People Ask: “How’s the Real Estate Market?”

My short answer is “chaotic.”

One thing is certain: the seller’s market is now history. We’re at least in a balanced market and probably moving to a buyer’s market.

This chart tells a large part of the story. It is limited to the past 7 days of listing activity within 15 miles of downtown Denver.

There are currently about 4800 active REcolorado listings within that radius, ranging in price from $139,900 to $24,700,000.  Just under 600 of them are priced above $1,000,000, and the median price is $595,000.

Here’s the statistic that really tells the story of today’s market: the median days on the MLS of those 4800 active listings is 32 — over a month! This time last year, it was 4 or 5 days.

Roughly a quarter of the active listings have languished on the market for 2 months or longer, and about half of those for 90 days or longer.

Obviously, the surge in mortgage interest rates has played a big part, but I think it’s deeper than that. Buyers are being told that homes are overvalued, but sellers are still listing their homes based on recent comparable sales.

But recent comparable sales may have been overpriced, too, and buyers are happier on the fence than jumping into a market which they (and many professionals) don’t understand and can’t accurately predict.

I still laugh when I recall that the conventional wisdom among real estate and mortgage professionals back in January was that interest rates might reach 4% by the end of 2022. On 9/22, Freddie Mac quoted a 30-year fixed rate of 6.29%.

The stock market needs to be factored in because the 20% or more of buyers who pay cash for a home purchase are reluctant to sell stocks that have dropped in value. They don’t want to liquidate those investments until they go up again, which they will — eventually.

Cash Sales Are Up Less Here Than Nationally

By JIM SMITH

Like you, I’ve read reports from Zillow, Redfin, the National Association of Realtors, and others about the surge in investor purchases and the percentage of transactions that are all cash, but I can rarely confirm those reports when I do statistical searches on REcolorado, Denver’s MLS.

For example, Inman, the leading real estate news service, reported the following last Saturday: “All-cash home purchases in the U.S. hit 31.4 percent of all transactions in July 2022, up from 27.5 percent the year before, and just shy of an eight-year high reached in February, according to data released Friday by Redfin. Since the beginning of 2021, all-cash purchases have surged thanks to a pandemic-housing rush, reaching an apex in February when 32.1 percent of all transactions were made without financing, according to Redfin.”

Compare those numbers with the chart below, created from REcolorado, based on closings within 25 miles of the State Capitol.

The pandemic took root in April 2020, but there is only a modest increase in the percentage of cash transactions well into year two of the pandemic. A more significant increase can be noted in 2022, but the peak was well before the increase in mortgage interest rates which only showed up in April, and the percentage of cash sales actually dropped a little as those rates increased.

Regardless of those fluctuations, the percentages are well below the national percentages reported by Inman.

Interestingly, ‘Seller Concessions’ Can Benefit Both Buyers & Sellers

If you’ve been following my “Real Estate Today” column, you know that homes are taking longer to sell, and in some areas sales prices have decreased slightly.

Jaxzann Riggs, owner of The Mortgage Network, has been serving Colorado borrowers for 37+ years and she has witnessed more market fluctuations than I have in my 20 years. I asked her what “old and new” marketing and financing strategies she suggests for both buyers and sellers in this dynamic market.

   Her response: “First, buyers need to understand their highest priorities. Is investing the smallest amount of cash their priority, or are they more interested in minimizing the monthly housing expense in the early years of the loan? If they expect to own the property for many years, having the lowest possible 30-year fixed rate may be the highest priority. Buyers who are fortunate enough to be paying cash for a home are normally looking for the lowest possible purchase price, in which case seller concessions won’t matter to them.”

Let’s analyze each goal and how a seller concession built into a purchase contract can help you.

Goal #1:  Lowest Cash to Close

If your income is good and you are not concerned about your monthly housing expense, but you don’t have much cash to work with, a popular seller concession is one that covers your closing costs. That way, you only need cash for the down payment.

Goal #2:  Lowest Payment in the Early Years of Your Mortgage

If your income is likely to increase in the near future, and you want to minimize your monthly housing expenses until your pay increases or you receive an expected bonus, a temporary interest rate buydown funded by a seller concession might make sense. The simplest explanation of this strategy is that the buydown subsidizes a reduced monthly mortgage for the first one or two years of the mortgage.

