There are fewer homes for sale in the Denver MLS (Multiple Listing Service) today than they were a month ago and 31% less homes for sale than a year ago! This downward trend of existing inventory is making it harder for buyers to find good homes and putting upward pressure on prices. At the same time, sales have increased from the year ago period by 16%. What does this mean for the future of the Denver real estate market?
Different people can come to different conclusions. But the trend is clear to me.
Simply put, early spring to the beginning of summer is the strong selling season in the Denver real estate market. Competition for homes has been fierce the last two years from February to July. The end of summer and the beginning of Fall has brought a turn down inactivity and removed some of the upward pressure on prices in the better neighborhoods of Denver and the suburbs.
But, the disturbing trend this year is that even though sales measured by homes placed under contract declined slightly from August to September, sales were still up 16% over the year ago period. That suggests that inventories of existing homes will continue to be reduced even as we move into the slower selling season for our real estate market.
One of the key factors to measure any real estate market is the absorption rate. That is the number of months it would take to sell all of the existing inventory based on the current rate of homes sold per month. During the height of the economic downturn, the absorption rate in some Denver markets was as high as 36 months. Three to five months is considered a normal market.
But now, as you can see from the graph below, the insertion rate for single-family homes has dropped to 3.1 months of inventory and the absorption rate for condominiums has dropped to 2.7 months. Those numbers are beginning to suggest a sellers market. I don’t think that will happen in the short term especially for homes priced above $600,000.
Instead, sales are likely to continue slowing down through the holidays. But, if the market mimics what it did both this year and last year, sales will rebound quickly by February and continue increasing until the beginning of the summer. That’s when a sellers market is likely to happen. Prices are likely to increase. Selection of available homes is likely to further decrease.
So, I’m advising on clients who are buyers to buy now before the market turns again seasonally. But, I’m advising my clients who are sellers to wait until after the new year to put their home on the market. As a Realtor, I’m not happy to see a market that’s out of balance. It’s been out of balance since 2007 and tilted toward buyers. Now, it’s tilting out of balance toward sellers.
I wonder if any of us will ever notice that when brief moment in the middle of some night when we can actually say we have a totally balanced real estate market. Lately it seems that it never is!