Denver real estate numbers

[clarkfan1979]

For Denver metro area, when comparing March 2021 to March 2022, inventory is up 45%. During this time interest rates have increased from around 3.25% to 4.5%. Now in April they are 5.25%.

When you add these two things together, I would predict a flat market based on sales price. Maybe a 5% increase in home prices max. However, from March 2021 to March 2022, sales price is up 18%.

I think this speaks to the extremely low housing supply relative to demand.

[Another Reader]

Wait.

It takes time for the change to work its' way into the ecosystem.  Think 2007, which was a transitional year. 

The Phoenix market is still wacko across the various asset classes.  Other markets are starting to change, albeit slowly.

Now, if you want to sell, better get moving.  Don't price too high and let the offers do the market price discovery.

[joe189man]

How does current inventory compare to historical averages?

this article states that "At the start of January 2022, the Denver Metro area had only 1,477 active properties on the market, which is 11,175 fewer than normal."
https://www.noradarealestate.com/blog/denver-real-estate-market/

I think there is a lot of FOMO going on and interest prices may slow things a bit, but there are almost no homes for sale here, that has to impact prices

[therethere]

And adding to the shortage.... 1000 people were added to the buyer market after a wildfire burned down their house 2 months ago.

[PDXTabs]

When you add these two things together, I would predict a flat market based on sales price. Maybe a 5% increase in home prices max. However, from March 2021 to March 2022, sales price is up 18%.

I agree. I think that the market might have gotten ahead of itself. I need to sell a house and I'm just hoping that by the time I get around to it the prices aren't actually falling. It would not surprise me at all if house prices in nominal dollars leveled out and in real dollars actually went down due to inflation soon.

[clarkfan1979]

How does current inventory compare to historical averages?

this article states that "At the start of January 2022, the Denver Metro area had only 1,477 active properties on the market, which is 11,175 fewer than normal."
https://www.noradarealestate.com/blog/denver-real-estate-market/

I think there is a lot of FOMO going on and interest prices may slow things a bit, but there are almost no homes for sale here, that has to impact prices

I think the number of active listings went from 4500 to 6500.

Is 11,175 normal for January?

[Another Reader]

Have a look at the real estate investing bros on Twitter.  The prices they are paying for utter crap and their justifications for paying these prices are ridiculous.  Folks, not every one can operate an Air BnB and they are fast running out of people that can pay their idea of "market" rents.  Saving up a lot of cash for the next crash might not be a bad idea.  It worked well in 2008-2012.

[joe189man]

How does current inventory compare to historical averages?

this article states that "At the start of January 2022, the Denver Metro area had only 1,477 active properties on the market, which is 11,175 fewer than normal."
https://www.noradarealestate.com/blog/denver-real-estate-market/

I think there is a lot of FOMO going on and interest prices may slow things a bit, but there are almost no homes for sale here, that has to impact prices

I think the number of active listings went from 4500 to 6500.

Is 11,175 normal for January?

I think they are saying around 12,600 is a normal January - but i am not sure

[Mr. Green]

I'm sure changes will be highly localized. Our zip code is 134 square miles comprising around 15,000 people and there remain less than 30 single family homes available to buy. 90% of homes on the market are under contract at any given time.

[waltworks]

Real prices are pretty sticky and there's plenty of demand still, but the writing is on the wall. Inventory is up strongly around here (albeit from very low levels) and the days of multiple crazy offers are probably over.

Inasmuch as Bill at CalculatedRisk can be pinned down, he's predicting flat nominal/falling real prices in the near/medium term. He's usually right, so if I had to bet on something I'd bet on that scenario.

If you think you want to sell, now is probably the best time for a while.

-W

[joe189man]

i am starting to see home price cuts on the homes that are for sale and they are sitting longer...

[clarkfan1979]

i am starting to see home price cuts on the homes that are for sale and they are sitting longer...

What area? How do the sales prices compare to 12 months ago?

[joe189man]

i am starting to see home price cuts on the homes that are for sale and they are sitting longer...

What area? How do the sales prices compare to 12 months ago?

South metro area, not sure on comps but one example i saw was a 10% price reduction after 11 days on market

[clarkfan1979]

i am starting to see home price cuts on the homes that are for sale and they are sitting longer...

What area? How do the sales prices compare to 12 months ago?

