Friday, January 9, 2009

How's the Market - January 2009

So How’s The Market, January 2009 All information taken from Metro list, Inc. 1.6.09

Great news…January listing inventory is at a low not seen in 6 years in the Denver Metro area. The current single family and condo total units that are active on the market as of 1.6.09 is 19,833. This represents a 19.03% reduction from January of 2008 and a 2438 unit decrease from just one month ago. This total active inventory represents a 5.57 month supply of homes.

This is the first time since January of 2006 that Denver has experienced a monthly supply lower than 6 months for the entire marketplace. However, the better way to look at this data is to break up the price ranges to show the difference in what is happening at lower end prices and upper end prices.

Looking at the price range between 0 and $250,000 there are 5707 active single family homes and 2886 condo units active on the market for a total of 8593 active homes in the 0-250K price range. There were 20303 single family homes closed in this price range and 7290 condos closed for a total number of sales of 27,593. Taking the 8593 actives divided by the 27593 sold properties = .31 X 12 = 3.74 month supply of homes between 0-$250K.

There is no question prices will rise in this lower level starting this month. Here’s the inventory of January for the past 6 years.

Let’s go to the price range of $250,000 to $500,000 to see the difference in the market conditions. The number of single family homes that are active between 250K and 500K are 5256 and active condo units are 1053 for a total active listing inventory in this price range of 6309. The total number of sales is 10769 SF and 1039 Condos for a total of 11808 homes sold. Doing the same formula we get a 6.41 supply of homes. This would indicate that this price point in the next 6 months will start to experience price increases as the inventory reduces below 6 month supply. If the market inventory increases in this price point for whatever the reasons, i.e. foreclosures, desperate sellers, etc, as this makes up the majority of the homes in the Denver area, it may take to the 3rd or 4th quarter of 2009 to see appreciation, but it is coming and now offers a great time to buy.

The price range from $500K to $750K is a little less active than below $500,000 as a lot of people have seen the past few months. This makes for a perfect time for buyers to move up as they can sell their home priced below $500k for closer to market value and be able to pick up an upper price range home with a really low interest rate. Here’s why?

The current single family inventory is 1891 and condo active units are at 371 in the $500K to $750K price range. The number of total sales in the price point is 2048 or a 13.25 month supply. This supply of over one year will start attracting buyers that can move up and get in at very low interest rates if they have the down payment to stay in a conventional loan.

By considering obtaining a loan at $400,000 today a buyer will be offered a 4.5% interest rate. This would create a payment of principal and interest of 2,026. When the rates were 6% the monthly payment would have been $2398 per month or a difference of $372 dollars per month. What this means in terms of qualifying for a loan is that the monthly income could be reduced by $1200 dollars to qualify for a loan under today’s lower rates. This only creates a larger savings spread as you go up in price.

Another reason for a buyer to buy now is that even though a home priced at $800,000 may not appreciate much in 2009 and their current resident at $400,000 may appreciate at 3% the potential appreciation in the $800,000 home will be better over a 5 year period. Take $400,000 times 3% or $12,000 grand and do simple interest to equal $60,000 increase over 5 years. The same home at $800,000 at 3% = $24,000 and do simple interest for only 3 years since the next two might not give the buyer the appreciation in the early years due to the inventory, but still equals $72,000 of appreciation. It is a much better time to move up now, then before the $800,000 home starts to appreciate. Pass this simple idea around and in 5 years buyers who buy today will have built wealth into their portfolio.

The next price point of $750K to $1 million will expand a buyer’s ability for future appreciation. Total inventory in this price point is 1077 SF and condo homes available and there were 656 homes closed for a 19.7 month supply

Homes above $1 million will continue to lag, but you will see this inventory decrease a little faster than you would expect because people who currently reside in this price point have different financial options and typically will ride out the market versus stay on the market. Watch for this price point in 2009 to decrease a slow but deliberate rate.

The number of homes under contract in January of 2009 is 3.96% higher than January of 2008. The total number of 4652 homes under contract is moving in the right direction, but will still need to catch up before we can call the market to be on fire. Once the number of homes under contract reaches 6500 units, Denver will exhibit appreciation starting with the lower price ranges first.

Finally, the sold data for 2008 was off 6.47% from 2007. An interesting piece of data to consider is that December of 2008 had 2772 homes closed and November 2008 had 2602 homes closed. This is the first time in 6 years that December outperformed November and that December of 2008 was only 22 units shy of the 2794 closed units in December of 2007. The real trend to watch is when a year over year sold data increase for each month. The Denver market will be able to blow the whistle on a resurging market when you have a current month outperform the sold data from a previous year. A trend is a full 3 months in a row before we can really toot the horn, but we suspect the number of sales for 2009 will start to outperform the number of sales for 2008 each month starting early in the year. Here’s the last 5 years of total sales for single family and condos for each year.

What should sellers be doing now to make this a successful market for them?

· Consider pricing your home at or right below market value to attract the most attention. Do not worry about the low ball offers that may come in, but consider the number of buyers that will consider your home to be a deal which allow you to sell in 2009 and look for other opportunities.
· Make your home the best kept property in your price range and market.
· Price your home on the search numbers, zero, 25, 50 and 75. What this means is the buyers search properties in computer numbers like 200,000 to 225,000. This pricing strategy allows for multiple search criteria. So if your home is priced at $300,000 the buyers searching $275,000 to $300,000 pick it up and the buyers searching $300,000 to $325,000 pick it up. When interest rates drop buyers tend to search one price level above their qualification price to see what they can get. Get your home positioned correctly.

What should buyers be doing now?

· Move up to a home you really want, but have been hesitant to move due to the uncertainty of the marketplace.
· Take advantage of the lowest interest rates in 40 years
· Consider asking the seller to pay for your closing costs to assist in your purchase. The seller can pay up to 3% of the closing costs on most loans.