The Real Estate Market Is Showing Signs of Revival

Here at Golden Real Estate, we have some anecdotal evidence of a resurgence in the real estate market, which was moribund in December.

On Saturday, Jan. 7th, I held a 2-hour open house at my listing on Bates Avenue. My previous open house at that listing had drawn not a single visitor, so I was quite surprised to have ten sets of visitors that day. All of them were actual buyers, not lookie-loos.

I immediately decided to hold it open the following day, Jan. 8th, and once again it was my most visited open house in recent memory.

I had four prospective buyers from those open houses and this Monday that home went under contract.

A second example of this resurgence came when broker associate David Dlugasch listed a 1960 brick ranch with walkout basement in south Golden/Pleasantview. (It was featured in last week’s ad.) It drew 22 agent showings on the first three days, and it went under contract on Sunday at full price — $798,000, which I frankly thought was a reach.

Although anecdotal, these experiences give me hope for a continued market resurgence in 2023.

Experts Differ on What 2023 Will Bring in Terms of the Real Estate and Mortgage Markets

Real estate and mortgage professionals are coming to grips with how the market changed in 2022, but they’re holding back on predictions for the market in 2023.

On the national level, Lawrence Yun, NAR chief economist, predicts home prices will remain stable and the sales of existing homes will decline by 6.8%. He identified ten markets that will outperform other metro areas, and all ten of them are in the southeast.

“Half of the country may experience small price gains, while the other half may see slight price declines,” Yun said.

Here in the Denver market, the Denver Metro Association of Realtors (DMAR) issues a monthly market trends report. In its latest report, it pointed out that while there is a steady month-over-month decline in the average sold price, the year-over-year sold prices remain higher.

“Without a doubt, the Denver Metro housing market is changing, but the question on everyone’s mind is how long this change will last and what to expect next year,” commented Libby Levinson-Katz, Chair of the DMAR Market Trends Committee and a metro Denver Realtor®. “Most of the answers are tied directly to when we will see relief from increasing mortgage rates that have more than doubled since January… While we expect to see the Denver real estate market continue to change through 2023 due to interest rates and inventory woes, it has continued to show strength and stability.” 

As I highlighted above, a lot depends on the direction of mortgage rates, and predictions of where rates are headed are few and varied, because there are so many factors.

For example, will the Federal Reserve’s increases in the Fed Funds rate continue, and for how long? Will it cause a recession? Will unemployment increase and inflation abate?  What’s the future of the war in Ukraine and its impact on the US and world economy? What will energy cost in 2023?

Personally, I have no predictions to offer. What I know for sure is that people will still want to sell, and there will always be buyers ready to buy. We continue to see new listings come on the market. As always, some listings will be priced wisely and will sell quickly, but most will be overpriced and will sit on the market, slowly reducing their prices until they sell, expire, or are withdrawn from the MLS.

There may even be bidding wars on homes that are priced right. For example, I just sold a home in Applewood which we priced at $895,000 and sold to one of three bidders within a week for over $900,000. But we’re not perfect. Other listings have languished on the market and only sold once we reduced the price sufficiently to attract a buyer.

DMAR’s Metro Area Statistics Cover 11 Counties

What do the rural cities and towns of Kiowa, Agate, Simla, Fairplay, Georgetown, Empire, Black Hawk, Rollinsville, Nederland, Allenspark, Lyons, Longmont, and Bennett have in common?  They’re all included in the Denver metro area statistics compiled monthly by the Denver Metro Association of Realtors for its market trends report. Here is a map of the 11 counties included in that report.

REcolorado, the Denver MLS, allows infinite flexibility in drawing the boundaries when searching for listings or doing statistical analysis, so my preference is always to draw a radius of 20 miles from downtown Denver when compiling metro statistics.

Below is this month’s infographic from DMAR showing the November month-over-month statistics for their 11-county “metro area.”

Under all five elements of the infographic I have inserted the same November statistics for the 20-mile radius of downtown Denver that I prefer to use.

The variations this month are not as great as I have seen in some months.

Here’s How Denver’s Real Estate Market Has Performed Since the Start of the Pandemic and the Recent Surge in Interest Rates

The charts below will not surprise any of us who have been witnessing the Denver real estate market over the past 2½ years. They do, however, document the death rattle of the seller’s market, which was killed by the Federal Reserve’s Open Market Committee, whose dramatic increases in the Federal Funds Rate were reflected in the amazingly quick increases in mortgage interest rates.

NOTE: The MLS charts above were created on REcolorado.com, limiting data to listings within an 18-mile radius of downtown Denver. That covers the entire Denver Metro area roughly within the C470/E470 beltway, but does not reach to the City of Boulder.

Back in January, when the 30-year fixed mortgage rate was just above 3%, it was hard to imagine that before year’s end the rate would be over 7%. The rates started rising in January, but they didn’t break above 4% until about the time that the FOMC started its aggressive rate increases.

(As a layman, I’ve never quite understood how inflating the cost of money is the best strategy for reducing inflation of everything else. And haven’t we noticed that that strategy hasn’t really worked yet? Some food for thought….)