Goal #3:  Lowest Interest Rate for the Term of the Mortgage

If this is a property that you expect to own for many years, it makes sense to ask for a seller concession that is utilized to buy the interest rate down on your mortgage for its full term.

So, the next question is, what is a reasonable dollar amount for a borrower to request from the seller as a concession? Each borrower and seller circumstance will vary, so there is no set rule, although Fannie Mae and Freddie Mac underwriting guidelines limit the seller to a contribution of 6% of the sales price (or 3% if the borrower is making a minimum down payment).

Seller concessions may only be utilized to offset closing costs, reduce the interest rate on a temporary or permanent basis, or to prepay mortgage insurance on behalf of the borrower. Seller concessions may NOT be used to reduce the down payment made by the borrower.

It might surprise a prospective buyer to understand the different impacts that a seller concession versus a price reduction can have on the monthly cost of their mortgage. And it might surprise sellers to learn that offering a concession in the form of an interest rate buydown can increase the pool of prospective buyers.

I am happy to explore buyer and seller wants, needs, and goals. Structuring a seller concession so that both buyer and seller benefit is possible once all parties agree upon the anticipated appraised value of a property. Of course, this is best done with the assistance of an experienced Realtor like me who knows how to evaluate the market trends in a particular community.

    If you are buying or selling and have questions about the different possible concessions, call Jaxzann at 303-990-2992.

Big Brokerages’ Stocks Plummet Due to Slowing Market

The publicly traded brokerages are taking a beating, trading near their 2022 lows, as the following stock prices quoted last Wednesday by Inman News Service show:

Compass (COMP)     $3.28 +.07   (year range: $3.20-17.70) 

eXp World Holdings (EXPI)     $14.23  -.06   (year range: $11.06-55.43) 

Redfin (RDFN)    $9.40  -.08   (year range: $7.13-55.87) 

Zillow (Z)    $34.39   +.96  (year range: $28.61-104.05)

Offerpad (OPAD)  $1.61 -.02 (year range $1.60-20.97)

Opendoor (OPEN)   $4.62 -.03 (year range $4.30-25.32)

Anywhere Real Estate (HOUS)     $11.18 +.14 (year range: $9.06-21.03) 

(Anywhere Real Estate is the new name for Realogy, which owns and franchises Century 21, Coldwell Banker. Corcoran, Better Homes & Gardens Real Estate, and ERA Real Estate.)

Golden Real Estate was founded in July 2007, just before the market crash of 2008, but we prospered through that downturn, and we will prosper through this one.

MLS Statistics Confirm a Rapidly Slowing Real Estate Market in Metro Area

As I write this on Sunday evening, I can’t know what the statistics will be at the end of August, so I ran some numbers for the first 28 days of the month to see how they compare to the previous 12 months. The result of that number crunching is in the chart below, and it confirms what we have all been feeling — that the real estate market in the metro area is indeed slowly abruptly.

The chart, limited to REcolorado listings within an  18-mile radius of the state Capitol, shows four metrics which I consult regularly to read the temperature of the market: the average and median days that a listing is active before going under contract, the ratio of sold price to listing price, and the average sold price. As you can see on the bottom four lines of the chart, the market started coming off its peak in May, slipping seriously by July.

During the seller’s market triggered by low mortgage interest rates and the pandemic, we saw the median days on the MLS in the mid single digits, as shown in column two. The average days on the MLS was higher, but not as high as in pre-pandemic times when it was in the 30s and 40s. Amazingly, that metric slipped into the single digits this April and May.

The last time the ratio of sold price to listing price was below 100% was in January 2020. In April of this year, before the impact of rising mortgage interest rates, it peaked at 106.1%, but it fell to 100% in July for the first time in 18 months, and during the first 28 days of August, it slipped to 99.57%.

The average sold price, which fell almost $30,000 in July, fell an unprecedented $58,136 during Aug. 1-28, a 9.2% drop in just one month.  When the full month is tabulated, it could well be worse.

For buyers who have cash or are not scared away by 5% interest rates, this represents an opportunity, and I have had my busiest open houses in a long time over the past three weekends, so I think buyers are ready to capitalize on that opportunity.

