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As month-end active inventory skyrockets, the Denver Metro hit a new record for the average price of attached properties at $504,193. At the end of June 2021, Denver Metro ended with 3,122 properties on the market. It has now almost doubled that amount over the year, with a total of 6,057 properties currently sitting on the market.
Buyers are feeling the woes of the economy. Many first-time homebuyers who were initially pre-approved towards the beginning of the year with a specific interest rate decided to wait to buy until it wasn’t as competitive. But, when they restarted their search in May, they found that it was with an increased interest rate.
On the other hand, many sellers may have closed on a home earlier in the spring, meaning they went under contract with a certain interest rate, but decided to wait to sell their own home until they moved into their new one. And the consequence they saw is longer time on the market and potentially slight price reductions.
“The increase in supply will eventually impact pricing, days in the MLS and the relationship between buyers and sellers, which have negatively impacted buyers’ purchasing power,” commented Andrew Abrams, Chair of the DMAR Market Trends Committee and Metro Denver Realtor®. “The stock market, inflation and cryptocurrency have all taken a hit in the last few months. Housing will eventually be a victim to the economy as a whole, but just how much is yet to be seen. It is realistic to see days in the MLS, currently sitting at a historic low of four, increase in the coming months.”
As we enter the second half of 2022, there is less competition for those getting into the market, but the cost of waiting has been significant for many first-time homebuyers. Interest rates are perceived to be high at the moment but may very easily continue to increase if inflation doesn’t decrease at a more rapid pace. With the 65.85 percent increase in inventory compared to the previous month, Denver Metro should expect more balance and multiple months with prices not going up. This is reflected in months-of-inventory, which is now at 1.19, the first time it has been above one in months since June of 2020.
Our monthly report also includes statistics and analyses in its supplemental “Luxury Market Report” (properties sold for $1 million or greater), “Signature Market Report” (properties sold between $750,000 and $999,999), “Premier Market Report” (properties sold between $500,000 and $749,999), and “Classic Market” (properties sold between $300,000 and $499,999).
Akin to the overall market, the Luxury Market homes saw an adjustment as the Denver Metro hit the midway point of 2022. While all other pricing segments saw double-digit increases in new listings, there were more new listings in June for the Luxury Market but only a 6.82 percent increase.
The number of pending sales of detached homes dropped 21.87 percent month-over-month. Attached home pending sales were down 42.86 percent from May but closed sales increased 11.11 percent month over month. The amount buyers paid over the listing price also dropped from 106.85 percent in May to 103.71 percent in June. That means, on average, they still paid above the list price and more per square foot. That is the highest above asking price of all of the market segments.
“Luxury attached home sales were boosted by the completed sales of nine of 10 units at 1955 3rd Street in Boulder. Odonata is a boutique community with the nine units closing between, $2,980,390 and $3,542,863,” said Jill Schafer, DMAR Market Trends Committee member and Metro Denver Realtor®. “Overall, the sales volume of luxury homes increased significantly over $5 billion year-to-date for the first time at the midway point of the year. That’s a lot of luxury home sales, especially considering that two years ago at this time sales volume of luxury homes was only about $1.58 billion.”
Those who sold homes above $1 million didn’t have to wait long for an offer as the days in the MLS remained at an average of four for detached homes but inched up a day to five for attached homes. The average total price per square foot for detached luxury homes was up to $379 year-to-date, an 11.80 percent increase from 2021.
Download the report here:
The house style Colorado residents find most attractive is among the most-favored styles nationwide, according to a recent report from the online home improvement services marketplace HomeAdvisor.
Cottage-style homes are the most popular in Colorado, according to the report that surveyed 2,263 Americans on their house style preferences this past May.
Cottage homes are known for their coziness and small size, usually including stone or wood elements and a porch, HomeAdvisor said.
Cottages were also scored as the most popular style in the U.S., securing 11% of votes with Gen Z as a top advocate, according to the report.
Connecticut, Missouri, Nebraska, Washington and Oklahoma were among the other states reporting cottage-style homes as their most preferred.
Other popular styles in Colorado include contemporary and Mediterranean. Contemporary-style homes were also found to be the most popular among Colorado’s neighbors, Utah and Kansas.
Cottages in Colorado are mostly selling for over $500,000, reaching into the millions and as low as $195,000, according to ZeroDown, a site for home sale searching.
Attached homes in the Denver metro area reached a record-high average sales price of $504,193, while single-family homes’ average sale price was $810,415, according to the June report from the Denver Metro Association of Realtors (DMAR).
