Is Irrational Exuberance Giving Way to Rational Behavior

I recently enjoyed a conversation with a friend who is about to list their residence in one of Denver’s most affluent neighborhoods (of note I was NOT in the competition for the listing). He mentioned what they plan to list the home at. I asked if they were planning to use the broker whom they have a personal relationship with and they advised no as what they wish to list the home at, the broker would not take the listing feeling the asking price was overly aggressive. Another broker has since been retained to market and sell the home.

Full disclosure, the home is spectacular from a conservative design perspective including solid pre-war construction, beautiful curb appeal, and a park-like oversized lot professionally landscaped and so forth. Of course there are some minor deficiencies yet nothing insurmountable. However when I was advised of the asking price my immediate reaction based on my experience in the present market was “Good Luck”.

I personally went through a similar situation with clients in 2011. Due to a change in employment status and other factors including owning the largest home on the block purchased at an inflated 2006 price, a challenging layout  and across the alley from a primary school  the sellers and this home had multiple challenges. At the Listing Presentation with a peer broker in attendance we advised the seller the asking price should be between $710,000-$720,000. The seller requested I place the house on the market for $839,000 (their purchase price was over $800K plus interior upgrades leading to a cost-basis in excess of $840,000). As a friend first and broker second (and I have since learned my lesson) I did as requested. After one month, multiple open-houses and two formal showings the sellers agreed to lower the price. The new asking $739,000, still above what was advised the prior month. Fifty yes 50 showings later and 9 months on the market not one offer! We decided to part ways. The seller hired another broker, within one week did a price reduction and subsequently sold the residence for $715,000.

It took the seller ten(10) months to sell for $715,000 which I had advised, from day one AND at $4,000/month mortgage, do the math, $40,000 before interest deduction, not exactly the most brilliant strategy.

Thus based on the above examples and seeing signs of a slowing market and for my own edification I decided to look at market activity both present and looking back at Sold Activity over the past 6 months.

Let’s start with Country Club (the borders are from Downing St. to west-side of University Blvd, 1st Avenue to 6th Avenue).

Sales Activity over the last 6 Months Country Club Neighborhood of Denver:

  • # Of homes sold: 7
  • Avg. Finished SF: 3,510 SF
  • Avg. Total SF: 4,482 SF
  • Average Sold PSF Finished: $568.38
  • Average Sold PSF Total: $445.01
  • Average Days on Market: 24 Days

On the Market at Present:

  •  # Of homes on the market: 8
  • Avg. Finished SF: 3,186 SF
  • Avg. Total SF: 4,419 SF
  • Average Sold PSF Finished: $557.31
  • Average Sold PSF Total: $424.36
  • Average Days on Market: 68 Days and counting

Based on size the differences between the Sold’s and on market is marginal and same concerning the Price per Square Foot however what is telling is Days on Market (DOM). The Sold’s over the last 6 months on average sold in 24 days. Yet those on the market today is average 68 days and counting. The difference, over one month, almost a month and a half.

I admit one could argue the homes on the market at present may have challenges from location to upkeep however as asking prices based on a Per Square Foot basis stayed relatively the same, the issue is the longer on market time. Number of days on market has more than doubled. Yes there are seasonal factors however many pundits argue the selling season is now year round.

My personal view is market demand is softening and asking prices are yet to adjust to the new market realities.

Of note, Country Club is a small, insular neighborhood with limited inventory and limited turnover. Thus I also looked at Cherry Creek North (1st Avenue to 6th Avenue, University Blvd to Colorado Blvd) to provide a more balanced view, granted however balanced one of the metro’ area’s most affluent neighborhoods can be. However with the diverse housing stock and density, a clearer picture may emerge.

Sales Activity over the last 6 Months Cherry Creek North Neighborhood of Denver:

  •  # Of homes sold: 53
  • Avg. Finished SF: 2,396 SF
  • Avg. Total SF: 3,335 SF
  • Average Sold PSF Finished: $436.10
  • Average Sold PSF Total: $332.28
  • Average Days on Market: 53 Days

On the Market at Present:

  •  # Of homes on the market: 94
  • Avg. Finished SF: 2,393 SF
  • Avg. Total SF: 3,416 SF
  • Average Sold PSF Finished: $595.36
  • Average Sold PSF Total: $412.07
  • Average Days on Market: 95 Days and counting

Again as with Country Club based on size the differences between the Sold’s and on market is marginal and same concerning the Price per Square Foot however what is telling again is Days on Market (DOM). The Sold’s over the last 6 months on average sold in 53 days. Yet those on the market today is average 95 days and counting. As with Country Club the difference is almost a month and a half.

Conclusion: In both neighborhoods asking and closed prices have stayed somewhat status quo. However in a hot housing market the number of days on market is telling. Granted one could use the seasonal differential argument. Maybe; however in both neighborhoods we are seeing the Days of Market mirror each other i.e. almost a month and a half difference.

I may be incorrect and I admit when I am however I believe the market is definitely showing signs of slowing based on Days on Market coupled with levels of inventory. Yes the two markets are considered luxury markets yet what happens at the upper-end of the market historically trickles down to other market segments. What will be interesting is when we will begin witnessing price adjustments.

It seems the pinnacle of the market may have been 6-12 months prior and the market is now possibly taking a well-deserved breather or maybe showing signs of a changing business cycle.

Considering interest rates have remained stable; actually still close to historic lows, the stock market continues to flirt with record highs and the recent issues with N. Korea are too recent to influence the housing market.

I believe the optimists will advise it is a natural seasonal shift, me being the conservative pessimist would advise, hang tight if you can it may be a bumpy ride ahead.

 

 

 

 

 

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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.