This is not to say there will be a market rebound anytime soon. There is a lot of uncertainty in the air in terms of politics, economics, and other matters, which will continue to keep many buyers on the sidelines.

Pricing Your Home Right Is More Important Than Ever

The “seller’s market” is slowing. You can still sell your home quickly and even attract a bidding war, but that requires pricing your home correctly. Overprice it, and it could sit on the market for a long time, go through multiple price reductions, and end up selling for less than if you had priced it correctly in the beginning. The agents of Golden Real Estate and I can help you thread that needle.  Call any of us for a free consultation.

The softer real estate market also makes marketing your home well more important than ever, and no brokerage provides the kind of marketing — including promotion of your home in this column and our trademark narrated video tours — that Golden Real Estate provides. Our phone numbers are below.

Jim Smith, Broker/Owner      303-525-1851

Broker Associates:

Jim Swanson, 303-929-2727

Chuck Brown, 303-885-7855

David Dlugasch, 303-908-4835

Ty Scrable, 720-281-6783

Greg Kraft, 720-353-1922

Statistics Help to Quantify the Slowing Real Estate Market in Metro Denver

Here are some ways I’ve been able to quantify what we are all seeing, namely the slowing of our local real estate market.

Looking within 14 miles of downtown Denver, the currently active (i.e., unsold) listings have a median days on MLS (DOM) of 27 days. However, the currently pending listings have a median DOM of 13, and the listings that closed in the last 30 days have a median days on the MLS of 7.

The listings that closed in the prior 30 days had a median DOM of just 5, which is what it has been, more or less, through the past couple years. So the market is definitely slowing, and slowing rather abruptly.

The number of active listings —  what we refer to as “inventory” — has surged as homes sit on the market longer.

As I write this on Tuesday morning, there are 4,133 active listings on REcolorado, the Denver MLS, in that same 14-mile radius. That’s down from the peak of 5,521 at the end of July, but you have to go back to September 2020 to find a higher number of active listings than this July, as shown in the chart below.

In prior years, you’d see the number of active listings increase by 50%, more or less, from January to July, but look at this year’s more than triple surge from January to July in that chart.

The chart of pending listings (below) is also instructive. Notice that in most months during 2021 and 2022, the number pending listings was almost always higher than the number of active listings (above chart), but that changed in June and July, when the numbers dropped dramatically.

You’d expect, in a normal market, with a lot more listings to choose from, that more listings would go under contract, but the reverse was true. As the number of listings surged in June and July, the number of listings going under contract went down substantially. That, too, reflects an abrupt slowing of Denver’s real estate market.

(As an aside, notice the effect of the pandemic on the April 2020 number of pending listings. April was the first full month of the pandemic, and the number of listings going under contract plummeted at a time of year when they would normally surge. Notice, however, the quick recovery in the following months. It has been surmised that Covid soon caused a surge in sales as people began to work at home and saw the need for more home office space and the opportunity to move further from their place of work since they were no longer commuting.)

Another statistic demonstrating the slowing of Denver’s real estate market is the extent to which the median sold price of homes has fallen as the market has turned.

The median sold price for that   14-mile radius peaked at $582,950 in June, but it fell to $550,000 in July and has fallen to $520,000 for closings during the first half of August — going down, but still higher than in any prior year.

NOTE: The above article was adapted for a Jefferson County audience using only Jeffco statistics. You can read a PDF of that version at www.JimSmithColumns.com.

Looking for a Good Deal? Opendoor Is Slashing Prices to Clear Its Inventory

I wrote about Opendoor last week. They’re one of the “iBuyer” companies that buys off-MLS listings and flips them for a profit. Or at least that’s how it’s supposed to work, but too many homes haven’t sold, and they drop their listing prices twice each month until they sell. For too many of their listings, that means they will be getting far less than what they paid for them.

As I write this on Sunday evening, there are 446 unsold Opendoor listings on Denver’s MLS, and the median days on the MLS is 58!  It’s apparent that they bought many of these listings during those heady days before the market softened and now they can’t sell them for a profit or even at the price they paid for them.

