by Larry Hotz, All Denver Real Estate
Sales of single-family homes in the Denver metropolitan area improved by7% in April according to statistics just-released by Metrolist, the Denver MLS reporting agency. These are homes that actually went “under-contract” for purchase during the month
Of course, we’ve been saying all along that Spring is the top selling season for existing homes. So, the fact that April home sales exceeded the previous month by 7% may not seem like earthshaking news. But, it is fairly impressive comparing results to the same month last year.
In 2007, sales of existing homes and condominiums reached 6173 in April. Sales the previous month were essentially flat at 6122. However, results for the same months this year are quite different. this year April sales increased to 6287 from 5874 the previous month.
I think it is helpful to look at the statistics and consider another one which is not actually reported. That is how many months would it take for the market to absorb all of the existing inventory of single-family homes and condominiums if they were continued to sell at the current rate. Professional sellers like relocation companies and banks call this the absorption rate.
In 2007 the obstruction rate for the sales of single-family homes and condominiums during the month of March was 4.3 months. Absorption actually declined to 4.5 months in April. Again, this year is an entirely different story. Absorption increased from 4.35 months in March 2 4.16 months in April.
So what does that mean? As the absorption rate declines in terms of the number of months, the conditions to sell a home actually improve. Homes are selling faster as the absorption rate declines and prices are more firm. So, when the absorption rate declines from last April’s figure of 4.5 months to this April’s figure of 4.16 months, that is a substantially better market.
A perfectly balanced market is considered to have an absorption rate of three months. So, home sales in Denver are slower than would be considered ideal. But distressed markets around the country are seeing absorption rates as high as 12 months and more. Can you imagine putting your home for sale and being told by a Realtor that the average time to sell your home is 12 months?
So, Sellers in Denver are lucky that homes are actually selling in a reasonable length of time especially in our better neighborhoods. For Buyers this is still an opportunity to be able to purchase a home at a good value. When you consider the relatively low interest rates we are enjoying, affordability of a house payment for new purchase is very attractive.
Buyers who are waiting for prices to decline, face the risk that interest rates may go up first. If that happens, the overall payment for same home could be more. Just like in the stock market, calling an exact bottom for a price is a difficult proposition. But, there is one thing for sure. As the economy begins to recover, interest rates will go up.