South metro area, not sure on comps but one example i saw was a 10% price reduction after 11 days on market

Related to your point, when a house is on the market for more than 7 days with no accepted offers, the listing become old and people are less drawn to it. People assume there is something wrong with the house. Crazy that it only takes people 7 days to flip.

[ChpBstrd]

Look at it this way. For every 0.5% increase in the interest rate on a 30y mortgage, the P&I payment goes up 5-6%.

Rate          P&I per 100k   Increase from previous 0.5% increment
3.50%   359                   -
4%           381                   6.13%
4.50%   405                   6.30%
5%           429                   5.93%
5.5%   454                   5.83%
6%           479                   5.51%
6.50%   505                   5.43%
7%           532                   5.35%
7.50%   559                   5.08%
8%           587                   5.01%

Thus, in markets where buyers are already stretching to get into a home, they are seeing their real cost - the payment - going up by double digit percentages. The recent move with 30y rates going from 3.5% to 5% has added a full 19.5% to the monthly P&I for home buyers. A large percentage of buyers have to walk away due to a lack of mortgage affordability.

Sure, home prices are sticky, but there can be no debate that HCOL and MCOL market prices will have to come down if they expect to attract the same buyers who used to be able to afford much lower mortgage rates. If I owned spare RE right now, there'd be a for sale sign on it, attempting to arbitrage the stickiness of prices before the buyers run out.

[clarkfan1979]

Look at it this way. For every 0.5% increase in the interest rate on a 30y mortgage, the P&I payment goes up 5-6%.

Rate          P&I per 100k   Increase from previous 0.5% increment
3.50%   359                   -
4%           381                   6.13%
4.50%   405                   6.30%
5%           429                   5.93%
5.5%   454                   5.83%
6%           479                   5.51%
6.50%   505                   5.43%
7%           532                   5.35%
7.50%   559                   5.08%
8%           587                   5.01%

Thus, in markets where buyers are already stretching to get into a home, they are seeing their real cost - the payment - going up by double digit percentages. The recent move with 30y rates going from 3.5% to 5% has added a full 19.5% to the monthly P&I for home buyers. A large percentage of buyers have to walk away due to a lack of mortgage affordability.

Sure, home prices are sticky, but there can be no debate that HCOL and MCOL market prices will have to come down if they expect to attract the same buyers who used to be able to afford much lower mortgage rates. If I owned spare RE right now, there'd be a for sale sign on it, attempting to arbitrage the stickiness of prices before the buyers run out.

Every market is different. Buyers in Denver can afford the payments. They are simply getting outbid by others who are willing to pay more. Due to the recent interest rate increases, a house might sell for 25K over asking, instead of 50K over asking. That has been the only change that I can see. The reduced supply of buyers did influence the price. However, it's not enough of a reduction of buyers to actually lower the price of the house. Many of the buyers offer cash, but plan to get a mortgage after they close. 

House prices in Denver are still up. Price reductions will happen at some point. However, no one knows when they will happen exactly. Right now, it looks like the pace at which housing is increasing will slow down. Prices went up 25% last 12 months. Prices might only go up 10% in the next 12 months. However, we seem to be pretty far away from price reductions at this point in time. 

Many people locked in an interest rate below 3%, myself included. These people are going to be very unwilling to sell and buy another house with a new mortgage at 5.25%. This is keeping inventory very low. 

 

[ChpBstrd]

Look at it this way. For every 0.5% increase in the interest rate on a 30y mortgage, the P&I payment goes up 5-6%.

Rate          P&I per 100k   Increase from previous 0.5% increment
3.50%   359                   -
4%           381                   6.13%
4.50%   405                   6.30%
5%           429                   5.93%
5.5%   454                   5.83%
6%           479                   5.51%
6.50%   505                   5.43%
7%           532                   5.35%
7.50%   559                   5.08%
8%           587                   5.01%

Thus, in markets where buyers are already stretching to get into a home, they are seeing their real cost - the payment - going up by double digit percentages. The recent move with 30y rates going from 3.5% to 5% has added a full 19.5% to the monthly P&I for home buyers. A large percentage of buyers have to walk away due to a lack of mortgage affordability.

Sure, home prices are sticky, but there can be no debate that HCOL and MCOL market prices will have to come down if they expect to attract the same buyers who used to be able to afford much lower mortgage rates. If I owned spare RE right now, there'd be a for sale sign on it, attempting to arbitrage the stickiness of prices before the buyers run out.

