When a national real estate guru comes to Denver to address Realtors, it’s usually like a high school pep rally. Realtors are told that the glass is half full. The market is about to turn. And all they need to do is list more properties for sale to succeed.
Steve Harney came to the Daniels Cable Center at the University of Denver to address and all Kentwood Realtors. His message was different: The Market is lousy and it’s going to get worse.
Denver MLS statistics show that we currently have a 5.4 month supply of homes on the market. 3 months is considered optimal and “in balance”. So, we do have what is classically defined as a “Buyer’s Market”. Other areas of the country have up 16 months of inventory on the market.
“Oh sure, you are doing better than the rest of the country”, Harney proclaimed. “But, there is a tsunami coming and you are not going to be able to avoid it…Get your Sellers to price for sale now, not later…Prices have to go lower”.
Why? It’s the “Shadow Inventory” variously estimated to be 4-9 million financially distressed homes that will come onto the market soon. Those are homes more than 90 days in default. Less than 5% of those will be cured before foreclosure or short sale according to Harney.
“Distressed properties will set the ‘new prices’ here just as they are setting lower prices in the much of the country now.” Harney said. “ Only the most aggressively priced homes will sell in the coming market. So, a smart Seller will price it right now. It means pricing it so aggressively, that home will be next to sell.”
But every cloud has a silver lining. In this case, Harvey says Buyers should not wait for lower prices but buy now. Why? Because at these historically low interest rates, the total payments for a home will likely never be lower.
He explained that a typical $500,000 home is now priced at the same level it was priced in 2004 in Denver according to Case-Schiller statistics. The difference is that the interest rate now is now down to the 4% range. So a $400,000 fixed mortgage payment is only $1906 per month including principle and interest. That same payment in 2004 for a $400,000 home loan was a whopping $2468 at an average of 6.27% interest.
Even as prices continue to wane, payments will likely never be lower. Once rates start to rise, as they inevitably will, Harney says look-out. They will rise quickly and the low payments a Buyer can get today will go away quickly.
The best time for a buyer to buy is when lower prices and lower rates combine to make low payments. That makes this time a great time to buy. There may well never be a better time.
This is not the best time for a Seller to sell. If a Seller can defer selling for several years, then wait. If a Seller needs to sell, price it right to be the next sale or prepare for a series of price reductions over a longer period of time. How long will a Seller have to wait? If prices drift lower over the next 2-4 years, it could take 3-6 years before prices return even to these levels. Here is what one survey predicts according to Harney: