Strong Demand & Fewer Listings Strain Inventory | Guest Post
There might be uncertainty in the market, but I’m 100 percent not doubting the market! The real estate market is and will continue to be strong, whether we find ourselves in an economic recession or not, and the long-term outlook looks promising with a major influx in first-time homebuyers and local investors.
The November DMAR Market Trends Report is out highlighting October’s housing data… and to be honest, there isn’t anything exciting or newsy these numbers at face value. However, if you know what’s going on under the housing market, there is quite a lot to talk about!
Let’s put the numbers in three buckets: Inventory, Affordability and Opportunity.
The inventory crisis conversation is back, but it’s not universal.
If you haven’t noticed, we pivoted in July. Denver’s seasons are both starting sooner and slowing sooner, with sales picking up as early as late January and getting exhausted by July. July started the four-month trend of negative month-over-month inventory. Some of this is seasonal, but in October, inventory had a major decline in inventory with a 7.85 percent month-over-month decrease.
October shows new listings were down, but demand continues to remain strong with sales up 4.42 percent year to date and under contracts up 1.31 percent. Purchase applications were up at the end of October 2.30 percent year over year.
A decrease in new listings paired with a continued strong demand is going to further strain inventory, especially under the median sales price. Remember, real estate is local and median numbers are relative to each neighborhood and/or zip code.
Months of Inventory (MOI) below the median sold price of $423,200 hovers around one month, whereas homes above $1 million have an MOI of over six months, making it a balanced market.
The continued strain on inventory will affect our appreciation levels, especially at the lower price points pulling them up from the sleepy first half of the year. Year-over-year gain was 5.80 percent, but year-to-date gain is 2.44 percent, indicating a slow start.
Here is an alarming statistic I don’t want you to miss: 40 percent of all homes dropped their list price before going under contract. Properties that reduced their price spent an average of 59 days on the market compared to 14 days for those with no price reductions. Sellers, agents, it has never been more important to price and stage a home right!
We’ve had a tremendous improvement in affordability, considering the lower appreciation levels we’ve seen year to date (especially when compared to the last five years). DMAR’s 11 county area saw a 5.80 percent year-over-year appreciation, compared to the national appreciation has been sitting close to its current 3.60 percent for the last six months - which is also the historical national appreciation average.
Low unemployment continues to hover near its 50-year low at 3.60 percent, up from 3.50 percent, which often leads to higher consumer confidence and spending.
Increased wage growth, especially at the lower wage levels, may support entry-level home purchases. Hourly wages are up 3 percent year over year, weekly wages are staying strong at 2.70 percent, and Colorado is seeing a healthy 3.10 percent year-over-year growth.
Low interest rates have been a blessing to affordability as they continue to remain low. Rates ticked up by the end of October to where they were in August, and we are holding steady at 3.78 percent with a half-point discount.
The housing expansion is nearing its end as we slow down to “new” market normals. Buyers and sellers are uncertain and exhausted, and everyone wants to talk about the recession and inventory issues. This is where we must be alert, because the opportunities are about to explode!
First-time homebuyers (FTHB) are making a bigger splash. They represented 33 percent of sales last month. As Generation Z starts to age into credit qualification (18 years old), FTHB’s will be at historical highs with an expected $8.3 million to $9.2 million more qualified buyers purchasing homes between 2020 and 2022. This is a significant jump from the previous three year periods.
What’s also exciting is 44 percent of surveyed FTHB’s want to buy soon to start building equity, wealth and multi-generational wealth. They get it, and agents need to be ready to help.
As with FTHB’s, investors will continue to be active in the market. 2018 was a 20-year high for investor purchases and the second quarter of 2019 was as strong as the second quarter of 2013 – one of the biggest historical quarters for investor activity. These investors are not large companies, they’re the mom and pop 1-10 property investor looking to build financial stability and security.
There might be uncertainty in the market, but I’m 100 percent not doubting the market – and neither should agents! The real estate market is and will continue to be strong, whether we find ourselves in an economic recession or not, and the long-term outlook looks promising with a major influx in FTHB’s and local investors.
The Rueth Team of Fairway Independent Mortgage Corporation
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