Real Estate Market Update

November 2016

Every month we show you the most recent Market Snapshot to give you an update on the state of the market. This month we’re going to walk through each metric in the report to give you a better understanding of what the numbers mean and how you should use them if you’re looking to buy or sell real estate.

The chart on page 4 shows two different time periods, Prior Month and Year Ago. Prior Month compares the most recent month to the month before (Oct. ’16 vs. Sept. ’16). Year Ago compares the prior month to the same month one year ago (Oct. ’16 vs. Oct. ’15).

An important point to note is that there are definite seasonal differences in real estate so using month-to-month comparison trends can be somewhat misleading. For example, we expect fewer properties to come on the market during the fall and winter and more listings during the spring and summer. So one word of caution, don’t get too caught up in month-to-month data. Review it, but the year-over-year data is more relevant, useful and instructive. We’ll focus on the year-over-year numbers on the next page.

Active: Down 8 percent. This is the number of active properties on the MLS. The number of actives dropped 8 percent in the past year, from 6,964 to 6,425. We are at the lowest number of listings for an October since records have been kept. The meaning is clear: we have too few listings to satisfy the demand in the market, and the number of listings is continuing to drop. Since demand (people wanting to buy houses) is outstripping supply (people selling houses) our only conclusion can be that the strong seller’s market will remain until that changes. So far, we have gone through years of continually decreasing inventory with no sign of that changing.

New Listings: Down 9 percent. This is the number of new listings that were put on the MLS. The number of new listings dropped 9 percent in the past year, from 4,225 to 3,828. This metric is closely related to actives. Similar to actives, there were fewer new listings put on the market this year than last year. So, it’s the same conclusion as above. We have a lower inventory of properties on the market for buyers to choose from, causing higher demand with lower supply.

Why are so few home owners putting their homes up for sale, despite the record high prices?

Economics 101 suggests that as the prices rise, sellers would chase the dollars and sell their homes to capture the record high prices. But just the opposite has happened the past several years. As prices have risen, inventory has done the exact opposite and continued to drop. Our best guess is that, while potential sellers understand they can make a big profit on the sale of their home, they are worried they won’t be able to find their replacement house because of the tight inventory. This is not misplaced anxiety; it is reasonable and logical. The result has been a multi-year cycle of fewer sellers willing to take a risk looking for a replacement home, leading to fewer sellers putting their home on the market, leading to less inventory of homes for sale, leading to increased anxiety of looking for a replacement home, and on and on. When this cycle will end is anyone’s guess, but we’re not expecting it to end anytime soon.

Under Contract: Up 3 percent. This is the number of properties under contract on the MLS at the moment the data was captured. The number of under contract properties rose 3 percent, from 4,578 to 4,694. Even with the reduced inventory, people are still looking to buy homes. This number reflects the demand of the market – buyers’ wanting to buy – even in a market with record low inventory to choose from.

Sold: Down 9 percent. This is the number of properties that were sold. The number of sold properties dropped 9 percent in the past year, from 3,753 to 3,412. While everyone talks about what a strong real estate market we have it is shocking that the number of homes sold is dropping radically, not climbing! Again, this is almost entirely a reflection of the limited inventory (few actives and new listings) for buyers to choose from. As much as folks want to buy homes, there are so few on the market the number of solds is plummeting. Our Front Range population is increasing 50,000 per year and many of these folks want to buy homes but are not able to because of the limited supply. This is the reason we believe our seller’s market is going to stand strong for several more years – lots of buyers and not enough properties for them to buy. Until more inventory comes on the market, the demand will continue to surpass the supply. That’s the definition of a seller’s market.

Avg. CDOM: No change. This is the average Combined Days On Market for the properties sold which remained unchanged. In a balanced market, 90 CDOM is about what we see. In our strong seller’s market this number is very low at 29. Just another indication of the strength of this market.

Avg. Sold Price: Up 8 percent. Prices have been rising in metro Denver for the past seven years. It’s interesting to note that in the past 45 years the average price increase for a single-family home has been 6.3 percent per year, just below the 8 percent from the past year. Given everything we have discussed above regarding the lack of inventory and demand for housing, we expect prices to continue to rise for a number of years.

Median Sold Price: Up 8 percent. The median sold price is the midpoint number of all the homes sold on the market. It also went up 8 percent, reflecting the dynamics of the market.

If you’re looking to buy or sell a home, it’s very important to understand what the market is telling you. As we see it, it’s a further continuation of a low inventory environment with lots of unsatisfied demand. Too few are being listed, unable to keep pace with too many buyers. As we’ve said for years, we don’t see this changing for the foreseeable future. New home construction is not going to meet the demand either. As you can see from the chart, the number of permits of for sale (not for rent attached) homes has leveled off meaning the new homes coming on line in the next year or two are not even close to satisfying our ever increasing demand for housing.

If you’d like to learn more about how you can best position yourself in this real estate market feel free to give me a call. I’d love to help you understand what your best options are to help you make a great decision!

As always, I’d like to take a moment and say thank you for giving me the opportunity to work with you. Every client is special to me and it’s a pleasure and a privilege to serve your real estate needs. Please always feel free to contact me if you have any questions or thoughts about the real estate market. I love to talk about it!