Every market is different. Buyers in Denver can afford the payments. They are simply getting outbid by others who are willing to pay more. Due to the recent interest rate increases, a house might sell for 25K over asking, instead of 50K over asking. That has been the only change that I can see. The reduced supply of buyers did influence the price. However, it's not enough of a reduction of buyers to actually lower the price of the house. Many of the buyers offer cash, but plan to get a mortgage after they close. 

House prices in Denver are still up. Price reductions will happen at some point. However, no one knows when they will happen exactly. Right now, it looks like the pace at which housing is increasing will slow down. Prices went up 25% last 12 months. Prices might only go up 10% in the next 12 months. However, we seem to be pretty far away from price reductions at this point in time. 

Many people locked in an interest rate below 3%, myself included. These people are going to be very unwilling to sell and buy another house with a new mortgage at 5.25%. This is keeping inventory very low.

The question is... for how long?
How long will the supply of all-cash buyers and speculators last, after regular people are priced out of the market by higher rates? The trend of offers above asking price is already abating, as you note. What's the next step?

Prices going up 25% in the past 12 months is not evidence of prices continuing to go up double-digit percentages forever, it is evidence that something unsustainable has happened. See Herbert Stein's law.

[joe189man]

Look at it this way. For every 0.5% increase in the interest rate on a 30y mortgage, the P&I payment goes up 5-6%.

Rate          P&I per 100k   Increase from previous 0.5% increment
3.50%   359                   -
4%           381                   6.13%
4.50%   405                   6.30%
5%           429                   5.93%
5.5%   454                   5.83%
6%           479                   5.51%
6.50%   505                   5.43%
7%           532                   5.35%
7.50%   559                   5.08%
8%           587                   5.01%

Thus, in markets where buyers are already stretching to get into a home, they are seeing their real cost - the payment - going up by double digit percentages. The recent move with 30y rates going from 3.5% to 5% has added a full 19.5% to the monthly P&I for home buyers. A large percentage of buyers have to walk away due to a lack of mortgage affordability.

Sure, home prices are sticky, but there can be no debate that HCOL and MCOL market prices will have to come down if they expect to attract the same buyers who used to be able to afford much lower mortgage rates. If I owned spare RE right now, there'd be a for sale sign on it, attempting to arbitrage the stickiness of prices before the buyers run out.

Every market is different. Buyers in Denver can afford the payments. They are simply getting outbid by others who are willing to pay more. Due to the recent interest rate increases, a house might sell for 25K over asking, instead of 50K over asking. That has been the only change that I can see. The reduced supply of buyers did influence the price. However, it's not enough of a reduction of buyers to actually lower the price of the house. Many of the buyers offer cash, but plan to get a mortgage after they close. 

House prices in Denver are still up. Price reductions will happen at some point. However, no one knows when they will happen exactly. Right now, it looks like the pace at which housing is increasing will slow down. Prices went up 25% last 12 months. Prices might only go up 10% in the next 12 months. However, we seem to be pretty far away from price reductions at this point in time. 

Many people locked in an interest rate below 3%, myself included. These people are going to be very unwilling to sell and buy another house with a new mortgage at 5.25%. This is keeping inventory very low.

The question is... for how long?
How long will the supply of all-cash buyers and speculators last, after regular people are priced out of the market by higher rates? The trend of offers above asking price is already abating, as you note. What's the next step?

Prices going up 25% in the past 12 months is not evidence of prices continuing to go up double-digit percentages forever, it is evidence that something unsustainable has happened. See Herbert Stein's law.

the bolded above is me, we refined to a 2.875%, 30 year note. We have looked at moving to be closer to our son's school but prices jumped so much that it doesnt make sense to move, purchase price 25% more than a year or two ago and pay $1000 a month extra in interest, no thanks. But... i still look quite often and may homes are still gone after a few days on market

[clarkfan1979]

Look at it this way. For every 0.5% increase in the interest rate on a 30y mortgage, the P&I payment goes up 5-6%.

