Everybody is raving about the Denver real estate market. Multiple offers, no inventory of homes for sale, and fears competition between buyers is heard on all the media these days. But no one is talking about Denver luxury real estate. It’s stagnating.
I appeared on CNBC’s Power Lunch on Thursday. Host Tyler Mathisen asked me about how quickly homes were selling in Denver and how they were selling with multiple offers above list price. I told him stories of how quickly homes priced under $300,000 are selling. They’re selling so fast I couldn’t even present a listing of a lower priced home for sale because most do not even have photographs taken before they sell.
Generally, the Denver real estate market does not have enough homes to sell. There is only one month of inventory on the market right now. That means that if no new listings came on the market it would only take one month for there to be no homes for sale at all. That kind of hot market plays into the hands of home sellers who are achieving record prices for their homes and selling them extremely quickly. Sometimes, a home will only be on the market for a few days and receive multiple offers. That can result in sale prices well above the actual listed prices.
Too Much Luxury Real Estate Inventory
But that’s not what’s going on in the luxury Denver real estate market. There’s a whopping 18 months of inventory. That means if no new luxury listings were to come onto the real estate market, it would take 18 months to sell all of the existing listings.
The number of homes for sale has also increased 9% year-over-year while the number of sales is not increased. Last May, there were 476 luxury home listings on the market. Today, there 517 homes priced above $1.5 million
In May 2014, 29 homes in the luxury market were sold. This April, only 27 sold. And, sales are not looking to improved year-over-year so far in May.
The obvious question is why is this going on. It may all have to do with interest rates. Most transactions below $1 million are financed with close to the minimum down payment. Luxury homes are often purchased for cash or a relatively small loan. So, most buyers of lower-priced homes care more about what the interest rate is and how much is the monthly payment. Now that interest rates have slowly started to rise again, some homebuyers are seeing monthly payments increasing as interest rates rise.So, many seem to be flocking to buy lower-priced homes while they still can.
I would suggest that the news about the Denver real estate market and how quickly lower-priced homes are selling is not necessarily a sign of our robust economy. It’s more likely a signal that buyers are expecting interest rates to rise even more quickly. We will know there is excess cash available to homeowners so they are able to put down less than the minimum down payment and finance smaller loan balances. At that point, interest rates will not be the driving factor for rising home prices.