Everybody is very interested in the current real estate market, whether it's investors or the media. Stories abound at the good and bad in the marketplace. The government passed a huge housing bill to help homeowners with the potential short term financial crunch that exists. The bill will basically give homeowners the ability to refinance if they are in a difficult financial situation due to the poor judgement of having obtained a loan that probably shouldn't have been written anyway. This will just be a short term fix. The long term help comes from the local markets themselves.
Let's take a look at the Denver marketplace, because some outstanding numbers are happening before our eyes. Are we totally out of the slower market Denver has experienced for 30+ months? No, but Denver looks good for the long term. Here's why!
Inventory in the month of August was 26,864 units for single family and condominiums. This is a reduction of 4,461 units from one year ago or a 14.24% decrease in homes on the market year over year. Anytime you have inventories continue to decrease, prices will increase. August of 2008 is also the first time in 5 years that the inventory of active listings decreased from July to August. See below how inventories have changed in August of each year.
2004 -1441 increase
2005 -707 increase
2006 -56 increase
2007 -423 increase
2008 -119 decrease
Clearly, the Denver real estate market is experiencing reductions in active listing numbers. This trend historically would reduce during the fall and winter, but rarely does it ever decrease in the summer months. When the housing market hits 22,000 units, the supply will not meet the demand. In looking at sold data, we can justify this number as the benchmark by which housing prices in Denver will go up.
Sold data has lagged behind the other indicators for more than 2 years, but appears now to be poised to start to increase year over year. See below the details of the sold data change from June to July of each year.
June 2004 -5769, July -5221
June 2005 -5646, July -5290
June 2006 -5379, July -4001
June 2007 -4848, July -4595
June 2008 -4287, July -4433
As the numbers indicate, 2008 was the first July to experience a rise in sold data over June in 5 years. One month hardly makes a trend , but this is the data we believe will show the Denver market having some long term trends positively affecting the housing market.
If we were to annualize the sold data for 2008 based upon the July figures, the projections show the total number of sold properties to be 44,736 for the entire year of 2008. If the listing inventory hits 22,000 units as a medium level, the Denver market would have a 5.9 month supply of homes. Hence, the marketplace will see appreciation when this occurs. Our best crystal ball suggests this will be in the first half of 2009.
Of course, this is for the overall market including all price ranges. As I stated last month in this newsletter, we are already at 4-5 months of inventory in the $0-$250,000 price range and have seen stabilizing of the prices, bidding wars and decrease in days on the market in this price range.
The number of properties Under Contract in the market stands at 7306 as of August 4, 2008. This is up 476 units over 2007 or a 6.9% increase in the number of properties yet to close. This figure indicates that the number of closings in August should exceed the August closings of 2007.
Homes priced above $750,000 have not experienced the same inventory drop nor increase in sold data as below this price level. We can attribute the slower upper end market to difficulties in obtaining financing and large levels of inventories. This price point takes time to get to a more robust market and will do so when the lower price points start to see appreciation. The more appreciation homeowners see from $0-$500,000, the more buyers will have equity to buy into the upper end market.
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