Rate          P&I per 100k   Increase from previous 0.5% increment
3.50%   359                   -
4%           381                   6.13%
4.50%   405                   6.30%
5%           429                   5.93%
5.5%   454                   5.83%
6%           479                   5.51%
6.50%   505                   5.43%
7%           532                   5.35%
7.50%   559                   5.08%
8%           587                   5.01%

Thus, in markets where buyers are already stretching to get into a home, they are seeing their real cost - the payment - going up by double digit percentages. The recent move with 30y rates going from 3.5% to 5% has added a full 19.5% to the monthly P&I for home buyers. A large percentage of buyers have to walk away due to a lack of mortgage affordability.

Sure, home prices are sticky, but there can be no debate that HCOL and MCOL market prices will have to come down if they expect to attract the same buyers who used to be able to afford much lower mortgage rates. If I owned spare RE right now, there'd be a for sale sign on it, attempting to arbitrage the stickiness of prices before the buyers run out.

Every market is different. Buyers in Denver can afford the payments. They are simply getting outbid by others who are willing to pay more. Due to the recent interest rate increases, a house might sell for 25K over asking, instead of 50K over asking. That has been the only change that I can see. The reduced supply of buyers did influence the price. However, it's not enough of a reduction of buyers to actually lower the price of the house. Many of the buyers offer cash, but plan to get a mortgage after they close. 

House prices in Denver are still up. Price reductions will happen at some point. However, no one knows when they will happen exactly. Right now, it looks like the pace at which housing is increasing will slow down. Prices went up 25% last 12 months. Prices might only go up 10% in the next 12 months. However, we seem to be pretty far away from price reductions at this point in time. 

Many people locked in an interest rate below 3%, myself included. These people are going to be very unwilling to sell and buy another house with a new mortgage at 5.25%. This is keeping inventory very low.

The question is... for how long?
How long will the supply of all-cash buyers and speculators last, after regular people are priced out of the market by higher rates? The trend of offers above asking price is already abating, as you note. What's the next step?

Prices going up 25% in the past 12 months is not evidence of prices continuing to go up double-digit percentages forever, it is evidence that something unsustainable has happened. See Herbert Stein's law.

The 25% increase in prices is mostly from demand being higher than supply. My prediction of 10% increases next year is based on supply and interest rates. We are still under supply in Denver and continue to struggle to keep up with demand. My prediction of 10% has nothing to do with what happened last year.

I have a Ph.D. in Applied Social Psychology, which is basically Behavioral Economics. Traditional economics have limited applied value when it comes to real estate housing. Many of the traditional economists completely missed the housing crash of 2008-2010. Housing purchases for many people has a large emotional component filled with biases. It's not 100% economics.

[Another Reader]

Look at it this way. For every 0.5% increase in the interest rate on a 30y mortgage, the P&I payment goes up 5-6%.

Rate          P&I per 100k   Increase from previous 0.5% increment
3.50%   359                   -
4%           381                   6.13%
4.50%   405                   6.30%
5%           429                   5.93%
5.5%   454                   5.83%
6%           479                   5.51%
6.50%   505                   5.43%
7%           532                   5.35%
7.50%   559                   5.08%
8%           587                   5.01%

Thus, in markets where buyers are already stretching to get into a home, they are seeing their real cost - the payment - going up by double digit percentages. The recent move with 30y rates going from 3.5% to 5% has added a full 19.5% to the monthly P&I for home buyers. A large percentage of buyers have to walk away due to a lack of mortgage affordability.

Sure, home prices are sticky, but there can be no debate that HCOL and MCOL market prices will have to come down if they expect to attract the same buyers who used to be able to afford much lower mortgage rates. If I owned spare RE right now, there'd be a for sale sign on it, attempting to arbitrage the stickiness of prices before the buyers run out.

Every market is different. Buyers in Denver can afford the payments. They are simply getting outbid by others who are willing to pay more. Due to the recent interest rate increases, a house might sell for 25K over asking, instead of 50K over asking. That has been the only change that I can see. The reduced supply of buyers did influence the price. However, it's not enough of a reduction of buyers to actually lower the price of the house. Many of the buyers offer cash, but plan to get a mortgage after they close. 

House prices in Denver are still up. Price reductions will happen at some point. However, no one knows when they will happen exactly. Right now, it looks like the pace at which housing is increasing will slow down. Prices went up 25% last 12 months. Prices might only go up 10% in the next 12 months. However, we seem to be pretty far away from price reductions at this point in time. 

