How's The Market September 2008

So How’s the Market? September 5, 2008. Data is from Metrolist, Inc MLS system. on 9.5.08.

Listing Inventory drops 18.733% in one year! This September shows an active listing inventory of 25,543 units for residential and condominium homes on the market. This is the lowest September inventory since 2004. The majority of homes being sold are under $500,000 with positive news coming for homes priced above $500,000, more info to follow towards the end of story.

The inventory reduction is a continuing trend that brings inventory levels down to 2004 numbers this year. This type of inventory reduction has caused a change in buying patterns from the last three years. When choices of homes are reduced, buyer behavior increases to make housing choices faster. As buyers make housing choices at a quicker pace, the number of sales will grow faster than the number of new active listings coming on the market, which will result in appreciation of homes.

We will watch this inventory number go below 22,000 by January of 2009 and remain at lower levels through 2009 over previous years.

The under contract data continues to stay at higher levels than 2007. August of 2007 was the month the marketplace turned sour in Denver, but really had been wavering for at least 20 months before that date. In September 2007 the data showed 5928 homes under contract and set to close. Just 12 months later in September of 2008, the marketplace is registering 7204 homes under contract. That is a 21.525% year over year positive growth. The lag in these properties closing is still a result of changing mortgage guidelines and processing delays.

Sold data continues to be the slower indicator of a rebounding market and as of August the number of properties closed still has not yet caught up with the lower inventory and higher under contract data lines. This fall season will start to see year over year changes where 2008 and 2009 will outperform the previous year.

The yearly figures for sold data follow a similar trend.

If we annualize these numbers we predict the Denver marketplace will expect to close 42,871 units for 2008. This number reflects a 6.015% decline from 2007 and will be the 5th year in a row of declining sold data for homes. This might sound gloomy but it actually reflects that we have already hit the bottom and 2009 will be the year of appreciation as inventories continue to decrease and home buyers have a change in their behavior to move quicker into the market. Here are actual previous years compared to our prediction for 2008.

What does this all mean to Buyers and Sellers? The average days on the market for residential and condo units has held consistent for three years. Given the facts of the foreclosure increases the last three years, the difficult mortgage guidelines since last summer and lack of buyer confidence in the housing market you would expect this number to rise, when in fact it has not.

For Buyers, the shrinking inventory will provide fewer choices. Specifically looking at the price ranges below, $500,000: The number of homes closed below this price point of $500,000 makes up 92% of all sold homes in Denver for 2008. The inventory below $500K is 19,080 as of today. This represents 75% of the total inventory in the market.

So if there are 92% of the buyers buying below $500, 000 and there are only 75% of available homes in this price point, we would conclude that the prices of homes below $500,000 will rise as the inventory continues to be reduced. The current absorption rate for homes below $500,000 is 5.985 months. If you take an annualized number of sales in the 0-$500,000 range gives you 38,251 for 2008 divided into the current available inventory of 19,080 in this price point, you get .498 X 12 = 5.98 months. We believe that 72% of the year has been past through August 2008 to annualize our numbers.

For sellers, if you own a home below $500,000 it is good news as your home will be able to stand out as there as not as much competition, but since real estate is localized to the neighborhoods, you must see where you are positioned against other properties in you sub area.

For homes above $500,000, sellers must be the first priced home the buyers will find and must be in move in condition to attract the buyers looking for homes above $500,000 in today’s market. Looking at the absorption rate for home above $500K, we have 6463 units available and 2469 units closed through August, 2008.

If we make the same calculations there is approximately a 22 month supply above
$500,000. This will start to drop fast and get more in the 13-14 month as homeowners in these price points will take their homes off the market for the holidays making a better environment for homes still on the market to find buyers.

Those that are on the market at the right time after the beginning of the New Year will be positioned well with a lot less inventory to find the early buyers. Remember these absorption rates are just a snapshot of the day, not a future trend, but are helpful if you are trying to see where a home might be positioned today.