The Year in Review: 2021 Saw Unprecedented Real Estate Changes  

I don’t think anyone in real estate foresaw the amazing year which is now coming to an end, any more than they foresaw the pandemic’s arrival in March 2020 and its effect on that year’s real estate market.

Even though the pandemic spanned both years, the two years display notably different patterns when it comes to home sales.

Below are four charts derived from REcolorado statistics, the first three of which span the time from Jan 1, 2020 through Dec. 27, 2021, when I researched this article. Final figures for December 2021 are not yet in but shouldn’t greatly affect that month’s stats. Because REcolorado is a statewide MLS, I limited the analysis to listings within 20 miles of downtown Denver, which includes the metro area except for the city of Boulder.

The most spectacular effect of the pandemic is shown in the top left chart, as homes started going under contract in a week or less (median), down from 26 median days in MLS in January 2020. Despite that, you can see that the active inventory of listings shot up from about 5,000 before the pandemic to a high of nearly 8,000 in May 2020. Inventory only started dropping at the end of that first summer, but  it’s apparent that the decline in active listings was not for lack of new listings but rather because most listings which came on the MLS went under contract within a week, causing the number of unsold listings to decrease.

The third chart has what looks to be an uninteresting top line, but that’s only because of the compressed scale. It actually reveals a dramatic change which only occurred in the second year of the pandemic. The ratio of closed price to listing price was only 99.3% in January 2020, but it rose to 100% in February and stayed there through January 2021. It surged to almost 105% in June 2021 and was still at 100.6% in November.

What has happened in the luxury market is even more pronounced. The fourth chart, going back six years, shows how the number of closings over $1 million has surged from well below 100 in early 2016 to a high of 547 in June 2021, with the two pandemic years showing the most outstanding growth. On the same chart you can see that the change in price per finished square foot was up and down showing a gradual increase month-to-month from 2016 to 2019, but then took on a sharper and steadier increase during the pandemic.

There does seem to be a cause-and-effect relationship between the pandemic and the real estate market. In the beginning, we could conclude that the lockdown was causing people to seek bigger homes to accommodate working from home (and schooling at home). Also, it seems that some couples broke up under the strain of being together 24/7, further increasing the demand side of the real estate market.

Although the government is reluctant to reimpose a lockdown for pretty obvious reasons, the pandemic is still a factor and can be expected to drive further real estate activity for months to come, even as interest rates rise gradually.

(Actually, rising interest rates can stimulate buying activity, because once buyers see rates rising and realize they’ll continue to rise, they want to buy before rates rise much further.)

What Is the Effect of Today’s Surging Inflation Rates on Real Estate?  

With everything costing more these days, from groceries to gasoline to natural gas, what is the effect on the real estate market?

No doubt, you’ve heard that the year-over-year consumer price index increased by 6.8% in November, the highest increase in 40 years.

You also know that real estate prices and rents have increased too. So how do those statistics compare, and is buying still a better choice than renting?

Home prices have actually increased more than consumer prices over the last year, making real estate ownership the best hedge against inflation. In the Denver metro area (excluding Boulder) as of Sept. 30, 2021, according to the National Association of Realtors (NAR), the average sold price of homes was $614,800, an increase of 21.5% over the prior year. The average apartment rental price was $1,689 per months, an increase of 12.5% over the prior year. If you had a mortgage, the average monthly cost of ownership of that average home purchase was an astounding $4,126 per month for a single family detached home, making the rental of an average apartment much more affordable.

But, of course, the money you spend on rent is money down the drain, whereas the homeowner may find that the value of his/her home increases by more than the monthly mortgage payment. To me, there’s no comparison to owning vs. renting, but I understand that renting makes sense for many families.

So, what’s the prognosis for home ownership in 2022?  Because of the inflation rate, we can also expect mortgage rates to rise from around 3% to 3.7% in 2022 according to NAR, but if you already own your home, your low interest rate is locked in. Mortgage rates currently average 3.1%, according to Freddie Mac. 

A higher interest rate, however, could affect what you might sell your home for, if that’s in your plans. Compared, however, to the increase in value you’ve already experienced, I don’t think the effect of higher interest rates will be too much of a downer for you, should you choose to sell.

Unless you’ve switched to heat pump heating and cooling and have installed solar panels to generate the electricity, your home heating cost will increase in 2022. The cost of natural gas has already increased by 25%. The nice thing about electricity is that its cost can only increase by a vote of the Public Utilities Commission, and those increases are more gradual.