Many people locked in an interest rate below 3%, myself included. These people are going to be very unwilling to sell and buy another house with a new mortgage at 5.25%. This is keeping inventory very low.

The question is... for how long?
How long will the supply of all-cash buyers and speculators last, after regular people are priced out of the market by higher rates? The trend of offers above asking price is already abating, as you note. What's the next step?

Prices going up 25% in the past 12 months is not evidence of prices continuing to go up double-digit percentages forever, it is evidence that something unsustainable has happened. See Herbert Stein's law.

The 25% increase in prices is mostly from demand being higher than supply. My prediction of 10% increases next year is based on supply and interest rates. We are still under supply in Denver and continue to struggle to keep up with demand. My prediction of 10% has nothing to do with what happened last year.

I have a Ph.D. in Applied Social Psychology, which is basically Behavioral Economics. Traditional economics have limited applied value when it comes to real estate housing. Many of the traditional economists completely missed the housing crash of 2008-2010. Housing purchases for many people has a large emotional component filled with biases. It's not 100% economics.

Well, then you shoud understand marginal demand.  In the greater Phoenis area, houses are being bid up by well capitalized investors and the flippers.  If they lose their capital sources and stop buying, the market will look a lot different.

[clifp]

Not Denver specific but I found this blog post on the impact of mortgage rates and affordability to be very interesting.

https://calculatedrisk.substack.com/p/how-high-will-mortgage-rates-rise?s=r

How do higher mortgage rates impact affordability?
Higher rates will impact affordability. Based on today’s mortgage rates, affordability has declined to levels not seen since the housing bust).

However, it is important to understand that if mortgage rates double - say from 2.5% to 5.0%, monthly payments do not double. For this example, principal and interest payments would increase about 35%, and if you include taxes and insurance (PITI), payments will increase about 25%. This is a huge increase, but payments do not double when mortgage rates double.

Assume a family had $100 thousand for a down payment and could afford $2,000 per month in PITI. They could afford a $485,000 house with a 2.5% mortgage rate.

Using the same assumptions, with a 5.0% mortgage rate, this family could afford a $400,000 house - about 17% less.

This increase in mortgage rates will decrease the pool of buyers at each price point and will likely slow house price increases.

I’ll have much more on the impact of higher mortgage rates on house prices, inventory, new home sales and housing starts.

In summary:

Current 30-year mortgage rates are around 5.1%

Mortgage rates are probably close to the peak for this cycle (depending on inflation) but might rise to the low 6% range if the Fed has to raise rates to 4%.

[clarkfan1979]

Look at it this way. For every 0.5% increase in the interest rate on a 30y mortgage, the P&I payment goes up 5-6%.

Rate          P&I per 100k   Increase from previous 0.5% increment
3.50%   359                   -
4%           381                   6.13%
4.50%   405                   6.30%
5%           429                   5.93%
5.5%   454                   5.83%
6%           479                   5.51%
6.50%   505                   5.43%
7%           532                   5.35%
7.50%   559                   5.08%
8%           587                   5.01%

Thus, in markets where buyers are already stretching to get into a home, they are seeing their real cost - the payment - going up by double digit percentages. The recent move with 30y rates going from 3.5% to 5% has added a full 19.5% to the monthly P&I for home buyers. A large percentage of buyers have to walk away due to a lack of mortgage affordability.

Sure, home prices are sticky, but there can be no debate that HCOL and MCOL market prices will have to come down if they expect to attract the same buyers who used to be able to afford much lower mortgage rates. If I owned spare RE right now, there'd be a for sale sign on it, attempting to arbitrage the stickiness of prices before the buyers run out.

Every market is different. Buyers in Denver can afford the payments. They are simply getting outbid by others who are willing to pay more. Due to the recent interest rate increases, a house might sell for 25K over asking, instead of 50K over asking. That has been the only change that I can see. The reduced supply of buyers did influence the price. However, it's not enough of a reduction of buyers to actually lower the price of the house. Many of the buyers offer cash, but plan to get a mortgage after they close. 

House prices in Denver are still up. Price reductions will happen at some point. However, no one knows when they will happen exactly. Right now, it looks like the pace at which housing is increasing will slow down. Prices went up 25% last 12 months. Prices might only go up 10% in the next 12 months. However, we seem to be pretty far away from price reductions at this point in time. 

