• On a National level existing housing inventory fell 2.5% annually in September, a sharper decline than August’s 1.8% decrease, according to realtor.com. In the Denver and Denver Foothills area we have actually seen an increase in housing inventory for the first time in a while year over year this month. In 2017 the entire Denver MLS had only 11,110 active listings in the Oct. In 2018 October had 13,196 and this October the MLS has 13,216 active listings. Not a huge increase but it is better than a decrease in inventory. 
  • Although most of the real estate markets in CO do not have “selling season” per se since the market has been nuts everyday for years now, we are seeing a slight slow down in selling the last few months. An unseasonably strong surge in demand at the end of summer and into this fall now has the supply of homes priced below $200,000 down 10% compared with a year ago.
  • On a national level,the supply of homes priced between $200,000 and $750,000, which make up 60% of the market, flat lined in September, after 18 months of strong inventory growth. Supply is now expected to decline in the months ahead on a national level. It seems if things continue the way they have been the Denver market may see and increase of inventory. That is isn’t a bad thing. Buyers need to gain a little ground.

Live Data of Active Listings – Entire Denver MLS

Anyone out hunting for an affordable home today knows that the pickings are slim across the nation and in the Denver and Denver Foothills market – and they are about to get slimmer in most markets. Real estate agents in every major market are seeing buyers get more and more frustrated.

Housing inventory hit a record low about two years ago, but a lull in home sales over the past year helped build back much-needed supply, especially in the mid-priced range. Then a sharp drop in rates this summer brought demand back and depleted that supply dramatically. There are always ups and downs in the markets. It always happens. Just when inventory was picking up from the normal conditions of supply and demand the market saw the fed and interest rates helping the sellers out in a market they have controlled for years now.

National housing inventory fell 2.5% annually in September, a sharper decline than August’s 1.8% decrease, according to realtor.com. The Denver market has seen a slight increase in the same time frame.

Supply has always been leanest on the low end, as investors have been very active in that price range since the foreclosure crisis. The reason Denver, Evergreen and Golden have seen investors jumping back into the game to gobble up inventory is that the rental market is even more slim than the existing home sale inventory. The residential rents have been skyrocketing in the area to the point of almost affordability. 

Roughly 5 million mostly entry-level homes have been turned into single-family rentals, and strong demand for those rentals means investors are unlikely to put the homes up for sale anytime soon. That is an absolutely huge number. People that never thought they would be landlords are now getting into the real estate business.

In addition, on a national level, an unseasonably strong surge in demand at the end of summer and into this fall now has the supply of homes priced below $200,000 down 10% compared with a year ago. In the Denver Foothills market that number is almost double at anything under $400,000 is flying off the shelves. It is almost impossible still for buyers to get a home under $400K in Evergreen or Golden, CO

The demand is being fueled by lower mortgage rates. The average rate on the 30-year fixed surged over 5% last November and stayed above 4.5% through March, according to Mortgage News Daily. That made for a lackluster spring housing market, traditionally the busiest time for buying.

Rates then began falling in May and particularly sharply in July and August. By the start of September the average rate was around 3.5%, and sales of both new and existing homes were surging back. Clearly there was substantial pent-up demand from the spring.

Demand also surged in the move-up market, causing supplies there to fall as well. The supply of homes priced between $200,000 and $750,000, which make up 60% of the market, flatlined in September, after 18 months of strong inventory growth. Supply is now expected to decline in the months ahead.

Dwindling options for buyers means a seller market

“If, or better yet, when inventory in this segment begins to take a downturn, the vast majority of homebuyers are going to feel its effects as their options rapidly dwindle,September inventory trends, especially in the mid-market, may be the canary in the coal mine that we could be headed for even lower levels of inventory in early 2020.”  said George Ratiu, senior economist at realtor.com. 

The nation’s homebuilders are not helping the situation much either. Single-family housing starts have been rising very slowly, but mostly in the move-up and luxury segments of the market.

“It’s not just the overall supply of new construction that’s gone down, but the supply of starter homes, so it’s the affordability challenge at the entry level that’s been a particular challenge….Right now only about 10% of newly-built home sales are priced under $200,000. Five years ago that share was 1 in 5, and 10 years ago it was 40% of new home sales were priced under $200,000.” said Robert Dietz, chief economist of the National Association of Home Builders. 

Builders are unlikely to catch up with demand, according to Dietz, who said the market is now undersupplied by about 1 million housing units. Builders may want to build more at the entry level, but they are not able to given the current costs.

“We’ve faced what has been called a perfect storm of supply side challenges,” noted Dietz. “There has been an ongoing labor shortage, we lack the necessary land and lots to build homes, we’ve had building material cost concerns, and then probably the most important factor has been higher regulatory costs since the great recession.” 

Builders are therefore putting up pricier homes, but that’s the category with the most supply. In fact, the supply of homes price above $750,000 was 4.7% higher in September compared with September 2018. You would think there would be more home builders doing spec homes right now. They Denver Foothills are not seeing this happen at the moment. Perhaps is that it is so expensive to build up here. 

Higher demand for homes and lower supply will likely reignite the gains in home prices. Price gains had been shrinking throughout much of this year, but they have now stabilized, and in some markets the increases are widening again.

If mortgage rates should turn higher, or when they go higher is more like it, they are unable to stay at this historic low forever, then demand could fall back and price gains ease, but if they stay in the current low range, it is very likely that the housing shortage will only get worse, setting the nation up for an incredibly competitive and expensive spring 2020 market.

Moving forward it will be interesting to see what happens on a national level as well as in the Denver and Denver Foothills market. Even market corrections such as 2008 did not have the impact on the Denver area market as the rest of the country had. Then as the rest of the country’s real estate market struggled to recover from the 2008 crash, the Denver area had no problems increasing in value.

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