Words Matter

A common phrase that is being used right now to describe the market is ‘no inventory.’

‘There’s no inventory’ is said frequently among those inside and outside of the real estate industry.

The problem with this phrase is that it is untrue.

There is inventory.  Meaning, there are a significant number of new listings hitting the market.

However, there is low standing inventory.  Meaning, the listings that do hit the market don’t stick around for very long before they are purchased.

Standing inventory, which is the number of active properties on the market, is down roughly 70% along the Front Range.

However, the number of new listings coming on the market is essentially:

  • Double compared to December 2020
  • Only 20% to 25% less than this time of year in 2017, 2018, and 2019

So, there is inventory available, it just sells quickly because demand is historically high right now.

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Calculated Risk

The economic research blog called “Calculated Risk” just completed a fascinating study on home prices.

Specifically, they looked at the correlation between home price growth and inventory.

They used price data from the Case-Shiller Home Price Index and inventory data from the National Association of Realtors.

No surprise, they found that the lower the inventory the higher the home price growth.  Also no surprise, as inventory goes up, price growth slows down.

This all correlates with simple economic rules of supply and demand.

The interesting part of their research is this:  at a certain level of inventory, prices have the potential to go down.

That level, according to their research, is six months of inventory.

That means, prices don’t have a chance of decreasing in a market until there is at least 6 months of inventory available for sale.

To put that in perspective, today there is two weeks of inventory on the market along the Front Range.

So, there would need to be 12 times the amount of homes for sale on the market for prices to even have a chance to go down.

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Colorado Real Estate Market Update

Housing Market

The following analysis of the Metro Denver & Northern Colorado real estate market is provided by Windermere Real Estate Chief Economist Matthew Gardner. We hope that this information may assist you with making better-informed real estate decisions. For further information about the housing market in your area, please don’t hesitate to contact your Windermere agent. 

 

ECONOMIC OVERVIEW

What a difference a quarter makes! Following the massive job losses Colorado experienced starting in February—the state shed over 342,000 positions between February and April—the turnaround has been palpable. Through August, Colorado has recovered 178,000 of the jobs lost due to COVID-19, adding 107,500 jobs over the past three months, an increase of 4.2%. All regions saw a significant number of jobs returning. The most prominent was in the Denver metropolitan service area (MSA), where 78,800 jobs returned in the quarter.

Although employment in all markets is recovering, there is still a way to go to get back to pre-pandemic employment levels. The recovery in jobs has naturally led the unemployment rate to drop: the state is now at a respectable 6.7%, down from a peak of 12.2%. Regionally, all areas continue to see their unemployment rates contract. I would note that the Fort Collins and Boulder MSA unemployment rates are now below 6%. Cases of COVID-19 continue to rise, which is troubling, but rising rates have only slowed—not stopped—the economic recovery. Moreover, it has had no noticeable impact on the state’s housing market.

 

HOME SALES

  • In the third quarter of 2020, 15,065 homes sold. This represents an increase of 20.4% over the third quarter of 2019, and a remarkable 52.7% increase over the second quarter of this year.
  • Home sales rose in all markets other than El Paso compared to the second quarter of 2019. I believe sales are only limited by the number of homes on the market.
  • Inventory levels remain remarkably low, with the average number of homes for sale down 44.5% from the same period in 2019. Listing activity was 17.8% lower than in the second quarter of 2020.
  • Even given the relative lack of inventory, pending sales rose 17.8% from the second quarter, suggesting that closings for the final quarter of the year will be positive.

 

HOME PRICES

  • After taking a pause in the second quarter, home prices rose significantly in the third quarter, with prices up 11.9% year-over-year to an average of $523,193. Prices were up 7.4% compared to the second quarter of this year.
  • Interest rates have been dropping. Although I do not see there being room for them to drop much further, they are unlikely to rise significantly. This is allowing prices to rise at above-average rates.
  • Year-over-year, prices rose across all markets covered by this report. El Paso, Clear Creek, and Gilpin counties saw significant price appreciation. All but four counties saw double-digit price gains.
  • Affordability in many Colorado markets remains a concern, as prices are rising at a faster pace than mortgage rates have been dropping.

DAYS ON MARKET

  • The average number of days it took to sell a home in the markets contained in this report dropped one day compared to the third quarter of 2019.
  • The amount of time it took to sell a home dropped in nine counties, remained static in two, and rose in one compared to the third quarter of 2019.
  • It took an average of 29 days to sell a home in the region.
  • The Colorado housing market continues to demonstrate solid demand, and the short length of time it takes to sell a home suggests buyers are competing fiercely for available inventory.

 

CONCLUSIONS

This speedometer reflects the state of the region’s real estate market using housing inventory, price gains, home sales, interest rates, and larger economic factors.

Demand for housing is significant, and sales activity is only limited by the lack of available homes to buy. Prices are rising on the back of very competitive mortgage rates and a job market in recovery. I suggested in my second-quarter report that the area would experience a “brisk summer housing market” and my forecast was accurate. As such, I have moved the needle a little more in favor of home sellers.