Many people locked in an interest rate below 3%, myself included. These people are going to be very unwilling to sell and buy another house with a new mortgage at 5.25%. This is keeping inventory very low.

The question is... for how long?
How long will the supply of all-cash buyers and speculators last, after regular people are priced out of the market by higher rates? The trend of offers above asking price is already abating, as you note. What's the next step?

Prices going up 25% in the past 12 months is not evidence of prices continuing to go up double-digit percentages forever, it is evidence that something unsustainable has happened. See Herbert Stein's law.

The 25% increase in prices is mostly from demand being higher than supply. My prediction of 10% increases next year is based on supply and interest rates. We are still under supply in Denver and continue to struggle to keep up with demand. My prediction of 10% has nothing to do with what happened last year.

I have a Ph.D. in Applied Social Psychology, which is basically Behavioral Economics. Traditional economics have limited applied value when it comes to real estate housing. Many of the traditional economists completely missed the housing crash of 2008-2010. Housing purchases for many people has a large emotional component filled with biases. It's not 100% economics.

Well, then you shoud understand marginal demand.  In the greater Phoenis area, houses are being bid up by well capitalized investors and the flippers.  If they lose their capital sources and stop buying, the market will look a lot different.

So you are saying that if supply decreases, the market will change. This is incredibly vague. Do you have any specific predictors based on your strong opinions?

I'm willing to state that median house price in Denver Metro is more likely to go up than down from April 2022 to April 2023. That's my prediction. I do not have a crystal ball and I could be wrong. However, would you be willing to take the opposite side of the bet and state that Denver metro will go down from April 2022 to April 2023?

[Another Reader]

Sorry, my crystal ball is broken.  I have no idea what date will mark the market turn.  After 40 years of valuation and investment experience, it's my educated opinion it will turn.  Markets are cyclical.  We are already seeing pullbacks in some areas.

[clarkfan1979]

Sorry, my crystal ball is broken.  I have no idea what date will mark the market turn.  After 40 years of valuation and investment experience, it's my educated opinion it will turn.  Markets are cyclical.  We are already seeing pullbacks in some areas.

I agree that the market will turn. However, no one knows when and by how much. All we can do is give it our best guess.

I think we are seeing pullbacks in many areas with the interest rate hikes. I guess it depends on how you define "pullback" If you define "pullback" by appreciation slowing down, I think Denver is one of them. I don't think 25% yearly appreciation is sustainable, however, it's possible that I could be wrong. I only really pay attention to detached single family homes because that is what I own.

It's also very possible that prices will go down Nov-Feb in Denver. They typically do go down a little in the winter. However, when you do 12 month comparisons, I think it's going to be hard to find a decrease in Denver anytime soon. This is mostly due to lack of inventory.

According to this article, from 1985 to 2021, the average number of active listing for Denver is 14,596. From April 2021 to April 2022, inventory went up from 2600 to 3200. These numbers also don't factor in population growth. Denver has about twice the amount of people in 2021 than 1985. 

https://www.bizjournals.com/denver/news/2022/05/04/denver-housing-market-trends-report.html#:~:text=While%20low%20housing%20inventory%20has,saw%20a%20massive%2044.26%25%20increase.

[joe189man]

I had an event with my realtor yesterday, he said there are ~4,000 total homes for sale in Colorado, normal is 25,000. He also said that instead of 7-8 bidders fighting over a property there are 1-2, but offers are still coming in thousands over asking, his example was ~5% over ask. He felt that trend would continue. The low supply keeping home prices higher but interest rates starting to sting.

[waltworks]

Folks, these processes aren't like flipping a switch. The market is slowing, a lot, in most places. It might end in price declines, it might end in stagnation, but it's not going to happen in a month or two.

6 months ago every Denver listing had a dozen offers the first day. Not the case anymore, but it's still a slight seller's market. Give it another 6 months and it might be quite different.

-W

[waltworks]

https://calculatedrisk.substack.com/p/april-new-home-sales-decline-sharply?token=eyJ1c2VyX2lkIjoxMzAwMDU4MywicG9zdF9pZCI6NTYyNTYxODMsIl8iOiJBRjV1eSIsImlhdCI6MTY1MzQwODc0NSwiZXhwIjoxNjUzNDEyMzQ1LCJpc3MiOiJwdWItNDQzMTU1Iiwic3ViIjoicG9zdC1yZWFjdGlvbiJ9.iIdzGYt9VJ05LYIdUM1P8fmaAKhCwhjaBzlDvyTE6RQ&s=r

TL;DR - there is a considerable oversupply of new homes relative to demand now, and a LOT under construction as well.

