Month over Month showing Weakness

Late last week I posted a screenshot of the November 2018 sales statistics for Metro Denver. While the state economists today suggested 2019 should be a positive year for Colorado’s economy concerning job and wage growth across all sectors with a mild slowing;  the housing market may be advising differently.

Let me preface we have headwinds. While Denver may trail Seattle, San Francisco and Las Vegas concerning year-over-year price appreciation in percentage terms let us face the following realities locally and regionally:

  • Our housing market did not go into a free-fall unlike Las Vegas and Phoenix.
  • We have been in a 5+-year expansion concerning housing prices.
  • Wages are not keeping up with housing costs in Metro Denver.
  • New construction did not keep up with demand over the last 5 years.
  • Our economy is not Seattle and San Francisco nor is our population as noted below or geography i.e. available hinterlands versus coastal (Statistics from varied sources including Federal and Regional Census Data):

San Francisco:

  • Metro Population: San Francisco–Oakland–Hayward MSA: 4,335,400
  • San Jose–Sunnyvale–Santa Clara MSA: 1,837,000
  • Average Income: $96,600 / $110,000

Seattle:

  • Metro Population: Seattle–Tacoma–Bellevue, WA MSA: 3,867,000
  • Average Income: $78,612

Denver:

  • The 12-county Denver-Aurora-Boulder Combined SA: .3,150,000
  • Average Income: $71,926

In general housing costs in San Francisco and Seattle are more expensive then Denver HOWEVER their average incomes are higher and by geography their ability to expand and build outward is limited.

While housing prices in metro Denver were on what seemed like an exponential trajectory I have suggested prior and statistics may be validating we peaked a few months back. While sales prices continue to climb, inventory is increasing, days on market are increasing and eventually prices may begin to adjust downward or keep with inflation and not show oversized gains.

The November 2018 #’s are interesting and showing an impressive gain on a year-to-year basis and while month-over-month does not show a trend I suggest the real estate market is looking outward and showing some hesitation similar to how the stock market projects out 6-12 months.

What will be interesting in to see what November 2019 stats show. My gut is we will see prices either static or lower. Inventory will be higher and days on market will also increase.

This is not necessarily negative, as markets should over time trend back towards normalcy. For too many years we have been in a seller market and it is time to move back to equilibrium of sorts.  In high-end neighborhoods there seems to be a glut of expensive homes waiting a buyer or rental signs as owners wait our the market conditions. While there continues to be some blockbuster sales they are more of an anomaly versus weekly updates. Two recent high profiles sales in Cherry Creek North and Belcaro were to out-of-state buyers relocating as part of VF Corp. relocation to Denver.

My concern is for our local and regional population of move up and move down buyers. At present 1sttime homebuyers continue to be challenged in the market and even as prices may be stabilizing; interest rate increases negate the opportunity of lower pricing.

Move-up buyers are being challenged in finding suitable inventory. This is worrisome as families outgrow their first home or desire more space find inventory challenged in central Denver and will migrate to the suburbs/exurbs or worse leave the state. Move-down buyers those who may be downsizing can take advantage of the sellers market HOWEVER again their inventory for replacement is challenged and thus may consider regional relocation or out of state.

As a 20+year broker in Denver as mentioned prior I have been through these cycles including:

  • 1987-89: Downturn
  • 1991-1995: Upswing
  • 1996-2001: Pricing matching inflation
  • 2002-2006: Irrational Exuberance
  • 2007-2012: Downturn, depths of Great Recession and Foreclosure Crisis
  • 2013-Present: Upswing potential leveling off

While I am not predicting a severe downtown I would not be surprised to see a 5%-10% correct concerning housing prices over the next year across Metro Denver. I believe there are segments i.e. the luxury housing niche i.e. $750K and above that will see more severe adjustments.

Let’s just use this blog posting as an opportunity to revisit in one year.

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April 2017 Statistics Are in the Books

While the news on the housing front continues to paint a rosy picture as we continue to be in a sellers market; statistically we may be entering a phase of normalicy concerning market conditions. While prices remain elevated and there is continued concern that average metro Denver incomes cannot keep up with the inflated housing market we are seeing signs of slowdowns concerning price appreciation and possibly an uptick in inventory coming to market.

Personally I enjoy looking at statistics. When combined with historical personal perspective i.e. lived through it there are insights and trends one may be able to extrapolate.

I was reviewing April 2017 market conditions:

In April 2017, there were 5,361 Active Listings in the metro area.

(Of note, the historical average # of listings in April is 15,710 based on statistics gathered between 1985 and 2016 also related usually the start of the Spring sales season).

