The Market is Cooling, And It’s Good

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The Market is Cooling, And It’s Good

By Steve Blank, managing broker of Fuller Sotheby’s International Realty – Downtown Denver

The real estate market, both nationally and in Denver, is considered healthy with positive prospects for the future.

Prices in Denver continue to rise, however not at the same pace we experienced in 2012 and 2013. Since July, Denver has seen price appreciation level off to around 6.5% – 7% annually (year over year), compared to an average of approximately 11% per year, for the prior two years. According to a recent Case-Shiller report, our local numbers echo the general retraction across the country where there has been an easing of home price gains.

It is crystal clear that Denver enjoys one of the strongest “sellers market” in the nation.

1014705_Exterior_highIf we look at “Days on the Market (DOM)”, which indicates how long it takes for a home to sell, the national average in August was 53 days, while Denver hit a record breaking low of 25 days. That timeframe is likely to increase over the coming months. Denver experienced low inventory levels in 2014, contributing greatly to the “sellers market” as supply was not able to meet buyer demand. As more homes come on the market “for sale”, we will see this cooling off period become reflective of a market transitioning to a more normal pace of appreciation, as opposed to the big swings of a few years ago.

Real estate should always be viewed on a more local level as it is safe and realistic for Denver to put the housing recession further in the rearview mirror. It’s interesting to note that a sellers market is not necessarily one where values wildly rise, but rather one where homes sell more quickly, price reductions occur less frequently, and properties sell very close to (or above) the list price. Of course values will generally increase to some degree when all that takes place. And if Denver’s current pace 6.5% – 7% price appreciation cools off to 5% or 6%, that would still be 2-3 times the rate of inflation. We talk about Denver being a “sellers market”, but in the last few years, it has also become a “landlords market”. During the recession (2008-2011) many homeowners became “accidental landlords”, meaning they became trapped in the tougher market and decided to rent, rather than sell at a loss. Higher prices and faster sales times have allowed these owners to cash-out, leaving fewer homes for lease and pushing rents higher. Rents will begin to level off in Denver with the thousands of new rental units being built over the next 1-2 years. We have all heard of multiple offers on homes available for sale. Well, renters have also been going head-to-head, typically seeing multiple applications on a high percentage of homes for rent. Next year, Denver will see inventories on homes for rent AND for sale improve in availability. This summer Denver’s inventory of homes for sale ranged from 7,200 to about 8,600, compared to averaging over 10,000 homes during the summer of 2013, and well over 20,000 available homes in the summer of 2011.

The National Association of Realtors chief economist, Lawrence Yun, believes “as long as solid job growth continues, wages should eventually pick up to steadily improve purchasing power and meet pent-up demand for buying”. That relates nicely to the Denver economy, where the Denver Post recently reported that Denver had the 4th best post-recession recovery from among the 150 largest U.S. cities. “ said Denver ranked #1 for the increase of college-educated workers, and second for the decrease in foreclosures. Denver was also 10th in increasing median household income”. All of this really means that by cooling off…it can be very healthy for the long term.

For more information call 303.893.3200 or visit Fuller Sotheby’s International Realty.

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