Has a chilly entrance moved into the scorchingly sizzling actual property market within the metropolis of Denver?
Metro Denver’s housing market has been changing in recent weeks, much like a cold front ending record heat, and could provide significant relief for buyers if this continues, local real estate agents say.
“The market has started moving in the past two to three weeks and has been very noticeable for most brokers within the past seven days,” said Bret Weinstein, founder and CEO of BSW Real Estate in Denver. “There is absolutely a market shift going on.”
While a popular offering earlier this year could have attracted more than a hundred shows and 15 to 20 serious offers, now even a “great property at an affordable price” could see 30 to 40 shows and three to four offers, Weinstein said.
Granted, at any point before the pandemic, this would still represent a robust sellers market. But for buyers tired of making and losing offer after offer, any kind of tempering improves their chances of actually getting a home.
“It’s still a very difficult market for buyers – it was an exhausting market,” said Brady Miller, CEO of Trelora in Denver. “In the past two weeks we’ve seen some signs of relief. We don’t see 12 to 15 offers. There are more houses on the market and prices are leveling out. “
The slowdown isn’t just happening in Denver. ShowingTime, which manages show scheduling for more than 1.5 million active entries, saw showing activity in 28 of the 30 cities tracked, including Denver, significantly in May compared to April.
“Although traffic is stopping at a historic pace, we’ve seen a significant month-on-month decline from April levels,” said Daniil Cherkasskiy, ShowingTime’s chief analytics officer, in a press release. “As we explained last month, even if demand weakens, we will still be a long way from a buyer’s market as demand for real estate will remain at unprecedented levels.”
Weekly screenings in Colorado, up 50% in April compared to the first week of January, went almost flat in late May. They rebounded in June, but the rate of increase is only about 20%, a fraction of the typical increase in June screenings versus January, according to ShowingTime.
In addition to making it easier to get a display space, buyers should also have a wider range of homes to choose from and the option to view a property more than once before deciding whether to bid. And they will have less competition when it comes to making an offer.
“In the past two weeks we’ve brought 3,600 new homes to market, which is the biggest increase in supply since the pandemic,” Miller said.
However, he admits that the number of new entries over the last year was less of an issue than the absorption rate or the proportion of entries that are used. This year, by the end of April, 95% of the new offerings had been absorbed, which Miller says is “tremendously high” compared to a more normal absorption rate of 60 to 70%.
The rate of absorption fell to 84% in May and is moving closer to 74% in June, which Miller said was much more reasonable.
Weinstein said the larger market seems unaware of the shift that has occurred, as the three offers a home could have on average are as strong as the 15-20 generated earlier this year. Frightened buyers, out of habit or desperation, continue to unnecessarily offer house prices against phantom competitors.
“Right now, we’re seeing the best offer win around $ 20,000 to $ 30,000 assuming there are other offers at that higher price when in reality they don’t,” Weinstein said.
Another sign that the market is weakening is fewer estimates lagging the price that sellers and buyers have agreed on, said Nicole Rueth, production branch manager on the Rueth team at Fairway Independent Mortage Corp. in Englewood.
When buyers are willing to bid well above the list price, appraisers can struggle to determine the right value for a home, which can make mortgage approval difficult.
About two months ago, 27% of ratings in Colorado were low, Rueth said. In June the proportion of mispricing moved closer to 10%.
June is usually one of the busiest months for home sales, and price increases can peak around July 4th or beyond. So what explains the Denver market losing steam in May?
For some people, the urge to socialize and travel after restrictions are relaxed may have diverted attention from looking for a home, Weinstein and others argue.
Wells Fargo chief economist Mark Vitner adds that the appeal of falling to Denver to work remotely or buy a second home in a Colorado resort could wane as more employers move workers back into it Call the office.
“As people are now thinking of going back to work, we are not seeing an increase in the number of people moving away from the west coast,” he said.
Vitner and others argue that affordability has become a headwind for the residential real estate market after sharp price hikes undermined the advantage last year’s sharp drop in mortgage rates offered in the form of lower payments.
“Prices cannot increase by 20% per year. These price gains are not sustainable. Income is not growing anywhere near that, and interest rates are not going to fall. Affordability is a real challenge in many parts of the country, ”he said.
And metropolitan Denver’s frenzied market may simply have burned out more potential buyers.
“I think what is driving the decline is a high level of price fatigue. Disappointed buyers and their brokers give up, ”said Tom LaRocque, a brokerage partner of Your Castle Real Estate, of the drop in screenings that began to be noticed in the second half of May.
Other market pauses over the past year have proven temporary, and it’s entirely possible that more buyers will come back into the game, causing things to heat up again in August or beyond. But if the stock of available housing starts to rise, the trend could take hold.
According to a survey by Homes.com, roughly one in five potential sellers cites low home inventory as the main reason they have delayed their homes. Just under 22% said their homes were simply not ready for the market or were waiting for a better time to uproot their families, while a tenth waited for the pandemic to subside.
In theory, a quieter market could encourage potential sellers to list their homes, adding to inventory. The trend could reinforce itself. However, given the low supply, it won’t take much to rewarm the market.
“When you consider that we have around 2,000 homes in the market, in a city of 3 million people, we only need around 10,000 buyers to have five buyers for a house,” said Weinstein. “But at the moment … the shift is on. For those sellers who think the market will keep rising forever, this is not the case. “