/month in October 2015 according to San Francisco based Zumper, an apartment rental search and application app.

What is interesting is this is a neighborhood which has transformed immensely over the past two decades. While always home to the Denver Art Museum on the south-side of Civic Center (and of course the Burnham Hoyt/Michael Graves Denver Public Library), the area boomed when luxury condos were built between Lincoln Street and Speer Boulevard from 7th Avenue to 14th Avenue. In addition, the area welcomes the Clyfford Still Museum, a few unique mixed use projects and of course a central location.

Yet historically the mid-rises east of Lincoln Street have historically offered affordable rentals north and west of the Governors Park neighborhood  as well as across Cherry Creek at Parkway Center.

If you have driven northbound on Speer Boulevard you will see new luxury rentals sprouting up along this historic street. At the intersection of 6th/Speer what was once a large gas station has given way to a mid-rise new development as has a lot to the northwest beyond Broadway.

For additional details, here is a link to the article in the Denver Business Journal

Is the Market Slowing or Is it the Season

Anyone who has traveled around Denver has probably noticed a few more For Sale signs and fewer Under Contract and Sold Signs. The view may be somewhat deceiving. Sales continue to be strong HOWEVER inventory of properties available has also increased, thus the perception of more homes on the market is actually the reality.

As a broker I try to look at statistics over time to assess the true activity in the market. Two statistics I like to follow are Price Decreases and Back on the Market. Price Decrease and its increase of units may indicate a market in which the original listing price is meeting resistance. I am seeing this in the upper-end of the market where it has not been uncommon to see 30% increases over sale prices from two years prior.

The Back on Market is for me more concerning. While issues do arise during inspection (and can usually be resolved with an Inspection Resolution the other reasons include financing and appraisals. Back on market can be troubling as when a unit re-enters the market the Days on Market and subsequent frustration of sellers and skeptical buyer will thus increase inventory.

In general Metro Denver does enter into seasonal slowness beginning in November and usually lasting through President’s Weekend in February. The winter is actually the perfect time to prepare a residence for sale in the Spring.

Thus am I worried? No. I believe we are in a seasonal shift and the underlying economy continues to strengthen. What will be interesting is when the Federal Reserve raises Interest Rates. Will buyers be motived to avoid an interest rate increase and/or will sellers lower prices to compensate for higher interest rates? Only time will tell.

September 2015 Statistics in the Books

As I have noted in previous blog posts I have noticed a slowdown in the marketplace. While far from empirical, from my own activity level and in discussion with peers, we came to similar conclusions. Now The Denver Metro Association of Realtors (a trade organization), one of the best resources concerning statistical information and analysis concerning the Metro Denver residential real estate market has provided empirical evidence.

Of note, while I have quoted the Case/Shiller index and other sources of information, the DMAR which compiles information concerning the 11 county metro area is consistently the most accurate source of market statistics and overall information and trends concerning Metro Denver.

Some interesting statistics for review:

  • Nationally the average home is on the market for 47 days and an additional 42 days to close. In the Denver Metropolitan Area the average home is on the market for 28 days with an additional 38 days to close. Of note with the new loan processing procedures, days until closing may have a moderate increase during the 4th quarter. Locally showing activity is beginning to slow: translation, seasonal adjustment and more opportunities for buyers.
  • The Average and Median Single-Family Sold Price for September 2015 decreased by 2.51% to $398,591 and by 1.65% to $340,000 respectively.
  • The Average and Median Condo Sold Price for September 2015 decreased by 0.78% to $253,109 and by 1.86% to $211,000 respectively.
  • Concerning the overall marketplace from the month prior:
  • Under Contract decreased by 10%
  • Sold decreased by 7.8%
  • Total Sales Volume by 9.91% to $1.76B which is still respectable volume as 12.05% higher than the same period the year prior.
  • The highest price paid for a Single Family Home in September 2015 was $5.395M for a 3-bedroom, 8 bathroom, 7,990 SF home in Cherry Hills Village.
  • The highest price paid for an Attached (Condo) Single Family in September 2015 was $1.8M for a 2-bedroom, 3 bathroom, 2,621 residence in the Cherry Creek North neighborhood of Denver (where yours truly resides).

Am I concerned? Not at all. First, a seasonal adjustment is to be expected. Second, many believe the market was a bit over-heated during the Spring and Summer of 2015 and third, we are moving into a more equitable market for sellers and buyers which is a good thing.

For sellers, a more balanced market may NOT translate into top dollar, however appraisal issues are not as prevalent and the gains over the past few years are still impressive and Denver continues to be one of the top performing markets in the nation only behind San Francisco over the past year.

For buyers an increase in inventory and moderation of pricing is welcoming.

My prediction as the market continues to move towards equilibrium including the potential for a modest fed fund increase during the 4h quarter of 2015 or the 1st quarter of 2016 we will return to a market where buyers and sellers transact based on value versus a monthly payment, overall a positive.