-W

[clarkfan1979]

Folks, these processes aren't like flipping a switch. The market is slowing, a lot, in most places. It might end in price declines, it might end in stagnation, but it's not going to happen in a month or two.

6 months ago every Denver listing had a dozen offers the first day. Not the case anymore, but it's still a slight seller's market. Give it another 6 months and it might be quite different.

-W

I agree with the point about declines and stagnation taking some time. Florida was one of the hardest hit areas from very high "highs" to very low "lows". I bought my Florida rental pretty close to the bottom in early 2012 for 95K. The house was probably worth 250K in early 2007 during the peak. It took 5 years to go from top to bottom. Prices were back up to 250K in 2019. Now in 2022, it's worth 375K.

Based on my example, someone who bought at the absolute worst time in 2007 would still have 50% appreciation over 15 years.

 

[ChpBstrd]

Sorry, my crystal ball is broken.  I have no idea what date will mark the market turn.  After 40 years of valuation and investment experience, it's my educated opinion it will turn.  Markets are cyclical.  We are already seeing pullbacks in some areas.

I agree that the market will turn. However, no one knows when and by how much. All we can do is give it our best guess. …

I think we could do better than guessing. Just assume:

1) People in late 2021 were pushing the envelope of what they could afford in terms of monthly payments. This is our baseline and we will assume they will keep buying all the house they can afford.
2) People’s incomes are rising per the recent inflation numbers (~5.5%), which translates into higher 30y payments they can afford, which translates into higher prices they can pay.
3) Interest rate increases are increasing the size of P&I payments on 30y mortgages, which translates into buyers not being able to qualify for or afford the same prices they previously paid. Recent rate hikes have added about 25% to the payments on a mortgage.

By my math, that’s about a 20% price decrease even before we start talking about supply and demand. 

[clarkfan1979]

Sorry, my crystal ball is broken.  I have no idea what date will mark the market turn.  After 40 years of valuation and investment experience, it's my educated opinion it will turn.  Markets are cyclical.  We are already seeing pullbacks in some areas.

I agree that the market will turn. However, no one knows when and by how much. All we can do is give it our best guess. …

I think we could do better than guessing. Just assume:

1) People in late 2021 were pushing the envelope of what they could afford in terms of monthly payments. This is our baseline and we will assume they will keep buying all the house they can afford.
2) People’s incomes are rising per the recent inflation numbers (~5.5%), which translates into higher 30y payments they can afford, which translates into higher prices they can pay.
3) Interest rate increases are increasing the size of P&I payments on 30y mortgages, which translates into buyers not being able to qualify for or afford the same prices they previously paid. Recent rate hikes have added about 25% to the payments on a mortgage.

By my math, that’s about a 20% price decrease even before we start talking about supply and demand.

I don't think #1 is true. Everything that I have been seeing is that debt to income ratios on mortgages are at all time lows. I have not seen anything specific to 2021 only. Logically speaking, if debt to income is at all time lows and payments go up by 25%, I don't see that equating to stretching oneself to the limit of affordability.

My friend in Seattle finally got a place for 975K in Seattle yesterday! Do to the higher interest rates, he didn't have to overbid. He actually lost out on a few houses in the past when offering 100K over asking. The current house isn't a dump, but based on all the houses he made offers, this one showed the worst, which made it less competitive. 

He has been making 3-4 offers/year for about 4 years. He is 41 years old and single. He makes 150K/year. To be competitive he was writing offers with 50% down and an appraisal gap waiver.

I know he is only one person. However, this person was getting outbid by other people with more money and resources for the past 4 years. I agree that the market has shifted down to 2nd tier buyers. However, 2nd tier buyers are still super strong.

I don't think there is anyway he loses the house to foreclosure. Worst case scenario he takes on roommates and gets $1000-$1200/month for each room. 

[ChpBstrd]

Sorry, my crystal ball is broken.  I have no idea what date will mark the market turn.  After 40 years of valuation and investment experience, it's my educated opinion it will turn.  Markets are cyclical.  We are already seeing pullbacks in some areas.

