Saturday, December 20, 2008

How's The Market December 2008?

So, How’s The Market? December 2008. All Data taken from Metrolist, Inc. on December 3, 2008

You could not pick a better time to buy a home than right now. There is a perfect housing storm brewing and here are the parts of the equation to focus on.

1. Inventory. The inventory on December 3, 2008 for single family homes and condominiums is standing at 22,271 homes available to buy. This represents a 19.12% decline in inventory over December of 2007.

2. Housing Interests hit a low of 5.25% for a 30 year conforming fixed rate mortgage this past week. The rate will fluctuate between this low number and 5.75% for the short term. These are extremely attractive rates for buyers.

3. Job growth in the Denver metropolitan area for 2008 was up over 2007 and will again grow in 2009.

These three factors are a clear indication that the price of homes in Denver will cause more buyers to enter the market resulting in home appreciation for 2009.

The decline in inventory is the big story. Here are the December inventory figures for the last 5 years.

You can follow the chart to show that we are at a 5 year low for inventory for this time of year, which will result in buyers having fewer choices in their housing search. At any time buyers do not have sufficient choices they tend to move faster toward buying the first house that fits their needs. This increase in activity causes properties to move faster, hence having prices rise because of the increased demand.

The second number to consider is the properties currently under contract. The economic woes of the past 90 days would make you think that buyers are no longer buying homes. The current number of properties under contract in the Denver Metro area do not reflect a position of economic concern. In fact, the number of homes that are under contract this December is 6.96% higher than it was 12 months ago. That increase supports the fact buyers in the Denver marketplace are secure in moving forward with their housing needs and not waiting for some economic bailout. Currently there are 5,396 homes placed under contract and 12 months ago it was 5045 or a 351 unit increase year over year.

The lagging sold data is one area that has not yet responded in a positive fashion. We see that it will be March before the Denver market starts to consistently outperform the previous years’ data.

In November of 2007 there were 3008 single family and condo units closed. In November of 2008 there were 2602 units closed. This 13.5% reduction in sold data year over year can be attributed to three factors.

1. In September and early October when these contracts were first written, the financing hurdles were harder to leap then they are today. In fact, interest rates hovered in the mid 6% range in September and October, which caused buyers to slow their buying process down for 30-45 days. This is reflected in the lack of closings for this November and will more than likely follow the same trend in December. The more flexible mortgage market today will show some positive closing results in 2009.

2. We did not see a reduction in gas prices till October. November closings are written in September and October. Outlying housing areas were hurt because buyers were overly concerned about the distance to cover to get to work and what the cost of their trips might be. Gas is now at a 4 year low in the fastest drop of that commodity in US history. Buyers are now starting to explore the suburban markets more as the prices are more attractive than the urban markets and the buyer pool who avoided those markets while gas prices hit astronomical levels are now revisiting these properties, but have not yet purchased causing the closings to drop off.

3. Consumer confidence in September and October was at an all time low for all products, not just housing. When people were having their retirement funds and stock portfolios reduced by tens of thousands of dollars, their desire to purchase a home became less attractive. However, what the Denver marketplace is now experiencing is a higher level of confidence than the national markets allowing buyers more willingness to buy, but this lack of willingness to move hurt the short term closing numbers at a more than seasonal drop.

The sold data year over year is down 6.83%. This is an expected reduction and although 2008 has not been a banner year for sold data, the trend of lack of inventory, increased buyer confidence and improved job growth will cause this lower sold statistic to be a thing of the past in 2009.
What should sellers do in this marketplace?

1. If your single family home is below $500,000, you are more than likely in a good position to sell faster than you think. Currently under $500,000 there is a 4.89 month supply of homes. When the supply is below a 6 month range, there typically are more buyers than there are listings causing homes to move faster.

2. If your single family home is between $500K and 1 Million, there currently is a 16.8 month supply of homes. This is a rather dramatic increase over the lower price range. Our recommendation would be to be the first positioned priced home in your market. Your home will need to show better than others, and offering terms to buy down interest rates would be something to attract buyers. The supply should continue to decrease bringing the opportunities from $500,000 up to the higher ranges as well.

3. If your single family home is above $1 million, there is a 37+ month supply. This might be misleading as some of the homes priced at this price point really aren’t worth $1 million but the sellers have chosen to position their homes at that level. The facts are that with that type of supply you must be the most aggressively priced home in the best condition. We typically see this price range supply drop faster than others because the homeowners have choices to take the home off the market and wait. We would anticipate this inventory to drop at a more rapid pace in 2009 than it has in 2008.

4. If you own a condo there is a 7.6 month supply of condos for all price ranges. You can assume that the entry level price range would have a lower supply than the upper.