Inflation and Housing

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Yesterday’s Consumer Price Index report for October showed a lower-than-expected increase in inflation.  Many believe, based on the numbers, that inflation rates may have peaked.  Investors cheered and the stock market showed its biggest increase since bouncing back from the pandemic-caused bear market in 2020.So, what does yesterday’s news mean for housing in the short term?
  • Higher real estate consumer confidence as fears of inflation will likely subside and people will feel wealthier as their investment accounts rebound
  • Lower mortgage rates because they track the yield on the 10-year treasury which has fallen over 8% since Friday 
Yesterday’s news certainly is a positive for Front Range real estate.

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Inflation and Housing

/in , , , , /by
Yesterday’s Consumer Price Index report for October showed a lower-than-expected increase in inflation.  Many believe, based on the numbers, that inflation rates may have peaked.  Investors cheered and the stock market showed its biggest increase since bouncing back from the pandemic-caused bear market in 2020.So, what does yesterday’s news mean for housing in the short term?
  • Higher real estate consumer confidence as fears of inflation will likely subside and people will feel wealthier as their investment accounts rebound
  • Lower mortgage rates because they track the yield on the 10-year treasury which has fallen over 8% since Friday 
Yesterday’s news certainly is a positive for Front Range real estate.

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A Numbers Game

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Here’s a fun fact. Generally speaking, a Seller should expect to have between 8 and 13 showings before receiving an offer.

The exact number of course depends on price point and location.

So, how quickly a property sells depends upon how quickly those showings are generated.

The old adage of ‘it’s just a numbers game’ is true.

A certain number of people need to look at a home before someone makes an offer.

If a home isn’t generating showings, it is usually because the property is priced too aggressively, isn’t being marketed professionally, or both.

For a Seller to have a property sell along the Front Range, their simple mission can be to generate 8 to 13 showings.

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A Numbers Game

/in , , , /by

Here’s a fun fact. Generally speaking, a Seller should expect to have between 8 and 13 showings before receiving an offer.

The exact number of course depends on price point and location.

So, how quickly a property sells depends upon how quickly those showings are generated.

The old adage of ‘it’s just a numbers game’ is true.

A certain number of people need to look at a home before someone makes an offer.

If a home isn’t generating showings, it is usually because the property is priced too aggressively, isn’t being marketed professionally, or both.

For a Seller to have a property sell along the Front Range, their simple mission can be to generate 8 to 13 showings.

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Luxury is Stronger

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The market above $1,000,000 is stronger than the market overall.This is true in both Northern Colorado and Metro Denver.The luxury market is not slowing to the same degree as the overall market.In Northern Colorado:
  • Closed transactions are down 41% in the overall market and 26% in the luxury market over $1,000,000
  • Pending transactions are down 44% overall and only 13% in the luxury market
In Metro Denver:
  • Closed transactions are down 40% overall and only 13% over $1,000,000
  • Pending transactions are down 41% overall and only 17% in the luxury market
This is likely because higher-end buyers are not as sensitive to higher interest rates and there tend to be more cash transactions in the luxury market.

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Big Jump

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We are seeing a big jump in properties for sale as measured by months of inventory.​​​​​​​

As a reminder, a market is considered balanced when there is between 4 and 6 months of inventory on the market.  Meaning, at the current pace of sales, it would take 4 to 6 months to sell all of the properties currently for sale.

Inventory one year ago at this time was:

  • 1 month in Northern Colorado
  • 0.7 months in Metro Denver (3 weeks)

Today the inventory is:

  • 2.3 months in Northern Colorado
  • 2.3 months in Metro Denver

This represents a:

  • 164% increase in Northern Colorado
  • 245% increase in Metro Denver

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Halfway Check

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This is a market which is changing quickly.  We are studying the numbers every day so we can be clear about where the market is heading.

Here is a check on the market halfway through October.

Compared to last October…

  • Available inventory is up 73% in Northern Colorado and up 112% in Metro Denver.  This is significant for buyers who, for years, were challenged with limited selection.
  • Number of closed transactions is down 50% in Northern Colorado and 41% in Metro Denver.  This reflects the fact that fewer buyers are active right now given higher interest rates.

Prices continue to be higher than last year.  They are up 12% in Northern Colorado and 13% in Metro Denver.  We don’t expect double-digit increases to continue, but don’t expect anything like a price crash.

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Toward Balance

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Our market is moving toward a balanced market, but it is still unbalanced.

By definition, a balanced market has between 4 and 6 months of inventory for sale.

Today there is essentially two months.  One year ago, there was only 3 weeks of inventory.

It has actually been 16 years since the market has been in balance.

So, while we still have a ways to go before it is balanced, it is moving that way.

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The Big News

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The big news this week is obviously the rise in interest rates.

Average 30-year fixed mortgage rates are now at 6.7% which is the highest they have been since July 2007.

So, how is this affecting the market?  Here is what we notice…

There are fewer buyers in the market.  Sales activity, measured by closed and pending sales, is down 30% compared to last year.

Prices, however, continue to rise.  Average prices are roughly 11% higher than last year.  This is driven by the market being under-supplied.

Inventory levels, as measured by months of supply, tells us we still have a Seller’s market.  There is 2 month’s of supply currently for sale.

Ultimately, we expect the rise in interest rates to slow the pace of price appreciation.  We believe the market will return to its long-term average of 6% per year.

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Most Multi

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There are more multi-family residential properties under construction than at any time since 1974.

 

890,000 properties with 2+ units are currently being built across the United States.  This includes both for-sale product, and for-rent product.

 

Additional supply is clearly beneficial for both buyers and renters and will hopefully relieve some of the housing affordability issues.

 

So, why are there so many multi-family units under construction?  There seem to be three key reasons.

 

1.  The rental market is especially undersupplied with product and developers see this opportunity.

 

2.  With the increase in residential prices, multi-family becomes the only option for many first-time buyers. 

 

3.  Supply chain constraints are causing extended construction timelines.

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