A review of what’s happened so far and some educated guesses as to what the future holds.
As of last Thursday, April 9, 2020, the Colorado Real Estate Commission announced that Open Houses and in-person showings are officially off the table. For now, all Colorado real estate marketing has to be digital.
So, what does that mean for people who need to buy a place to live or for those who want to sell their homes?
There are several things that we need to look at if we are to even begin to understand what the Sam Hill is going on with this market. In the coming days, we will explore these questions in 3 parts:
- How has the virus affected the Denver Real Estate Market so far?
- What are the logistics of buying and selling homes during a quarantine?
- What makes sense for today’s sellers and buyers? What is the smart move when you want to move?
Part 1: A Whirlwind of (Perceived) Change: How Coronavirus has affected the Denver Real Estate Market so far…
In the past several weeks, we have experienced a roller coaster of speculation in the real estate market. When the Fed announced a drop to almost 0% for federal funds on March 15, everyone thought that mortgage interest rates would also drop significantly. Weirdly, they went up. Then down, then back up, then… you get it… it depends on the day. In the midst of all of the uncertainty in the past month, we suddenly had buyers speculating that homes will be worth up to $100K less than before the stay at home orders, and they were ready for the bloodbath to begin.
Well, we haven’t seen any significant market carnage yet, and we don’t think it’s coming. The data shows that Denver is still in a seller’s market, in which buyer demand outpaces available inventory.
Let’s look at the data, provided by Megan Aller of First American Title Company.
The biggest change before cancellation of all in-person showings and open houses, was the number of showings requested throughout the metro area. At the peak of last month, Saturday, March 7th, there were 8,607 showings requested.
By Saturday, March 28th, showings were down to 2,780, representing a 67.7% decrease in just three weeks. On the following Saturday, April 4th, showings held steady at 2,777, an encouraging sign that demand has hit its valley.
So if showings are down 67.7%, does that mean buyer demand is down by ⅔? (Hint: Nope.)
Even with stay at home orders, buyers are still prowling the market; it just appears as though the stay-at-home measures have sent the lookie-loos away for now.
Based on data in the MLS (Multiple Listing Service, the database used by real estate agents and appraisers), under contract homes have dipped less significantly, with 1,481 homes going under contact the week of March 4th and 860 homes going under contract the week of April 1st, which represents a 41.9% decrease in home sales.
Granted, 41.9% is a lot when you are trying to sell your home in this market and you haven’t gotten an acceptable offer yet, but it is a much smaller adjustment than what the showing stats would suggest.
One interesting trend that we have seen during the stay-at-home-not-quite-quarantine, is that it takes far fewer showings to get a contract.
At the peak of showing activity earlier this month, it took an average of about 19 showings before a home would go under contract. On the weekend of April 1st, however, it took closer to 11 showings to yield a contract. This suggests that the buyers who are out looking right now are more serious and more likely to make offers.
Everyone wants to know, are we headed into a major market shift? Maybe.
However, what we are seeing is nothing compared to what happened in 2008, when we were already in the midst of a buyer’s market when the economy shifted.
It’s a buyer’s market when the supply of homes is greater than the demand. The economic conditions of 2008 helped push demand even lower, causing prices to drop.
Right now, we are still in a sellers market, since inventory is low and buyer demand is still great. In order to achieve market balance between buyers and sellers, we would need at least 6 months of inventory available.
“Months of supply” is defined by how long it would take to sell the current supply of housing inventory. If you have 50 homes available, with 10 homes selling each month, you’d have 5 months of inventory. The below graph illustrates inventory in Denver over the past 15 years.
This year, in the Denver market, we peaked on the week of March 4th with just 0.7 months of inventory available.
On the week of April 1st, we came up to 1.5 months of inventory, which is slightly above where we were at the beginning of this year.
In order to achieve market balance, we would need a significant influx of supply and/or a dip in buyer demand. With mortgage interest rates still at record lows, we don’t see buyer demand dipping significantly, even during a Global Pandemic.
Of course, demand is higher for entry-level homes, so we are less likely to see much market shift for homes priced around $500,000 or less.
When you start looking at homes priced over $1M, we are seeing a much more stagnation since many buyers at that price point are more affected by the stock market and may need to hold on to their cash as they wait out this pandemic.
So what does this mean for prices? We don’t know yet. Sales data lags about one month behind since that is the typical length of contract. We are seeing more homes return to market as some buyers have lost qualifications due to current circumstances and we are also seeing retraction in inventory as many sellers have withdrawn their listings to see how long the stay-at-home orders will last.
We suspect that we won’t see significant gains during this period, but we don’t think any price drops will be significant, as there are still plenty of active buyers and most sellers are willing to wait it out in anticipation of market correction.
What does the future hold for real estate?
If we had a crystal ball, we’d be rich and social distancing ourselves on a private island.
We think that the future of the Denver real estate market really depends on how long COVID-19 keeps our economy on hold. If this extends through the end of summer, we could see much larger changes to the market.
However, if we start returning to normal in May or June, we could see a frantic summer market unfold as buyers return to the market en masse, seeking out a new place while rates remain low.
Not to mention that the stay-at-home orders are giving a lot of us a LOT of time to reevaluate our current living arrangements…
Perhaps at the end of this, more people will work from home permanently, creating new demand for homes with more office and flex spaces
Maybe all the cooking at home will make us want better designed kitchen spaces and more room in our pantries.
Having a small yard seemed fine before, but maybe social distancing measures will increase demand for larger yards so that we can have more outdoor space the next time this happens.
It certainly seems that the market will bounce back, but we’ll have to wait and see.
What else should buyers and sellers and their agents know during COVID-19?
Colorado real estate agents have, as a resource, a new Colorado Real Estate Commission Approved COVID-19 Addendum. Brokers can use this addendum to “pause” pending real estate transactions when the parties want to close but cannot due to circumstances caused by COVID-19. This optional addendum is designed as a precautionary measure, not an after-the-fact fix, so it should be presented up front.
The Colorado Department of Regulatory Agencies website has updates of guidelines for real estate activities.
We are closely monitoring real estate industry news amid the changes and challenges of COVID-19. If you would like to have the latest updates delivered directly to your inbox, sign up for our email list now.
There’s a lot to sort through in buying or selling a home, and hopefully this article has been valuable. We help our customers make informed decisions, negotiate with expediency and integrity, and get the terms and conditions that they need, all while mitigating risk.
For a free consultation, home value assessment, and to learn more about your real estate options in the Denver Metro Area, please contact us today. We know what it’s like to manage lots of commitments and responsibilities and we know that your time is valuable.
- Learn about your real estate-related objectives and priorities
- Give you some ideas of what your options are now and in the future
- Provide free advice on next steps you can take to get closer to achieving your real estate goals
And if you’d like, we can show you where and how we can help.