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By Michael Clarkson The Mile High Home Hunter Market Conditions - As of July 1, 2009
Full charts can be seen here: In June, the national unemployment rate inched up to 9.5% from 9.4% in the prior month. That is the 2nd highest it's ever been since statistics have been tracked consistently, starting in January 1948. Recapping the five most recent highs have been:
1. 10.8% - November and December 1982
2. 9.4% - May 2009
3. 9.0% - May 1975
4. 7.9% - October 1949
5. 7.8% - July 1976, November 1976, July 1980, June 1992
Despite Denver's market news looking initially optimistic, there are some troubling signs that require monitoring. 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 - 9.6 months of inventory · Denver - 5.72 months of inventory (seasonalized over the past 12 months) Denver's sub-markets by price were the following:
· $0- $200k (up to the median price) or 50% of the market - 2.4 months of inventory (strong seller market) - This is static from last month.
· $200k to $400k (median to the $100k annual qualifier) or 50% to 88% of the market - 5.8 months of inventory (seller market) - This is up slightly from last month
· $400k to $1m - 14.4 months of inventory (heavy buyer market) - Notably up from last month
· $1m and up - 47.5 months of inventory - This is up 4.2 months in just one month!!! So, 88% of our addressable market is seller to strong seller market and remaining firm. Listings are static at 20,853. This has not materially changed since January and has been nearly exactly the same for six straight months. Listing levels have only increased by 1,105 in a metro area of nearly 3 million people!!!! That's embarrassingly anemic! The 5 years' average is 27,009 listings, meaning listings were down 22.8% from historic levels. Sold listings were 4,186. Though up from last month, the 5 years' average is 5,102, meaning 18% fewer homes were sold. As a result of this market strength, prices are moving up.
· Median sold price - $238k up from $220k last month
· Average sold price - $283k up from $262k last month
· As a result of high end homes listing, but not selling, the average list price was $540k up from $538k 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. Now, the problem: Denver continues to suffer from homes that contract for multiple months, but fail to close. This month, 1,886 were under contract for more than a month, down from 2,196 the prior month or 310 homes. Assuming all of those 310 homes went from under contract to closing, only 248 additional homes were sold, which would be an anemic pace. If none of those long-term under contracts closed the 558 incremental homes sold represent a disturbing trend: Insufficient volume to force up prices meaningfully for an extended period of time. 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. This leads this author to believe that Denver's market may stall in the next few months, if the $200k to $400k market does not improve commensurate with activity in the sub $200k market. Indeed, if interest rates continue to climb, things will soften more quickly than alluded to here.
"A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty." - Churchill
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