Market Conditions - As of August 1, 2009

Market Conditions - As of August 1, 2009

In July, the national unemployment receded back to 9.4% from 9.5% in the prior month.  This is a positive sign that the bottom of the recession appears to be close at hand, if not already past, as unemployment is a trailing indicator.

Denver's market continues to demonstrate some indications of stalling - the absence of move-up buyers.

Let's start with the facts:

Remembering that 6 months is the tipping point between Seller's markets (below 6 months) and Buyer's  markets (above 6 months), here is how Denver is faring:

•·         Nationwide - 9.4 months of inventory, down from 9.8 months the prior month

•·         Denver - 5.82 months of inventory (seasonalized over the past 12 months), up from 5.72 the prior month

Denver's sub-markets by price were the following:

•·         $0- $200k (up to the median price) or 50% of the market - 2.3 months of inventory (strong seller market) - This improved by 0.1 months from the prior month;  below $100k, the months of inventory is 1.1 months and between $100k and $200k, there are 2.74 months of inventory.

•·         $200k to $400k (median to the $100k annual qualifier) or 50% to 88% of the market - 5.9 months of inventory (seller market)  - This is up slightly from last month and continues a trend from the past 8 months; this segment is up from a low of 4.3 months in December 2008.

•·         $400k to $1m - 14.4 months of inventory (heavy buyer market) - There has been no change since last month

•·         $1m and up - 48.7 months of inventory - Though the rate of deterioration is slowing, the deterioration is continuing - up from 47.5 months last month.

So, 88% of our addressable market is seller to strong seller market and remaining firm with a composite of 3.93 months of inventory.

Listings are static at 20,890. This has not materially changed since January and has been nearly exactly the same for eight straight months. 

The 5 years' average is 28,609 listings, meaning listings were down 22.8% from historic levels.

Sold listings were 4,440. Though up from last month, the 5 years' average is 5,083, meaning 12.7% fewer homes were sold.  

As a result of the failure of the market to close sales, Denver's market strength is weakening and, prices are moving down.

•·         Median sold price - $230k down from $238k last month

•·         Average sold price - $277k up from $283k last month

•·         As a result of high end homes listing, but not selling, the average list price was $539k down from $540k last month.   The lack of high end mortgages precludes them from being sold readily, and increases the risk of higher end foreclosures in the near to intermediate term.

Days on market (DOM) is 100 days, the same as the prior month.

Now, the problem:

Denver continues to suffer from homes that contract for multiple months, but fail to close.  This month, 1,899 homes were under contract for more than a month, up slightly from the prior month's total  of 1,899 homes.

Here's the logic:

•·         Up until the financial crisis last October, about 5059 homes per month were active up to the $200k price point; now only 3550 are active.  This means a 30% reduction in inventory.

•·         Solds per month at that same price point over that same period were up from 1219 homes sold to 1383 homes sold.  That is a 13.5% increase in activity.

On the face of it, that's a good thing.  However, the average buyer moves up 50%.  That move up activity is not being seen in the market.  In fact, sales activity is down 12.3% in the $200k to $400k market, the next higher price bracket.

•·         Solds were down to 1220 (after the crisis) from 1391 per month (before the crisis), meaning  one would expect that pipeline of sellers in the sub $200k market would normally be a pipeline of buyers moving up-market to the $200k to $400k market.  That is not occurring.

Indeed, the diverging of the $0-$200k (decreasing months of inventory) and the $200k-$400k (incrasing months of inventory) segments shows that people are not buying up - a requirement for a sustained recovery.

This leads this author to believe that Denver's market is stalling now. To be direct, the market's failing to fill the sales pipeline in the buy up segments indicates that the gained success will be elusory.

Indeed, if interest rates continue to climb, things will soften more quickly than alluded to here.