Perhaps because of those high prices, according to the HomeAdvisor report, 76% of Americans would purchase a house that is deemed “ugly” on the outside but “perfect” on the inside.
As for external home features, the report found that porches matter most to nationwide residents surveyed, 29% of whom voted that feature as the most important.
The report also found that 54% of Americans prefer to purchase a new home while 46% said they would invest in a vintage home.
Adobe and contemporary-style homes were voted as the nation’s least popular, scoring 14% and 12% of votes for least favorite, respectively. But contemporary was also listed as a national favorite, at 10% of that vote, revealing a polarizing take on the style. Adobe only earned 6% of the vote for most-favored style.
Colorado’s second-favorite home style was contemporary while the state’s least favorites were traditional, colonial and townhouses.
The nationwide analysis did not include Rhode Island, Delaware, Idaho, Hawaii, Montana, North Dakota, Vermont, Alaska, South Dakota and Wyoming due to insufficient survey responses.
HomeAdvisor merged with Angie’s List in 2017 to form the Denver-based company Angi Inc. (Nasdaq: ANGI).
The data confirms that the Denver Metro area is no longer in a shifting market. Instead, it has shifted, and the real estate market is more balanced. Month-over-month, the market is down 3.33 percent but compared to last year, it is still up 11.04 percent, indicating that a more balanced market, combined with slightly decreasing interest rates, may create opportunity for those who previously felt burned out on the process.
One of the primary indicators of a shifted market is the close-price-to-list-price ratio, which was down to 100.81 percent. Buyers have become more specific about what they are looking for and frequently question if, and how much, below the asking price they can offer. Gone are the days that a seller can simply put a sign in the yard and expect their home to sell.
Every indicator points to the market shifting closer to a buyer’s market. The month-end active listings increased 21.53 percent last month. Pending and closed deals decreased and days in the MLS increased by exactly 30 percent. However, the market is still far from what many experts would consider a buyer’s market. There are over 2,000 fewer properties on the market today than there were three years ago and, during the last three years, the amount of standing inventory peaked in June and July, which was abnormal. Historically, the market doesn’t peak until August or September.
“The question that frequently gets asked is whether we are in a bubble,” commented Andrew Abrams, Chair of the DMAR Market Trends Committee and Metro Denver Realtor®. “Prices are high, interest rates feel high and even though compared to historic norms are not, the economy has taken a dip and buyer sentiment is down. With all those uncertainties looming over potential buyers, a housing bubble should not be one of them because housing prices are based on supply and demand. Our supply is relatively low. People who currently own are not incentivized to move as their interest rate is most likely lower in their current house than it would be in a future one. While prices may go down and days in the MLS may go up, we are still far away from a bubble.”
Year-to-date, the entire market has seen 7.18 percent fewer homes closed than the previous year. Even with fewer purchases, the market has transacted over $1 billion more in sales volume than the previous year, indicating how high prices have soared from the previous year. This is also indicated in the close-price-to-list-price ratio of 105.33 percent, down from the previous month.
DMAR’s monthly report also includes statistics and analyses in its supplemental “Luxury Market Report” (properties sold for $1 million or greater), “Signature Market Report” (properties sold between $750,000 and $999,999), “Premier Market Report” (properties sold between $500,000 and $749,999), and “Classic Market” (properties sold between $300,000 and $499,999).
With many people out-of-town, combined with mortgage rates that briefly went over six percent, the Luxury Market also felt the seasonal cooling in July. New listings were down 22.13 percent, pending sales were down 18.16 percent and closed homes were down 30.80 percent since June. There were 718 new luxury listings in July and 492 closings.
At the end of the month, there were 1,190 active homes for sale in the Denver Metro area over $1 million signifying that luxury inventory is up. Compared to last year, inventory has increased 39.05 percent, with most of that in detached homes. Notably, the months of inventory increased in July to 2.37 months for detached luxury homes and 3.31 months for attached. This is a leading indicator that the Luxury Market, particularly attached luxury homes, is no longer an extreme seller’s market as the Denver Metro has seen for the past two years. The Luxury Market saw the highest number of expired listings, at 183, of any sector in July. This trend toward a balanced market is reinforced by the close-price-to-list-price ratio for July, which was down 3.11 percent from the prior month to 100.44 percent.
“Just as July gives us some breathing room to travel and enjoy our summer vacations, it brings buyers in the market some breathing room with longer showing windows, more time to consider making an offer, less competition and slowing prices,” said Colleen Covell, DMAR Market Trends Committee member and Metro Denver Realtor®. “Sellers, meanwhile, need to appreciate this shift in the landscape and adjust their expectations. Many homes are not going under contract in the first week, there will be under ask price offers and contingencies won’t be waived. Just like it used to be, pre-pandemic! All-in-all, a return to normal is on the horizon this year.”
