Super Picky Buyers and Simply Not Enough Sellers | Guest Post
What’s the story for April? I’ve been asking myself that as I sit down to write. One of my buyers lost a home they fell in love with last night when the house went for $200k over asking with 17 offers. Another client who wants to sell first has been on the market for over a month as the lowest priced half duplex in their area. What buyers and sellers are experiencing is not universal; so the story is not as easy to thread. I’d say it starts with “it depends”. It depends on where you are, the price point, the finishes. With inflation continuing to thwart Powell’s best efforts, buyers have become a bit downtrodden and a whole lot picky. Let’s break down a few of the factors impacting our Denver real estate buyers and sellers this month and where we might go from here. And here’s a teaser... the second half of this year could give us more of the same.
Active listings rose 104 units in April over March giving us 4,620 homes on the market on the last day of the month. Outside of the pandemic, this is the lowest April inventory going back to 2008. Closed homes dropped by 318 units for a total of 3,701 homes sold in April 2023, the lowest April since 2011 and the first time the number dropped from March to April dating back to 2008. Sellers below a million gained the benefit of low inventory with close-to-list prices over 100 percent. Although homes sold over one million in April had a close-to-list of only 99.23 percent, we can all share stories of homes over a million going for $100k to $300k over asking.
The homeowner vacancy rate in the United States as well as the Mountain Region is 0.8 percent, this is the lowest on record. There are no vacant homes to sell. There were 1,849 permits for single family homes pulled in March in Colorado. You have to go back to 2015 to see a number this low. We aren’t building homes fast enough. 29 percent of Colorado homes are owned free and clear. Of the 71 percent of Colorado homeowners who have a mortgage, 92 percent of them have a rate locked in under 5 percent. And as far as the Silver Tsunami predicted in 2018, only 15 percent of Colorado’s population is over 65 years old. Our existing home inventory is going to be challenged for years to come.
Okay, now I just feel like Debby Downer.
While this inventory challenge is truly a struggle; it will support ongoing home prices and the reason why buyers should be getting in sooner rather than later. Both year-to-date and year-over-year median and average home prices are down between 3-6 percent depending on which number you are looking at. This is compared to an intense 2022 spring, right before rates jumped over 5 percent in April. On the other hand, month-over-month we gained 2.5 percent for both average and median home prices. CoreLogic, which looks at true home appreciation, has Denver hitting bottom and gaining 0.8 percnet in home values in February. While, 2023 will not be a double digit appreciation year, a low single digit growth still promotes strong homeownership!
So what’s the dealio with rates, because all of us are feeling it’s affect on home buyers. With prices rising faster than incomes during the last three years, higher rates have simply made Colorado homes less affordable pressing many homebuyers against their eligibility threshold. The most recent news of First Republic’s bailout and core inflation staying hot turned rates upward again ending April at 6.55 percent as the national average 30-year fixed rate with an average of 0.63 percent in discount points. At the time of this writing, the Federal Open Market Committee, or the Fed, is meeting to discuss an expected 0.25 percent fed rate hike and Powell’s critical comments afterward. A pause now could allow tighter lending standards, due to a third bank failure, and a slowing economy to catch up with inflation.
First look quarter one 2023 GDP was released dropping to 1.1 percent from last quarter’s 2.6 percent, April’s retail sales dropped 1 percent, consumer spending flattened, and consumer confidence dropped to a nine month low. PMI Manufacturing improved slightly in April, but continues a fifth month of contraction after a 30-month period of expansion. Producers Price Index fell 2 percent and Cass Freight, or the measure of shipping costs, dropped 1.5 percent. All indicators of a slowing economy and lower prices. Both of which gives us the benefit of lower mortgage rates.
And there is the good news.
Lower inflation is coming. It doesn’t happen over night, but as supply chains open and the cost to produce and transport goods low so goes their price at retail centers. We are also seeing softer demand, supporting lower prices. Alternatively, there is continued strength of the jobs market increasing wages another 1.2 percent in the first quarter. Initial Jobless Claims and Continued Claims dropped at the end of April despite another slew of layoffs. With 1.6 jobs per unemployed person and home price growth slowing, increasing wages will offset affordability.
Many are predicting a softening recession the second half of 2023; some are saying we might already be in one given the drop in GDP. Either way, with rates coming down, buyers who were waiting, might not wait any longer. The number one age group today is the 33-year-old millennial with a 50 percent homeownership rate. Remember, the average first time home buyer is still 34. The second highest age group is the 21-year-old Gen Zer, who just hit a 25 percent homeownership rate, buying homes younger than their Gen X parents.
Buyers looking to cash in on lower rates could extend our selling season and the pressure on low inventory. Although we typically see inventory increasing in the spring, the 7 percent drop in April’s new listings concerns me. The tug of war between picky buyers and limited sellers will continue to give some sellers a big payday and others a stressful time on the market.
Well, that’s a wrap. Until next time, this is Nicole Rueth with the Rueth Team. It’s my pleasure to keep you updated.
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