Looking now at the three MLS charts, you can see that the number of sold listings exceeded the number of active listings throughout most the pandemic but sharply diverged starting around the time the FOMC rate increases began in mid-April.

The number of new listings saw no dramatic changes over previous years, but the number of listings that expired without selling was 3.24 times as high in October as it was in April of this year. Many of those new listings have sat on the MLS, as shown in the median days in MLS, which quadrupled from 4 to 16 days from April to October.

What may surprise observers is that the median sold price fell as little as it did from April to October. It is still higher than it was in January of this year when that 30-year fixed interest rate was about 3%.

What lies ahead? Homes are still selling, and buyers still need to buy, leading me to believe that we’ll see a “normal” market soon. Stay tuned!

How Does This October’s Real Estate Market Compare to Last October’s Market?

We all know that the Denver metro real estate market has changed dramatically this year, so I thought it would be interesting to compare the first 16 days of October with the same 16 days of October 2021. Here’s what I found.

I pulled the real estate sold listings on REcolorado, Denver’s MLS, for both years, limited to the area within 18 miles of downtown Denver, which roughly includes the area within the C-470/E-470 beltway, but does not include the city of Boulder.

Yes, the market has slowed, but the median sold price jumped from $450,000 for the first 16 days of October 2021 to $550,000 for the same period this year — a 22.2% increase. However, the number of closings plummeted from 2,411 during that period in 2021 to 1,650 this year, a 31.6% decline.

The ratio of sold price to original listing price dropped from 100.82% last year to 99.94% this year, and the median days before going under contract increased from 5 days last October to 16 days this year.

What effect did this year’s increase in interest rates have? During October 1-16, 2021, 18.1% of the closings were cash. During the same period this year, cash closings rose only to 18.25% — hardly any impact, it seems.

Anecdotally, I have observed that higher priced homes are selling more readily in this slower market, so I checked to see what percent of closings were $1 million or higher. During October 1-16, 2021, 6.51% of closings were over $1 million, but that rose significantly this October to 9.94% — and those million-dollar-plus homes sold quicker, with a median days before going under contract of 12, compared to 17 days for homes under $1 million.

There are many more unsold (that is, active) listings now than there were last October — 5,996 compared to 4,386 last year — and fewer pending listings — 3,310 compared to 4,913 last October. A consistent characteristic of the seller’s market was that there were more homes under contract at any given time than there were for sale, which was frustrating for buyers who would see “for sale” signs in front of homes, more than half of which were not, in fact, available to purchase because they were under contract.

Price reductions continue to be quite common in today’s real estate market. Of those nearly 6,000 listings currently active within that 18-mile radius of downtown Denver, over 1,000 per week are reducing their listing prices. As a result, we’re seeing a surge of low-ball offers for listings in all price ranges, as buyers know that homes are not selling for their asking prices and might go for far less.

Just this week, I know of one listing that was on the market for 100 days, starting at $685,000 (a price that was justified by prior sales of comparable homes), reducing its listing price over time to $589,000. The seller finally threw in the towel and sold it to a quick-closing cash investor for under $500,000. That’s an extreme example, but it’s says a lot about the market we are in now.

That example also provides another lesson about the market, because it was an unrenovated home. It had an unimproved kitchen and unimproved bathrooms and nothing flashy or exciting to catch buyers’ attention. My observation has been that homes which are unimproved or otherwise “plain” are sitting on the market and selling only after serious price reductions, whereas homes that are newer or beautifully updated are selling quickly and even attracting a bidding war.

The reason is simple, as I see it: Buyers are simply not inspired to “pull the trigger” at this time, especially if they need to borrow money. It takes a lot to get an offer from them.

This Might Be a Good Time to Do Some Renovation on Your Home

Normally, I would advise a prospective seller not to renovate their home to make it more appealing to buyers, because statistics have shown that you don’t recover 100% of what you spend on improvements. The only exception to that is cosmetic improvements which eliminate eyesores, such as peeling paint, floor damage, or anything that draws immediate negative attention on the part of visitors. Those repairs are worth it.

My other frequent advice is to make improvements which make you happy, albeit with an eye to what would look good to prospective buyers. Would you like a new kitchen or bathroom? Renovate it now, don’t wait to do it when you are ready to sell and want the home to have greater market appeal.

Since you don’t recover 100% of what you spend, do it now so that you can enjoy it, satisfying yourself that it will also help the home sell when the time comes.

Because the market is cooling and interest rates are so high, it might be a good time for sellers to hold back and make those little or bigger improvements that would make life better. Maybe you will want to sell next year or maybe you won’t, but meanwhile, you’ll enjoy your home more.

My broker associates and I would be happy to visit with you in your home and discuss those little and bigger improvements that suit your needs but would also make your home more attractive when the time comes to sell. We won’t be trying to convince you to sell, so feel free to request such a visit. We can also recommend vendors/contractors to make those improvements you decide on.

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.