Adjustable-rate mortgages are more popular this summer than they’ve been since right before the Great Recession.
The share of mortgage applications for ARMs rose to 12.6% in June before they dipped to 12.2% in July, according to an analysis by Seattle-based Zillow Group Inc. (Nasdaq: ZG). It’s the first time since August 2007 the share of ARMs among mortgage applications has been more than 12%.
While that could trigger some alarm bells, the conditions today — including lending standards — are very different than the years leading up to the housing crash of the late 2000s, said Jeff Tucker, senior economist at Zillow.
“It’s something to keep an eye on but, at the moment, it doesn’t look concerning to us,” Tucker said. In the years leading up to the pandemic, ARMs generally made up less than 10% of the overall mortgage-application market, he said.
ARMs offer lower rates during an introductory period of three to 10 years before adjusting to the market at a predetermined time. Tucker said some buyers are choosing ARMs because interest rates were recently so low before their quick ascent this spring, and it’s not certain where rates will be in five years, when the rate for a 5/1 ARM loan — a common type of 30-year ARM — would adjust.
Despite the chance for an eventual higher rate with an ARM, the risks aren’t the same as, say, subprime mortgages key to the housing-market meltdown in 2008 because of tighter lending standards, Tucker said.
But, according to home mortgage data from 2021, ARMs these days are generally going to borrowers making bigger down payments on more expensive homes, rather than buyers who can’t afford to get a home on a 30-year fixed rate loan and who may be at risk of a foreclosure down the line.
The median income of buyers who received an ARM loan was $165,000 in 2021, compared to $91,000 for all borrowers, Zillow found. The typical ARM borrower put 23.6% down while the typical borrower overall put down 10%. The median home value among ARM borrowers was $565,000, as compared to $325,000 across the overall market.
He said the reasons for the current housing-market slowdown are also different now than they were in 2008. It’s coming from the demand side of the issue — affordability has prompted some buyers to press pause — as opposed to the supply side, which was the case in the late 2000s amid a wave of foreclosures.
“If buyers are feeling like prices are a little too far out of reach, as things cool down, it’s self-limiting,” he said. “We’ve begun to see sellers are also opting out … I’m not going to list my house if I’m hearing it’s a bad time, (which) prevents a runaway glut of housing on the market.”
What may be concern for borrowers, especially amid a high-inflation environment, is their debt-to-income ratio, Tucker said. Issues may arise if borrowers try to stretch that ratio outside of qualified-mortgage boundaries but, he continued, he’s not seeing riskier, non-QM financing mechanisms coming back.
Mortgage-application activity overall has slowed, corresponding with higher interest rates and, in many places, continued home-price appreciation. Mortgage applications the week ending Aug. 19 decreased 1.2% from the week prior on a seasonally adjusted basis, and were 21% lower than the same week a year ago, according to the Mortgage Bankers Association’s weekly mortgage applications survey.
Notably, ARM share of activity decreased, to 6.5% of total applications, the week ending Aug. 19, compared to the higher shares observed earlier in the summer. Joel Kan, MBA’s associate vice president of economic and industry forecasting, in a statement said the spread between conforming fixed-rate and ARM loans narrowed to 84 basis points, as compared to more than 100 basis points observed the week before.
“This movement made fixed-rate loans relatively more attractive than ARMs, thereby reducing the ARM share further from highs seen earlier this year,” Kan said.
Housing inventory across the country rose for the third consecutive month in July, as active listings were up 30.7%, according to a Realtor.com report.
The report highlights that while buyers had nearly a third more for-sale home options in July than in the previous year, competition remained in favor of sellers, with listing prices near all-time highs and homes selling faster than before the start of the pandemic.
“The U.S. housing market continues to move toward more evenly balanced supply and demand compared to the 2021 frenzy,” said Danielle Hale, chief economist for Realtor.com, in a release. “Our July data shows elevated mortgage rates left many buyers tightening their budgets and sellers responding with price reductions, while home shoppers who kept searching saw more available options.”
Despite the rise of active listing, the data shows that competition remained largely in sellers’ favor, with listing prices near all-time highs and homes selling more quickly than before the pandemic.
The U.S. median listing price in July came in at $449,000, just $1,000 shy of June’s all-time high but up 16.6% year-over-year.
