Thursday, August 21, 2008

So How's The Market? August 2008

So, How’s the Market, August 2008 All statistics are taken from Metrolist data on August 4, 2008.

A passerby stops by a farm as he is driving through Colorado and waves at the farmer to come over to him holding a cold bottle of water. The passerby asks the farmer, “How’s the farming business?”

The farmer was working in the hot August sun on his tractor and this gave the farmer the opportunity to get off that darn machine and talk to the first person he had seen in 8 hours since he left his house at 4 AM to start his chores and to capture a drink of water from this person.

The farmer said, “We have had no rain, the bugs are eating my crop and the guy who buys my crop said he didn’t need as much as he used last year. The farming business is unbelievably good!”

The passerby is amused at the statement, but presses on, “How could your market be unbelievable when it seems everything around you isn’t working?”

The farmer then took a long drink from the bottle and smiled. The farmer said, “You look like a smart person, you drive a nice car and are well dressed. You come all the way out here and provide me a bottle of water. Why did you make such a trip?”

The passerby said, “I am a newspaper person, and am looking for a good story.”

The farmer said, “OK, farming is terrible, there’s no future in it and people in America will start to starve before you know it. Please write that verbatim in your paper as when the word spreads to the government how bad things are out here, they will increase the subsidy they already pay me, so seeing you made me think farming is unbelievable because I can get the newspaper guy to write something negative to help me!”

Everybody is looking to benefit from the current real estate market, whether it’s investors or newspaper people. Stories abound at the good and bad in the marketplace. The government passed a huge housing bill last week 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 poor judgments of obtaining a loan that probably shouldn’t have been written anyway. This will just be a short term fix and 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. Does this mean we are totally out of the slower market Denver has experienced for 30+ months? No, but we do not need a short term fix in Denver and the long term prognosticators are looking good. Here’s why!

Inventory in the month of August was standing at 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 the two charts below to see how inventories have changed in August of each year since 2004.

See attached pdf file for charts

Clearly, the Denver real estate market for active listings is experiencing reductions in active listing numbers. This trend historically would reduce during the fall and winter, where housing inventory decreases, but rarely does it every 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. In July of 2008, there were 4433 recorded sold properties in the Denver market for single family and condominiums.

Here’s the sold data for the last 5 years.

See attached pdf file for charts

As the numbers indicate, 2008 was the first July to experience a rise in sold data over June in 5 years. The next chart shows the actual numbers for sold data. One month hardly makes a trend, but this is the data we believe will show the Denver market having some long term trends to positively affect the housing market.

See attached pdf file for charts

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.

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 is another figure which indicates that the number of closing in August should exceed the August closings of 2007.

Homes priced above $750,000 have not experienced the same inventory drop nor increased 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. Considering Denver has not had but 1-2% appreciation for 7 years, it is inevitable that this level of the market will take time to catch the pace that has been exhibited below the $750,000 range in the last couple of months.

For more information Contact
Team Koz - Michael Kozlowski

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