the tides are turning in the metro Denver area...interesting article from Denver Post...
Hot real estate market starting to cool allowing buyers to take back some power
Sellers have remained in firm control of metro Denver’s housing market
for four years, with inventory shortages, quick sales and escalating home prices par for the course.
The imbalance has lasted for so long, it is hard to remember what a more balanced market looks like. But agents warn that things are finally moving in that direction.
“In comparison to the last four years it feels foreign,” said Kerron Stokes, a broker and Realtor with Resource Group at REMAX Leaders in Centennial. “But the normalization that we are going through is still better than the conditions in most of the country.”
In June, metro Denver’s housing market began to show signs of cooling after a hot run at the start of the year. More sellers had to drop their asking prices, fewer buyers attended showings and made offers, and homes took longer to sell. From record highs reached in May and June, prices have come down 4.9 percent.
Some wrote that off as the usual seasonal slump coming early. Things would rev up again in January. repeating the pattern of recent years. But in September, home sales fell hard despite a lot more properties on the market.
That disproved a common explanation that a lack of inventory was what was holding back home sales in metro Denver.
“The amount of showings per listing is dropping. The days on market are increasing. It is telling us that there are fewer buyers and less activity,” said Steve Danyliw, chairman of the market trends committee at the Denver Metro Association of Realtors and a Denver real estate agent.
Last month, there were 3,989 single-family homes and condos sold in metro Denver, a drop of 28.9 percent from August and 20.2 percent from a year earlier. The last time so few homes sold in a September was back in 2012, according to a report Wednesday from DMAR.
The inventory of homes available for sale shot up 7 percent from August to 8,807, the highest number available since the fall of 2013, when the Denver market was starting to take off. Normally, the number of homes available for sale drops slightly in September.
One of the hardest tasks agents say they face now is convincing sellers, long accustomed to calling the shots, to lower their expectations, especially when it comes to how much money they can get.
Don’t expect 30 potential buyers to make the showing, don’t expect a solid offer within 72 hours and don’t refuse reasonable requests like inspections, repairs and contingency clauses.
Those were lessons Robin Olsen learned first-hand when she and her husband tried to sell their Sunnyside home this summer. Going in, Olsen said her reference point was a friend who listed an old, small and unrenovated home near the University of Denver. Within hours, a buyer made a cash offer, sight unseen, at $90,000 above the asking price.
“I am hearing the story and thinking this will happen to me. It won’t be on the market for more than a few hours,” she said.
Although the home, listed initially at $669,000, received lookers, no offer emerged after 72 hours. Olsen, president and founder of Honey Communications, couldn’t understand why a home in Denver’s popular northwest corner wouldn’t fly off the shelf.
Two price drops brought the listing down to $629,000, a price that drummed up more interest and helped land a buyer nearly three weeks later. Through it all, Olsen said she repeatedly had to remind herself to breathe deep, stay calm and realize it was only a business transaction.
“It was almost three weeks and to me that felt like three years relative to the stories we heard,” she said. “It was definitely emotional. There were some days I needed to go for a walk.”
Lisa Huntington-Kinn, the agent who handled the listing, credits the Olsens for listening to her and moving quickly to drop the price when the offers weren’t showing up. Some sellers are more stubborn.
“Buyers always determine what your house is worth. It doesn’t matter what I think it is worth and what you think it is worth,” she said.
Even last year, buyers were becoming more discriminate in what they were willing to take from sellers. After years of getting pushed around, they started to push back.
“I am paying top dollar, I want a top property,” Danyliw said, describing the attitude.
Van Lewis, a broker associate with REMAX Alliance 3000 in Aurora, said he was having a record year until June, when showings and sales dropped significantly. He doesn’t see the slow down resolving itself until prices correct.
Some buyers, realizing the market is shifting in their favor, may hold back. Lewis notes some sellers have the same attitude. They have a specific price they need to hit and are willing to bet that a rebound will bring it to them. They won’t let go of the scepter easily.
The problem is that both sides can’t be right.
Jim Brown, an Englewood Realtor who specializes in working with first-time homebuyers, said he isn’t seeing a “let’s wait” attitude as much as a “I can’t afford this market” resignation.
Contributing to that sentiment are higher interest rates on 30-year mortgages, which Freddie Mac reports at 3.8 percent a year ago and closer to 4.7 percent now. Home prices adjusted higher when rates dropped. But so far, they haven’t moved the other way to adjust for the rise in mortgages rates.
“I think buyers on the lower-end are feeling like they have been priced out of the market and have given up on the idea of buying in Colorado. Astute buyers are looking at interest rates, but most buyers aren’t getting to the lending phase because they aren’t looking. They’ve already decided they can’t afford a home,” said Brown.
A study from Attom Data Solutions lists the median price of a home sold in Denver County in the third quarter at $430,000. With a 3 percent down payment and conventional financing ratios, a buyer would need an income of $117,148 to qualify, the study found. The average yearly wage in Denver – $68,419
Even in Adams County, where the median home price is a more affordable $340,000, a buyer would need $94,047 in income to purchase that kind of home. The average income is $53,443 a year, according to Attom.
The affordability gap is a national problem, with the median priced home not affordable to someone earning the average wage in 84 percent of markets, according to Attom. The affordability gap is the worst Attom has measured since the third quarter of 2008, which was when the financial crisis hit.
And three of the most extreme divergences from historical levels of affordability in the nation’s 182 large counties, population 500,000 or more, are in Colorado – Denver, Arapahoe and Jefferson counties.
“Buyers see prices going up and have no expectations otherwise,” said Brown.
Year-to-date, the median price of a single-family home sold in metro Denver is still up 8.54 percent in 2018 versus 2017, even after the dip this summer. Median condo prices are up 12.3 percent on the year, according to DMAR. Danyliw attributes that bigger price gain in condos to a desire by buyers to find anything affordable.
Brown expects that once buyers realize the balance of power is shifting their way, they may reclaim a “we can” attitude. And Danyliw notes the Denver economy remains strong and jobs plentiful.
Unlike last decade, there isn’t a glut of homes on the market that could turn a rebalancing into a crash. For that reason, Danyliw, Stokes and other agents argue the market isn’t slumping as much as it is “normalizing.”
If the inventory of available homes for sale can get back into the 10,000 to 12,000 range, not that big jump from current levels of 8,807, then the balance between buyers and sellers should be restored, Danyliw predicts.
“We have gone from that insane crazy marketplace to not so insane or crazy,” Danyliw said. But that has left sellers befuddled, asking what happened to our hot market.
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