On a square-foot basis, year-over-year asking-price growth decreased slightly in July (+15.5%) from the June pace (+16.2%).
In the Denver-Aurora-Lakewood metro area, the median listing in July was $650,000, an 8.3% increase from last year. Active listings in the area were up 70.4% from the previous year.
Other key findings from the report:
The full report and methodology can be viewed here.
Despite an interest-rate hike of three-quarters of a percent by the Federal Reserve on Wednesday, and additional increases likely still to come, some housing economists aren’t expecting another big surge in mortgage rates now or in the coming months.
A recent slowdown observed in the U.S. housing market has largely stemmed from the sudden jump in mortgage rates felt in late spring and early summer, in line with the Fed’s decision to move up interest rates in an ongoing effort to combat inflation.
Existing-home sales declined for the fifth straight month in June, down 5.4% from May and 14.2% from the prior year, according to the National Association of Realtors. Unsold inventory was at three months’ supply nationally in June, up from 2.6 months in May and 2.5 months in June 2021, likely attributed to less buyer demand.
Lawrence Yun, chief economist at the NAR, said in a mid-year forecast event by the association before Wednesday’s Fed meeting that the mortgage market has already priced in additional rate hikes, including yesterday’s increase. Plus, fixed mortgage rates are tied to the 10-year Treasury rate, although other metrics, including inflation, are factored in.
“It’s possible that we may be topping out in mortgage rates, independent of what the Fed may be doing in future months,” Yun said.
After an average of 3.45% in January, the 30-year fixed mortgage rate jumped to an average of 4.98% in April, then 5.52% in June, according to Freddie Mac data. More recently, that rate has hovered in the mid-5% range.
That doesn’t mean mortgage rates will completely stabilize but smaller swings up and down are more likely, Yun and others predict.
Mark Vitner, senior economist at Wells Fargo & Co. (NYSE: WFC), said in an email there probably will not be a repeat of the abrupt move seen this past spring.
“There is a growing sense that the Fed is getting close to finishing hiking rate(s), and the markets are expecting the Fed to cut interest rates next year,” Vitner continued. “Mortgage rates have already likely seen their highs for this year but will probably spend much of the rest of the year a quarter percentage point above or below 5.5%.”
Skylar Olsen, chief economist at Seattle-based Zillow Group Inc. (NASDAQ: ZG), also said in an interview mortgage rates will likely be “steady as she goes” for the foreseeable future, even with the additional expected hikes from the Fed.
But if mortgage rates remain somewhat stable, hovering in the mid- to upper 5% range, does that mean the housing-market slowdown that’s occurred in recent weeks in response to skyrocketing mortgage rates will reverse course?Olsen said affordability because of higher mortgage rates and home prices will still be the key hurdle for a lot of households.
“If interest rates can remain stable, then changes and behavior are much more driven by long-term dynamics, which are still solid: a big millennial generation, a boomer generation downsizing,” Olsen said. “There’s a lot in the housing market that’s not going to change as much as (people might) think, but we are absolutely going into a period where the volumes and quantities are going to slow.”
Thursday morning, the U.S. Bureau of Economic Analysis reported real gross domestic product declined for the second consecutive quarter in Q2, at an annualized rate of 0.9%. The U.S. economy slowed at a rate of 1.6% in Q1, which initially raised the possibility of the economy heading into a recession.
Economists have debated what will signal if the country is in a recession, with some saying two consecutive quarters of negative GDP growth translates to the U.S. economy being in a recession. The Business Cycle Dating Committee, part of the National Bureau of Economic Research, officially decides when the national economy is in a recession, but those evaluations are typically made retroactively.
The NBER says on its website a recession involves a significant decline in economic activity that is spread across the economy and lasts more than a few months. But depth, diffusion and duration — the three key criteria named by the department in determining the state of the economy — is somewhat interchangeable, and extreme conditions revealed by one criterion may partially offset weaker indications from another.
And what’s making the current economic situation “bizarre,” as Yun put it, is a continued strong job market — an important gauge that’s at odds with a typical recessionary period.
In June, U.S. employers added 372,000 jobs, and the unemployment rate remained unchanged from a month prior, at 3.6%, according to the U.S. Department of Labor.
Federal Reserve Chair Jerome Powell said in a news conference Wednesday while there is a slowdown in growth, he pointed to what he called very strong data coming out of the labor market. He said he didn’t think the U.S. was in a recession currently.
“In all probability, demand is still strong, and the economy is still on track to grow this year, but the slowdown in the second quarter is notable and we’ll be watching that,” Powell told reporters.