Thus our average # of listings continues to be constrained especially when considering the increase of housing stock which has come on-line since the end of the great recession coupled with our population increase

Concerning sales prices:

The year-to-date average sales prices in April 2016 increased 6.05%.

In April 2015 that same statistic was 9.53%.

In April 2014 that same statistic was 12.9% (of note coming out of the recession).

Thus we are witnessing a slowdown in price appreciation (a good thing), slight increase in inventory (a good thing) and overall a potential plateau in the market.

Yes sales prices are stabilizing and getting closer to matching inflation and inventory is beginning to loosen HOWEVER couple this with the stock market at record highs, unemployment at record lows and no appreciable inflation or major interest rate hikes; we may be seeing signs of a housing slowdown in the metro area.

On the luxury side of the market while there have been some blockbuster sales of late, homes priced at $1M and over seem to be languishing on the market for longer periods coupled with price reductions. Granted some inventory came on market overpriced to start however price reductions are happening sooner and price cuts is more severe.

In my local Cherry Creek neighborhood which I admit is far from a barometer for the metro area the inventory of listings seems to be increasing and sales transactions are taking longer to close and usually after a price correction. Granted there has been a uptick in inventory south of 1st Avenue and much of the for sale inventory north of 1st Ave is east of Steele St. which some buyers consider less desirable yet the number of active listings continues to increase. As of this writing there were 41 active listings ranging from $215,000 to over $10M (of note both the lowest and highest price listings are condominiums).

Having been in the real estate brokerage business for a few decades now I am used to witnessing Metro Denver go through 5-7 year cycles concerning increased demand and then stability. While I do not believe we are in for a major correction, I do believe we will continue to see additional inventory come on-line and price appreciation slow to the inflation rate or a few ticks above which is the historic norm.

In the luxury market, which I track, I would be a little more concerned regarding price stability.

In the starter and move-up market baring a serious interest rate hike I am not concerned as demand will continue to outstrip supply. I would be hesitant concerning starter inventory in the exurbs as those markets are dependent on low fuel prices.

As I am advising clients at present:

Sellers: Consider putting on the market now as its low inventory and attractive interest rates.

Buyers: While rates are low, a good opportunity to lock in a fixed mortgage HOWEVER should consider waiting a few months to a year or two as inventory will continue to increase and while interest rates may tick up prices usually do the inverse.

Renters: Rents seem to be stabilizing and with the introduction of additional luxury inventory do not be surprised to see landlord concessions. Thus if in a rental consider resigning for another 6 months with an escape clause and if looking to rent, shop around and look for incentives to bring your net effective rent down.

 

 

Is the Spring Selling Season a Bygone Memory

Historically the selling season for residential real estate in the United States was the start of Spring usually mid to late March. The timing was traditionally due to various factors including:

  • Post Spring Vacations (usually associated with families with school aged children).
  • Gardens awakening from the winter doldrums.
  • The opportunity to move and be settled prior to the school term starting in August and September.

The traditional selling season started to erode a few years ago with some markets moving to a year-round staggered school calendar, the desire of buyers to view inventory before others pounce and of course economics i.e. the most recent and severe recession forced sales regardless of season.

However it appears The Internet has upended another tradition (as it has with bricks and mortar department stores, travel agencies and others). Offering marketing and exposure 24/7 from the comfort of one’s own home; seasonal factors have suddenly become moot. Even the New York Times opined on the trend: The Right Time to Sell is Anytime.

In Denver I too have noticed this trend. One of my listings had been withdrawn from the market (and REColorado) due to the December holidays and the historical pattern of home buyers not wanting to tread through the cold and snow to look at homes.

During the holiday season and into early January I have received multiple inquiries to view the listing (of note, some sites never adjusted the asking price which was reduced). One was from a broker; their client had viewed previously. The other inquiries were what we term “buyer-direct”; prospective buyers who viewed the listing on one of various channels dedicated to real estate sales i.e. Zillow, Redfin, Movoto and others which link distribution to the REColorado service. Of interest, while the listing was technically withdrawn the distribution channels continued to promote (of note the listing is coming back on the market officially in a few days).

For buyers there may be an advantage including less competition concerning viewings and easier showing schedules. For sellers, the advantage is simply less inventory on the market. Granted the properties that will sell are those that are priced correctly for the market, show well and so forth. Thus some traditions do not change.

However if you are considering buying or selling, sooner than later may be prudent; as the saying goes “The early bird gets the worm” and avoids additional interest rate hikes.

 

 

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.