Supply of Homes Drops
Byby Lon Welsh, Your Castle Real Estate
Lon is a statistician, Denver Realtor and a great Dad.
Supply and demand rules every market including real estate. Too often, we only discuss the demand for homes. How many homes sell every month is important. But, equally important is how many homes are for sale in proportion to how many sell. That ultimately determines the direction of prices.
The overall inventory of homes available for sale has been declining for over a year in the Denver real estate market. We currently have five months of inventory. Here’s how that works: if no new listings came on the market, and buyers kept buying at the pace they have bought at for the last year, it would take the buyers five months to purchase all of the homes on the market today.
Some markets like Madison, Wisconsin have over 20 months of supply. Six months is considered a “balanced market” where neither buyers nor sellers have an advantage. Our current situation, five months of supply, is a modest advantage to the sellers. Is this true for all price segments?
Analysis of inventory by price
Overall, Denver has about five months of inventory, but it increases dramatically from the lower prices points to the higher price points. Foreclosures generally have less inventory than regular
sellers.
More expensive homes for sale create more months of inventory supply.
Source: Your Castle Real Estate, Metrolist, the Denver MLS
The chart shows us several segments of the market. In the last twelve months, the least expensive ten percent of the homes (this doesn’t include condos) sold for $85K or less. There is less than a month of inventory in this price segment. That is a red-hot sellers market. You would expect to frequently see multiple offers in the first few days a listing is on the market. You’d also see many listings sell over asking price. From my conversations with many Realtors, this appears to be often the case.
We recently did an analysis of foreclosure properties that went under contract in less than a week. They sold, sold on average, for a 4% premium to asking price… not a discount. Buyers that are still writing low-ball offers because they are going “show the bank what a tough negotiator they are”, might want to consider a new strategy. Recent conversations with foreclosure listing agents revealed that most of the winning bids were at or above the asking price, for cash, often with very short closing timelines (a week or less). They are increasingly seeing buyers (usually investors) waive inspections and offer large non-refundable earnest money deposits.
On the other hand, the most expensive ten percent of the homes sold for over $460K. There is over 16 months of inventory for this segment. This is a very strong buyers market. Sellers are burying statues in their yards just to try to get showings, let alone get offers.
You can see in the chart that as homes get more expensive, there is more of an inventory glut. This illustrates how averages can be highly misleading. Our market average statistics are balanced but this is not a balanced market.
Determining if the buyer or seller has the upper hand depends greatly on which price segment you are evaluating. Home prices are already under upward pressure on the lower end. But, luxury home prices do not appear to be under any pressure for awhile.