To keep it manageable, I studied only the 45 Opendoor listings currently active in Jefferson County. The median days on the MLS for those listings is 75!  That’s three times the median days on the MLS for all active listings in Jefferson County. All but two of those listings have been active for at least 12 days, and all 43 of those have had their prices cut to try to clear the company’s inventory. They’re going to lose money on most if not all of them.  Here are some examples:

They purchased 11022 Trailrider Pass, Littleton, for $631,400 on Dec. 2nd and listed it on Feb. 17th for $820,000.  Nine price reductions later, it’s now listed at $643,000 and has yet to go under contract. At the current price, they will pay their usual 2.5% buyer agent commission, netting them about $5,000 less than they paid for it. Presumably they also had some repairs, repainting and other expenses during the two months between buying and listing.

Opendoor’s oldest listing, 2090 Braun Drive, Golden, was purchased last September for $638,300, and is currently listed for $621,000 after one failed contract and three subsequent price reductions.

4740 S. Tabor St., Morrison, was purchased for $500,500 in December, listed for $612,000 two months later, and after nine price reductions and no contracts, it’s listed at $527,000. Depending on how much money they spent dressing up that listing during those two months, they might break even.

Here are some of the Jeffco listings on which Opendoor will lose a lot of money:

Unsold Jeffco listings priced as much as $50,000 below what Opendoor paid for them:

6384 Newland St., Arvada ($579,000)

7076 Parfet Street, Arvada ($626,000)

6975 W. 63rd Ave., Arvada ($577,000)

12463 W. 68th Ave., Arvada ($693,000)

7155 Fenton Circle, Arvada ($568,000)

9010 W. 5th Pl., Lakewood ($594,000)

289 Marshall St., Lakewood ($657,000)

10112 W. Dartmouth Ave., Lakewood ($379,000)

10946 W. Texas Avenue, Lakewood ($558,000)

11266 W. Kentucky Dr., Lakewood ($575,000)

5645 S. Zang Street, Littleton ($481,000)

6309 W. Fair Dr., Littleton ($649,000)

10679 W. Cooper Place, Littleton ($776,000)

7782 W. Alder Dr., Littleton ($786,000)

6230 W. Maplewood Place, Littleton ($666,000)

5683 W. 118th Place, Westminster ($556,000)

11526 Marshall Street, Westminster ($495,000)

10012 Holland Court, Westminster $464,000)

10063 Flower Street, Westminster ($723,000)

9679 Teller Court, Westminster ($576,000)

6280 W. 45th Avenue, Wheat Ridge ($573,000)

Of the 177 Opendoor listings (in all counties) which closed in the last 90 days, only 18 sold at or above their original listing price. More than half sold for at least 5% below their original price.  In the same 90-day period a year ago, 55% of Opendoor’s listings sold at or above their original listing price.

One could argue that the iBuyer model is still valid and that the company just suffered from the abruptness of the change in the real estate market. Meanwhile, it is also reported that although the market has slowed, prices are still increasing, so perhaps there are some bargains to be had among Opendoor’s “stale” listings.

Although Opendoor Brokerage is difficult for brokers and buyers to work with (they are managing 446 Colorado listings from their office in Tempe, Arizona), my broker associates and I would be happy to show you any of their listings and see if we can get you a good deal!

Let’s Hear It for the Multiple Listing Service: The Best Tool for Buyers & Sellers  

We hear a lot about “off-MLS” sales of homes, particularly by investors. Investors love to buy homes off the MLS, but they turn to the MLS to sell the homes they bought. Prospective sellers should read that sentence again, because it says everything you need to know about the value of the MLS: Buyers can pay less if the seller doesn’t put their home on the MLS; and sellers net more money by putting their home on the MLS.

Investors know they would pay “market value” for MLS listings, because that’s what the MLS is — it’s the market! Investors know they’ll be competing with other buyers if the home is on the MLS. That’s why they find the homes they buy by soliciting homeowners who do not have their home on the market.

They make an appealing pitch — no showings, no open houses, and a quick cash closing. Remember, investors are in business to make a profit, and the only way to make a profit is by paying you less than your home is worth by buying it off the MLS, and then selling it on the MLS.

Now, if money doesn’t matter that much to you — for example, you’re the personal representative of an estate, but you’re not a beneficiary — that’s probably an attractive pitch. After all, it’s not your money! But, if it’s your house and your money, just know that you’ll make more money from the sale of your house if you let a professional like one of the agents at Golden Real Estate expose your home to the full market — which is only accomplished by putting the home on the MLS.