Gasoline costs have skyrocketed, but, again, the electricity to power EVs has not, and if you installed enough solar panels, you probably pay nothing for your car’s fuel. I suspect that solar installers are doing a good business nowadays. The cost of solar has plummeted, so call an intaller for a quote.

Recommended Video: Are We in a Housing Bubble?  

This is a question that seems to be on everyone’s mind, especially after a year which has seen double digit appreciation in home prices.

Finally, I found a focused discussion on this topic by highly knowledgeable persons that I can recommend. Here’s a YouTube link for that discussion. The panelists are Nick Bailey, president of Re/Max, LLC, Lawrence Yun, chief economist for the National Association of Realtors, and Ward Morrison, president of a mortgage franchising frim. The consensus of these experts is that 2022 will see most appreciation (3 to 5%, says Yun) but no crash. The main reason is the imbalance of supply and demand and mortgage rates projected to be no higher than 4%, which is still quite low.

The record job growth is also a critical factor. Foreclosures will remain low because only 2% of homeowners have negative equity. Watch the 28-minute video on our blog. You’ll learn a lot, as I did.

Don’t Wait Until Spring to Sell Your Home; There Are Many Advantages to Putting It on the MLS in Winter  

Each year at this time, I like to remind readers that the real estate business is not as seasonal as it once was. It used to be that spring and summer were considered the time to put a home on the market, based primarily on the school calendar. But that is old-school thinking.

Nowadays, with buyers and their agents setting up automated MLS searches based on the buyers’ needs and wants, homes are selling year round. What makes winter a particularly good time to list a home is that most sellers continue to think the old way and keep their homes off the market until spring.

As a result, those sellers who do put their home on the market enjoy two advantages. The first is less competition from other listings, and the second is the large number of buyers who will get the automated alert when a new listing matches their search criteria. (Over 850 buyers got alerts for this week’s featured listing.)

As I write this on Tuesday morning, Nov. 23rd, there is only one active listing in the entire City of Golden. How would you like your home to be   the only home for sale in a city of 20,000 people and 7,500 homes?

I myself have nearly 100 buyers with MLS alerts matching their search criteria. When a new listing is entered on the MLS which matches a buyer’s search criteria, that buyer gets an email alert with all the photos and details about that particular listing.

Perhaps you recall the DTC condo I featured last week. In the first day that it became active on the MLS, over 500 buyers received email alerts about it, four of whom tagged it a “favorite” and six tagged it a “possibility.” When a client tags a listing, their agent gets an email letting him or her know, likely triggering an in-person showing. That listing is already under contract for 10% over listing.

My $725,000 Littleton listing featured two weeks ago triggered email alerts to over 650 buyers, 18 of whom tagged it a favorite and 8 of whom tagged it as a possibility. It went under contract in five days for 20% over listing price.

Don’t wait for spring to list your home if you’d just as well sell it now. This is a great time to list!

NAR’s chief economist predicts a hotter-than-normal real estate market this winter. Click here. And realtor.com published an article on this same topic on November 15th:  “Should You Wait Until Spring to Sell Your Home? No Way! Why Winter Listings Rule Today.” 

We Are Now Witnessing the Transition from a Sellers Market to a Balanced Market  

The often heard complaint from homebuyers and their agents during the pandemic was the lack of active listings, which was not due to a lack of new listings but rather the result of those new listings going under contract so quickly that at any given time there were few to choose from.

It became a crazy sellers market which is only now abating except for “special” homes that are priced appropriately.

Looking only at closed listings, you might conclude that we are still in a sellers market. One measure I have used in the past is the median ratio of listing price to closing price, which remains above 100% within the Denver metro area. In September, for closings within 15 miles of downtown Denver, the median was 0.9% above listing price — declining, but still impressive.

However, if you look below the surface — that is, at the homes that haven’t sold, you see a rising inventory of homes that have been active on the MLS for an increasing length of time.

For example, as I write this column on Monday morning for this Thursday’s newspapers, there are 2,542 active listings of single family homes, condos and townhomes within 18 miles of downtown Denver, 760 of which (or 30%) were only listed on REcolorado in the last 7 days.

Despite so many new listings, the median active listing has been on the MLS for 19 days, and 1,024 of them (or 49.9%) have been active 30 days or longer. Another 552 of them (or 21.7%) have been active for 60 days or longer.