 

ABOUT MATTHEW GARDNER

As Chief Economist for Windermere Real Estate, Matthew Gardner is responsible for analyzing and interpreting economic data and its impact on the real estate market on both a local and national level. Matthew has over 30 years of professional experience both in the U.S. and U.K.

In addition to his day-to-day responsibilities, Matthew sits on the Washington State Governors Council of Economic Advisors; chairs the Board of Trustees at the Washington Center for Real Estate Research at the University of Washington; and is an Advisory Board Member at the Runstad Center for Real Estate Studies at the University of Washington where he also lectures in real estate economics.

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Stat of the Month

Wooden Bridge Through Autumn Woods

We just completed a review of the September numbers in our market.

Here is the one number that is standing out to us – average price.

Prices are way up over last year.  Here are the specific average price increases in each of our markets compared to September 2019:

  • Metro Denver = 13.2%
  • Larimer County = 16.9%
  • Weld County = 7.4%

This change in prices has of course generated questions from our clients.

To help our clients answer questions about prices and other real estate topics, we have set up a private online event with our Chief Economist Matthew Gardner.

The event is set for Tuesday from 9:00 to 10:00.

Simply reach out to any Windermere broker to receive your registration link.

Matthew will be addressing these questions as well as many others:

  • What effect will the election have on the economy and on real estate?
  • How long can interest rates stay this low?
  • Can prices keep appreciating at their current pace?

This online event is for the clients and friends of Windermere.  If you would like to register, please connect with your Windermere broker.

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Why No Crash

This week we hosted our clients and friends for a special online event with our Chief Economist Matthew Gardner.

Matthew talked about a variety of topics that are on people’s mind right now including home values.

Matthew sees no evidence that home values will crash and actually sees signs that they may rise this year nationally.

Here’s why he says this:

  • Mortgage rates will remain under 3.5% for the rest of the year so there won’t be any interest-rate pressure on prices
  • Inventory, which was already at record-lows, will drop even further keeping the supply levels far below normal
  • New home construction will continue to be under-supplied and will be nothing like the over-supplied glut of inventory that we saw in 2008
  • The vast majority of employees being laid off and furloughed are renters
  • Homeowners have a tremendous amount of equity in their homes right now compared to 2008 which will prevent an influx of short sales and foreclosures

If you would like to receive a recording of the webinar we would be happy to send it to you.  Feel free to reach out and ask for the link.

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At Windermere Real Estate we are taking Shelter in Place and Social Distancing very seriously.  Our people are working at home, staying connected to their clients, and providing help wherever needed.

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Matthew Gardner Weekly COVID-19 Housing & Economic Update: 3/30/2020

Every Monday Windermere Chief Economist Matthew Gardner provides an update regarding the impact of COVID-19 on the US economy and housing market. This week he discusses what it really means for the economy and housing to be in a COVID-19 induced recession (hint: it’s not all bad news).

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Bubble Burst

Every so often we will hear a concern that another housing bubble is forming.

To help answer that question it’s valuable to look at the reasons that caused the last one.

There were three main drivers of the bubble that burst in 2008:

  1. Easy Credit – loans were very easy to attain
  2. Over-Leverage – people were using their homes at ATM’s
  3. Over-Supply – too many new homes were being built

Now, let’s compare that to today:

  1. Stricter Credit – the average home buyer today has a FICO score of 755
  2. High Equity – collectively, U.S. homeowners have $19 Trillion of equity in their homes and collective mortgage debt has not increased for 13 years
  3. Under-Supply – today we are building only two-thirds of the new homes being built in 2004 yet the population is much higher

Given this healthy information, we don’t see another housing bubble forming today.

If you would like to see a video recap of our annual Market Forecast you can watch that HERE.

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Rate Forecast

Here is our interest rate Forecast for the next year.

Our Chief Economist, Matthew Gardner, predicts that rates for a 30-year fixed mortgage will stay between 3.8% and 3.9% for 2020.

He doesn’t see rates going above 4.0% until at least the first quarter of 2021.

This is obviously great news for buyers as their payments will stay much lower as compared to having a rate at the long-term average of 7.5%.

If you would like to see the slides from Matthew Gardner’s Forecast presentation, we would be happy to get those in your hands.  Just let us know if we can help!

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Matthew Gardner – Will There Be A Recession in 2020?

Windermere Chief Economist, Matthew Gardner, answers the most pressing question on everyone’s minds: Will there be a recession in 2020? Here’s what he expects to see.

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Save Your Spot

A quick, simple Fun Fact for you this week…

It’s time to sign up and register for our annual Market Forecast event.

We will be live in Denver on January 15th at the Wellshire Events Center.

And In Fort Collins on January 16th at the Marriott.

Both events start at 5:30.  Choose which location works best for you.

Matthew Garder, our Chief Economist, is the Keynote speaker.

Click the links above to RSVP.

 

It’s time to register for our annual Market Forecast event.  We will be live at 5:30 on January 16th at the Marriott in Fort Collins.  Back by popular demand is our Chief Economist Matthew Gardner.  Save your seat HERE.

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