I have written in the past about “iBuyers,” such as Open Door, which buy homes off the MLS, then flip them with minimal improvement by listing them on the MLS. You can find columns on that topic dated Jan. 2, 2020, and Aug. 22, 2019, at JimSmithColumns.com, where all these columns are archived. In those columns I point out that the iBuyer companies typically convince homeowners to meet with them by offering a high sight-unseen price, which is thousands above what they finally offer the seller. It’s a bait and switch approach, so beware!

The essence of the MLS is “cooperation and compensation.” Sellers hire a listing agent for a negotiable commission — currently averaging under 6 percent — which is large enough for the listing agent to compensate another MLS member for producing the buyer of that listing.

There’s an understandable misconception that the seller pays both the listing agent and the buyer’s agent and that somehow that’s unfair — that the buyer should pay his or her own agent.

But, although it may look as if the seller is paying both agents — because it is taken from the seller’s proceeds at closing — in fact, as I said above, the listing agent is paying the buyer’s agent out of his or her listing commission.

As shown in the graphic below, the MLS is at the heart of making the real estate market work efficiently to expose listings to the full universe of buyers. No other industry that I can think of works as well as the real estate industry, because no other industry has an MLS.

Last year, the National Association of Realtors introduced the Clear Cooperation Policy to make the MLS system work even better, telling participating Realtors, in effect, that if they want to be a member of the MLS, they must commit to giving fellow members a reasonable opportunity to find and sell their listings.

That policy has yet to achieve its goal because some MLS members find a way around it so they can sell their listings without sharing their commission with other MLS members. Golden Real Estate’s agents, however, are in full compliance.

Buyers and Sellers Are Confused by Today’s Chaotic Real Estate Market  

Frankly, we real estate agents are confused, too! Homes that would have attracted bidding wars a few months ago are sitting on the market — attracting few showings and no offers.

But it’s really a tale of two real estate markets, because there are “special” homes which still attract bidding wars. It’s the “ordinary” homes which are not getting any love — tract homes, mostly.

The trigger for this change, as we all assumed, was the abrupt increase in mortgage interest rates which occurred around April 1st, combined, no doubt, with a sinking stock market. There are investors who have already sold those stocks and are cash rich, but there are also investors who prefer to hold their depreciated portfolio and wait for the stock market to recover.

Buyers who can pay cash are unaffected by the rise in interest rates and continue to bid against fellow cash buyers for the “special” homes, especially million-dollar homes. They no doubt appreciate the reduced competition for those homes with the reduction in the number of buyers who depend on mortgage financing.

According to data obtained from REcolorado, the Denver MLS, there has been a negligible increase in the percentage of cash versus non-cash closings, but the rise in interest rates will likely be a factor ongoingly.  

The one statistically significant change I spotted was an 80% increase in closings for homes over $1 million  in the 2nd Quarter compared to the 1st Quarter of 2022. This compares to less than a 50% increase in the sales of homes priced between $500,000 and $800,000. I would normally expect the sales of those lower-priced homes to increase during the “selling season” at least as much as the homes over $1 million.

The chart above shows a sharp drop in total MLS sales this June versus the June of 2021, but there’s a longer trend at work than I didn’t suspect before creating this chart using REcolorado data. Notice that 2021 was the peak year and that 2022 showed a month-to-month decline in year-over-year sales for the first six months of the year. The drop in total sales only became significant in June, probably reflecting that change in the mortgage market.

You can also see that 2020 — the year in which Covid-19 appeared — was showing significant growth until the lockdowns occurred in March, resulting in a dramatic drop in total MLS sales, but only for the two months I highlighted in yellow. Then we saw a huge upswing in June, probably due to pent-up demand from April and May.

The question on everyone’s mind is where do we go from here?

My crystal ball is foggy right now, but I think mortgage rates have risen as much as they’re going to this year, and may even moderate in coming months, during which time buyers will come to accept rates in the 5% range as historically “okay,” which they are. We were spoiled by the 3% rates that we enjoyed in 2021, but the memory of those rates is fading. Unless the economy enters a recession, I feel that buyers will return to the market and we’ll see another surge from those buyers who have stayed on the sidelines these past couple months. Then homes which would have sold in less than a week a few months ago, will start moving again.