Buyers are Ready for Inventory Today, Not in Spring | Guest Post
February’s Denver Market Trends data indicates pent-up buyers demand due to an aging and wealthier millennial population, and sellers who are all waiting to list at the same time or who are mischaracterizing the high demand for buyers’ desperation.
More buyers are pre-approved, can afford more home, are comfortable spending money and are in the perfect market position to wait to find the perfect home before making a quick offer. If it wasn’t snowing as we rolled into February, I would have been convinced it was a summer market in Denver.
The current psyche of the buyer is strong and millennials are hitting the prime age for home buying:
- 4.8 million millennials turn 30 this year
- The rest of the millennials are ages 22 to 39
- Over 40 percent of millennials are parents, which increases their homeownership rate from 38 percent to 80 percent
- 38 percent of homes purchased in 2020 will be by millennials
- 50 percent of the mortgages in 2020 will be secured by millennials
- 8.8 - 9.2 million first-time homebuyers are planning on buying a home in 2020 - 2021 across the United States
- Denver Metro’s population will grow by 3.3 million in 2020
As Millennials age, they’re expected to accrue more wealth and are expected to spend roughly $1.4 trillion. As Millennials pay off loans and get better jobs with higher salaries, their spending habits are expected to change.
These first-time homebuyers are getting an additional boost because the economy is holding steady and strong.
- Colorado wages gained 5.4 percent year over year at the end of 2019 (#2 behind Washington State)
- Unemployment is at 3.6 percent nationally; even lower for Colorado at 2.6 percent
- Spending is up 0.3 percent
- Job growth is up 2.6 percent but slowing
- GDP ended 2019 at 2.3 percent
- Inflation is muted
Continued low interest rates (3.51 percent with 0.7 discount) will further encourage more home buying in 2020, as well as a break from our double-digit appreciation! The Federal Reserve Board met at the end of January citing the economic factors above were healthy. The Fed Board noted they would continue buying T-bills at least through April 2020 to ensure the supply of reserves remains ample, which is expected to keep rates low through June 2020.
Affordability is up as appreciation slows, which should trigger a very strong buyer’s demand. In fact, January mortgage purchase applications ended up 5 percent month over month and 16.6 percent year over year, an indication of a very hot summer 2020 market.
Two of February’s Market Trends that Stand Out
Two real estate data trends that stuck out to me was even though new listings were up 89.27 percent, active listings ended down 1.91 percent from December. 1) The Median Close Price creeped up 0.52 percent as the bidding wars dominated the market. 2) Closed residential was down 34.21 percent due to low inventory – not demand. Only homes above priced at or above one million have ample supply sitting at 6.92 months of inventory. The total inventory in January was 4,941, which is very low. I had one REALTOR® email me on Saturday that his $400,000 listing brought in 44 showings and multiple offers on Thursday!
The seller's psyche is struggling to adjust to shifting market dynamics. Sellers who price their homes right, spend the time and money to repair and stage are rewarded by sitting on the market an average of just 15 days. The 44.6 percent of sellers who think it is a sellers-market, who are throwing their home on the market unready or too high, are sitting for an average of 70 days and reducing their price to sell. This is due to sellers mischaracterizing pent-up demand with buyer desperation, when today’s buyers are finickier than ever about which house they decide to buy.
Sellers are in a position right now to gain. Up to an average of 8.21 years in the fourth quarter of 2019, home sellers realized home price gain upon sale is at a 13-year high. Sellers, it’s time to capitalize on your profit, move to the home of your dreams and release the much-needed inventory. Sellers who are waiting for the Spring market may end up flooding the market supply with other hesitant sellers, which could slow or bring down prices and lead to a buyer’s market.
As 2020 continues to unfold amidst conversations of Brexit, impeachment, the coronavirus and the election… I’m instead keeping a keen eye on job growth, unemployment and consumer confidence. While manufacturing is weak and the government is still spending, consumer spending will continue to be the engine which drives the national economy in a healthy direction.
The Rueth Team of Fairway Mortgage
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