Glut: Big Homes in Castle Pines North

by Doug Hutchins, Castle Pines North Expert

Castle Pines North inventory of luxury homes expands.

I am extremely concerned with the level of inventory available in Castle Pines North, Colorado for homes priced above $500,000.  Homes are commodities and pricing is driven by supply and demand.  If there is an oversupply of homes, prices will drop.  I have been warning for the last several quarters that the high levels of inventory would lead to a reduction in home prices. Unfortunately, that prediction is coming true for larger homes in Castle Pines North.

This could suggest that seller’s of larger and more expensive homes will be forced to lower prices if they want to sell in the foreseeable future. Most likely, only the most aggressively priced homes will sell at all.

The average sales price in the 1^st and 2^nd quarters of 2009 was $475,810 compared to an average sales price for 2008 of $534,618, an 11.0% drop. HOWEVER, because the square footage of homes available in Castle Pines North can vary widely, this average can be skewed by several large home sales (or lack of large home sales).  Therefore, I also look at the average price per square foot to determine value changes.  The average sales price per square foot for the same period was $167.19 compared to $180.01 for 2008, which is a 7.2% decrease.

One driving force in this large decrease in average pricing is due to significantly fewer large homes selling compared to the number of smaller homes selling.  For the first six months of 2009, 73% of the homes sold were priced under $500,000 compared to 64% of the homes sold in 2008 being priced under $500,000.  14% of the homes sold in the first six months of 2009 in Castle Pines North were priced between $500,000 and $750,000, compared to 23% of the homes sold in 2008.

The high levels of inventory that are creating the pricing pressure are unfortunately continuing and are actually getting worse.  One gauge of inventory is called “days in inventory” (DII).   DII in a balanced market is usually between 6 to 8 months.  Currently in Castle Pines North there is 374 days, or 12.5 months of inventory. This means that if no new homes were listed for sale in Castle Pines North, it would take 374 days for all existing homes to be sold based on the pace of sales from the past 12 months. This compares to 300 days, or 10 months of inventory at the end of the first quarter in 2009, which is an increase of over 20%.

To get a true picture of the housing supply in Castle Pines North, though, I think it is important to look at this days in inventory (DII) statistic by price point.  For homes priced under $500,000, the DII is at 228 days, or 7.6 months, which is an increase of 17% from the DII at the end of the first quarter of 195 days, or 6.5 months. Although the inventory levels are rising compared to sales at this price point, an inventory of 6 to 8 months is usually considered a balanced market.  I am continuing to see home prices stay stable at this price point for the next three to six months, but if this inventory level rises above 8 months my outlook will change.  In the past 6 months, 52 homes sold in this price point compared to 53 homes selling in the same period a year prior.  In the past 12 months, 112 homes have sold compared to 108 homes in the same period a year prior.  Sales volumes are staying consistent.

For homes priced between $500,000 and $750,000, the DII is at 595 days, or 19.8 months, which is an increase from 375 days, or 12.5 months at the end of the 1^st quarter.  This is an increase of 58% in housing supply compared to sales. There is a substantial oversupply of homes in this price range and I predict that prices will continue to fall in the future.  This price point has been affected the most when you look at sales volumes.  In the past 6 months, only 10 homes have sold compared to 23 homes selling in the same period a year prior, a 56% decrease in sales.  In the past 12 months only 27 homes have sold versus 48 homes in the same period a year prior, which is a decrease of 44%.

For homes priced over $750,000 the DII is even worse.  DII is at 825 days, or 27.5 months, an increase of 28% over the DII of 645 days, or 21.5 months, at the end of the 1^st quarter.  This indicates a continued oversupply of housing inventory at this price range. Prices should continue to drop, and could drop drastically, for homes in this price point.  In the past 6 months, 9 homes have sold compared to 10 homes selling in the same period a year prior.  For the past 12 months, 27 homes have sold versus 25 homes the year prior, an 8% increase.  Sales have been stable, but there has been an oversupply in inventory at the high end for several years now in Castle Pines North and that oversupply continues.

The one piece of good news for homes priced above $500,000 is that the levels of inventories in Castle Pines North are consistent with the overall inventories in metro Denver for homes at this price point.  So although the outlook is not good for homes in this price point, the outlook is no worse than for the rest of the metro Denver market.  In addition, homes can be sold in these price points, but the homes have to show exceptionally well and they must be priced appropriately.

For the next six months of 2009 I see continued weakness in prices in homes priced above $500,000 in Castle Pines North due to the large supply of homes on the market.   I continue to expect the number of homes sold in 2009 to closely approximate the number of homes sold in 2008, which I have been forecasting for the last two quarters.

If you would like more information on the real estate market in Castle Pines North, Colorado or Douglas County, Colorado, please respond to this blog or contact me with the information provided.