Meanwhile, there are 4,949 pending listings within that same 18-mile radius. Of them, only 804 or 16.2% were active more than 30 days before going under contract, and only 319 (or 6.4%) took over 60 days to go under contract. 221 of those currently pending listings went under contract with zero days on the MLS. Another 2,528 of them (over 50%) went under contract in 1 to 7 days.

Meanwhile, if you look at the 3,509 listings in the same 18-mile radius that closed in the last 30 days, only 401 of them (or 11.4%) took over 30 days to go under contract, and only 318 (or 3.4%) took over 60 days to go under contract.

This is what it looks like as we transition from a seller’s market to a balanced market. To reiterate, nearly 22% of active listings within 18 miles of downtown Denver have been on the market over 60 days, but only 3.4% of recently closed listings were active that long before going on the market.

My bottom-line observation is: Buyers who gave up after losing multiple bidding wars will find greater success if they re-enter the market now. As I’ve suggested in the past, you can avoid a bidding war simply by asking your agent to send only listings that have been active on the MLS for at least 10 days. You’re less likely to have competing buyers for them.

The new listings, however, will still get multiple offers if they are unique or special in one way or another.

For example, we recently listed a home in Golden’s coveted 12th Street Historic District. There was a bidding war on it, and it went under contract for more than $100,000 over the listing price. But if you look at all the active listings in Golden proper as I write this, there is only one new listing. The other active listings have been on the MLS between 11 and 102 days, and all but two of them have posted price reductions.

It should begin to sink in among sellers and their listing agents that they need to be less aggressive in pricing their homes when they put them on the market.

Don’t assume that buyers will flock to your listing regardless of price and compete with each other for it. Price it right, and it will sell. Overprice it, and it won’t.

Now That the Summer Months Are Behind Us, How’s the Market Shaping Up for Fall?

It has been a wild ride so far in 2021 — and the ride may be slowing, but it is definitely not over.

Below is a chart with some key statistics that I garnered from our MLS, REcolorado.com, for the 13 months ending August 2021, a timespan that allows us to compare this August with last August as well as the months since.

In creating the chart, I limited myself to listings within 15 miles of downtown Denver. That includes the entire metro area except for the city of Boulder.

The headings are pretty self-explanatory except for the last three columns. “Ratio” is the ratio of closed price to listing price at the time of sale, which might, in the case of older listings, be less than the original listing price. “Med. DOM” stands for median days that the listing was “active” on the MLS.  Half the listings went under contract in that number of days or less, and half of them went under contract in that number of days or more. “Ave. DOM” stands for average days that listings were active on the MLS, and it’s always higher than median days on the MLS because many listings are overpriced and linger on the market before the price is lowered and the home goes under contract.

There are some numbers that are worth noting, but there are some numbers that are downright remarkable.  We all know, for example, that the inventory of active listings is very low, but it’s notable that it is more than 40% lower this August than it was in August 2020. The number of sold listings is also lower by over 4% and the number of new listings is lower by 13%.

However, it’s also notable that the number of listings that expired without selling has plunged by over 43% from a year ago. More hard-to-sell and overpriced homes are selling before expiring.

Lastly, it is notable that the median days before a listing goes under contract has barely risen, and that figure has been under 7 days now for over a year.

Those statistics are notable, but there are two statistics that are remarkable. The first one is the ratio of sold price to listing price, which remains above 100% at 101.4%, although down from June’s high of 104.6%. This is remarkable because it was only this February that the number rose above 100% for the first time, signaling the height of the bidding wars. The August figure indicates that many bidding wars are still happening — due in part, of course, to the limited inventory of active listings — but they are not as numerous or extreme overall.

I emphasize “overall” because bidding wars are still getting extreme in isolated instances where the home is outstanding in some way or is in a highly desirable area with little or no competing listings. We are still seeing some homes sell for 40 to even 50% over their asking prices here and there. That includes in my home town of Golden.

So what, you may be asking, is the outlook for the fall and winter months?

If there is any seasonality left in the real estate business, it is that there are fewer new listings in the winter. You can see that was true last winter, with the low point being December. This makes sense, because few people want to put their home on the market during the holidays. That, however, only serves to keep the inventory of active listings even lower than during the summer time, yet the buying of homes continues year-round, with roughly as many closings happening in December as in November. Notice, in fact, that December was the only month in the last 13 where the number of sold listings exceeded both the number of active listings and new listings.