I agree that the market will turn. However, no one knows when and by how much. All we can do is give it our best guess. …

I think we could do better than guessing. Just assume:

1) People in late 2021 were pushing the envelope of what they could afford in terms of monthly payments. This is our baseline and we will assume they will keep buying all the house they can afford.
2) People’s incomes are rising per the recent inflation numbers (~5.5%), which translates into higher 30y payments they can afford, which translates into higher prices they can pay.
3) Interest rate increases are increasing the size of P&I payments on 30y mortgages, which translates into buyers not being able to qualify for or afford the same prices they previously paid. Recent rate hikes have added about 25% to the payments on a mortgage.

By my math, that’s about a 20% price decrease even before we start talking about supply and demand.

I don't think #1 is true. Everything that I have been seeing is that debt to income ratios on mortgages are at all time lows. I have not seen anything specific to 2021 only. Logically speaking, if debt to income is at all time lows and payments go up by 25%, I don't see that equating to stretching oneself to the limit of affordability.

My friend in Seattle finally got a place for 975K in Seattle yesterday! Do to the higher interest rates, he didn't have to overbid. He actually lost out on a few houses in the past when offering 100K over asking. The current house isn't a dump, but based on all the houses he made offers, this one showed the worst, which made it less competitive. 

He has been making 3-4 offers/year for about 4 years. He is 41 years old and single. He makes 150K/year. To be competitive he was writing offers with 50% down and an appraisal gap waiver.

I know he is only one person. However, this person was getting outbid by other people with more money and resources for the past 4 years. I agree that the market has shifted down to 2nd tier buyers. However, 2nd tier buyers are still super strong.

I don't think there is anyway he loses the house to foreclosure. Worst case scenario he takes on roommates and gets $1000-$1200/month for each room.

So yea, your friend had to trade down because he couldn't afford the same offers other people were making. That's what all home buyers are going to be doing unless the prices fall. And of course, all home buyers can't do that or there would be no one left to buy at the top end...

[clarkfan1979]

For Denver metro area, when comparing March 2021 to March 2022, inventory is up 45%. During this time interest rates have increased from around 3.25% to 4.5%. Now in April they are 5.25%.

When you add these two things together, I would predict a flat market based on sales price. Maybe a 5% increase in home prices max. However, from March 2021 to March 2022, sales price is up 18%.

I think this speaks to the extremely low housing supply relative to demand.

My wife works as a virtual assistant for a real estate agent in Denver. The deal of the day was a single family home in Commerce City, CO. It was listed for 475K and went under contract for 500K after being on the market for 1 day. This was last weekend. The original buyer backed out of the deal today, so they accepted the back-up offer of 510K.

[waltworks]

Yep, still a good time to sell, at least for now.

Inventory numbers are up dramatically - but still historically quite low. I think in another 6 months it'll be a buyers market.

https://www.calculatedriskblog.com/2022/05/denver-real-estate-in-april-active.html

-W

[clarkfan1979]

Yep, still a good time to sell, at least for now.

Inventory numbers are up dramatically - but still historically quite low. I think in another 6 months it'll be a buyers market.

https://www.calculatedriskblog.com/2022/05/denver-real-estate-in-april-active.html

-W

Thanks for posting the link. It basically shares the same data that I was referencing in the original post. However, upon further review, I noticed that I made a mistake. I stated that inventory was up 45% from March 2021 to March 2022. However, that is not correct. Consistent with the article, the correct number is 23.5%. Inventory is up 44.3% from March 2022 to April 2022 and I think that is where i made my mistake.

For Denver, I could see inventory going up in the buyer's direction a little, mostly because monthly supply is at all-time lows (0.5 months). However, in order to be a buyer's market, the definition is typically more than 6 months of inventory. I don't see that happening in 6 months or really even 6 years based on the current fundamentals. 

Nationally, it looks like the monthly supply was at an all-time low of 1.6 months in January 2022 and now in April 2022, it's up to 2.2 months of inventory. I don't pay much attention to national data for housing. Maybe there could be a buyers market in 6 months nationally.

Colorado has 3rd lowest property taxes in the country (as a percentage of home value). They just passed legislation to lower the percentage even more. This is all accomplished with no homesteading. Investors get the same benefits of low property taxes as owner-occupied.