We should stop thinking of spring and summer as the selling season, but rather as the listing season. Most sellers believe it’s the selling season, when in fact homes sell year round. In fact, winter could be the best time to put your home on the market because there are just as many buyers getting those MLS alerts that I wrote about last week, but there are fewer homes for them to look at. 

If you want to sell your home before next spring, you should not wait until next spring to put it on the market — but do take some nice exterior photos of your home now that can be used in the marketing of your home over the winter.

Mortgage rates could start to ease upward in the coming months, but that will only increase the market frenzy as buyers try to get ahead of further increases in interest rates. No one in the industry, however, is projecting a major increase in interest rates over the next 12 months.

Is the Real Estate Market Slowing, or Isn’t It? Here Are Some Useful Statistics.

Last week I did my regular update on the state of the bidding wars, but it left me unsatisfied because I knew that the market was slowing, yet the bidding wars seemed just as real, especially in the under-$500,000 price range.

The problem with my analysis was that I only looked at the homes which sold in 1 to 6 days because those are the listings which likely had bidding wars.

This week, I looked at the bigger picture but still limiting my analysis to residential listings on REcolorado that are within 15 miles of downtown Denver.

A chart containing some key statistics over the last 11 months is shown below. Here are my observations, which you can follow by looking at the chart’s columns from left to right.

First, it’s clear that the bidding wars started in earnest in February, when the ratio of closing price to listing price went above 100% for the first time. That ratio peaked in June and fell significantly in July, but is still far above 100%.

The number of active listings is still unseasonably low, but higher than it has been since last November. The number of listings under contract (pending) is lower than it was in May and June, but still higher than any of the other months on the chart.

The number of July closings is probably a bit higher than shown in the chart since I did this analysis on August 1st, and not all July closings had been reported, but it is clearly lower than June’s number, while higher than any other month since last October.

The number of new listings in July was higher than any other month except June, which reinforces what I’ve said for months, namely that the lack of inventory is not due to sellers keeping their homes off the market. Rather, homes sell so quickly that the number of active listings remains low.

The median days active in the MLS (DIM) has not risen, but the drop in average days in the MLS is very telling. The drop to 10 days is stunning and shows that even the homes that don’t sell immediately are selling faster than ever. Last July the number was 21 and in July 2019 the number was 23. In the past five years the average days in the MLS never fell below 16 until this April.

The last column shows that the inventory (in months) of homes for sale hasn’t been above one month since January, although it is the highest it has been since February.

The bottom line, then, is that, yes, the market is slowing but is still crazy hot. The trend, if there is one, is toward a gradual easing of the seller’s market in the Denver metro area, but it is well short of becoming a “balanced” market.

Will the end of the eviction moratorium have a big effect on the market?  My guess is that it may increase the number of new listings as landlords, especially small landlords, decide to sell rather than replace their evicted tenants. The opportunity to cash in on their properties’ increased value may be too much for some to resist, and the risk of continued lost income too great for some landlords.

There will not, I believe, be an increase in foreclosures or short sales, because very few property owners are likely to owe more than their property is worth. Because of that, they will simply sell.

Bidding Wars Are Slowing — for Higher Priced Homes

This is my regular update on the real estate bidding wars. This week I chose to analyze the closings that occurred last Thursday, July 22nd, to see how the bidding wars have evolved over the past few weeks. As before, the source for this monthly analysis is REcolorado.com.

As I did in previous months, I limited my analysis to sales within a 15-mile radius of downtown Denver. I limited my search to listings that were active on our MLS at least one day and not more than 6 days before going under contract. Those are the homes that likely had bidding wars.

On July 22nd there were 36 closings up to $500,000, compared to 55 closings on June 28th. The median home sold for 6.3% over its asking price, compared to 5.4% on June 28th. The highest ratio this time was 18.5% for a home in SW Denver, compared to 20.8% on June 28th for a townhome in Littleton. Three listings sold for the asking price, and three sold for less than listing price, compared to four and six respectively on June 28th.

There were 48 homes that closed on July 22nd for more than $500,000, compared to 53 homes on June 28th. The median home in that group sold for 3.2% over its listing price, compared to 8.7% on June 28th. Only six sold for the listing price, and six sold for less than the listing price. The highest overbid in this group was 18% for a home north of Denver’s City Park, compared to 32% on June 28th.

To have a statistically significant number of closings over $1 million, I analyzed the 87 such closings that occurred from July 12 to 26. The median closing for those high-end homes was 5.4% over listing price, compared to 6.6% from late June. Nine homes sold for the listing price and 8 homes sold for less than the listing price, compared to 12 and 6 respectively in late June. The highest overbid was 24.8% for a bungalow in the Hilltop neighborhood, which was listed at $950,000 and sold in three days for $1,186,000. Of those 87 homes, 24 were listed under $1 million. Last month four million-dollar homes sold for more than 30% over their listing price.

Real Estate Bidding Wars Are Not Abating

This is my monthly update on the real estate bidding wars. This week I chose to analyze the closings that occurred last Thursday, June 10th, to see how the bidding wars have evolved over the past four weeks. The source for this monthly analysis is REcolorado.com, the Denver MLS.

As I did in previous months, I limited my analysis to sales within a 15-mile radius of downtown Denver. I limited my search to homes, condos and townhouses that were on the MLS at least one day and not more than 6 days before going under contract. Those are the homes with bidding wars. I divided the results into homes which sold up to $500,000 and those that sold for more.

As you can see in this chart, the bidding wars only took off in earnest during February 2021, and they have kept accelerating month by month, enough that it raised the average ratio of closing price to listing price over all sales, not just the homes which sold in six days or less.

On June 10th there were 40 closings up to $500,000, compared to 44 closings on May 13th. The median home sold for 6.2% over its asking price, compared to 8.7% on May 13th. The highest ratio this time was 19.6% for a condo in Golden compared to 15.7% on May 13th for a home in southwest Denver. Only one listing sold for the asking price, and only two sold for less than listing price.

There were 37 homes that closed on June 10th for more than $500,000, compared to 56 homes on May 13th. The median home in that group sold for 7.7% over its listing price, compared to 8.1% on May 13th. Only three sold for the listing price, and none sold for less than the listing price. The highest overbid in this group was 20.9% for a one-story home in Lakewood on June 10 compared to 29.4% on May 13.

To have a statistically significant number of closings over $1 million, I analyzed the 82 such closings over a longer period — June 1-13. The median closing for those high-end homes was 6.1% over listing price, compared to 6.0% in May. Four homes sold for the listing price and 9 homes sold for less than the listing price. The highest overbid was for a 1979 ranch-style home in Jeffco’s Sixth Avenue West subdivision, which was listed at $1,080,000 and sold in 6 days for $1,575,000, 45.8% over listing price.  

I’ll repeat this analysis on July 15.

How High Are Bidding Wars Pushing Up Home Prices?

We’ve all heard some crazy examples of bidding wars in which homes have sold for way over their listing prices, so I took a snapshot of just one day’s closings, limited to a 15-mile radius of downtown Denver. That takes in an area from Broomfield to Highlands Ranch and from Golden to Aurora. It does not include the City of Boulder.

The day I chose was last Friday. The source was REcolorado.com.

I limited my search to homes, condos and townhouses that were on the MLS at least one day and no more than 6 days before going under contract. Those are the listings that experienced bidding wars. I divided the results into homes which sold up to $500,000 and those that sold for more than that.

On April 16th there were 48 closings up to $500,000. The median home sold for 4.7% over its asking price. It was a tri-level home in Aurora listed at $420,000 which sold in 3 days for $440,000. Only 3 homes sold for the listing price and 2 sold for less. The highest ratio was 25.8% for a home in Aurora that sold in 1 day.

There were 68 homes that closed on April 16th for more than $500,000. The median home in that group sold for 8.3% over its listing price.  It was a 1950 ranch in Denver’s North Hilltop neighborhood listed for $600,000 that sold in 3 days for $650,000. The highest overbid in this group was 18.8% for a 2-story home in Westminster listed for $425,000 that sold in 5 days for $505,000. Only 5 sold for the listing price and 4 sold for less.

To get a statistically meaningful number of closings over $1 million, I looked at 68 such closings from April 1-16. The median ratio was 4.3% over listing price. The highest was for a 1954 bungalow in Denver which was listed at $965,000 and sold for $1,205,000, 24.9% over listing.

Note: These statistics reflect the bidding wars that were taking place during late March, when most of these listings went under contract. Today’s bidding wars appear to be even more intense. Stay tuned!