By James Rodriguez – Reporter, Denver Business Journal
Jul 13, 2021
An unexpected rebound in the Denver metro’s housing market has turned into more than a year of skyrocketing home prices, frenzied demand and shrinking inventory. And industry experts aren’t anticipating a drastic swing in the opposite direction anytime soon.
But the market is beginning to show signs of softening slightly, which experts say could indicate it’s on its way to returning to the seasonal ebbs and flows that have been largely absent since homebuying activity kicked into high gear in the early summer of 2020.
There were 3,122 active listings in the 11-county metro at the end of June, a 50.46% increase from the previous month, according to the latest report from the Denver Metro Association of Realtors (DMAR). That should come as welcome news for buyers after a year in which the number of available homes at the end of each month steadily dropped from more than 6,000 in June 2020, to less than 2,000 in March 2021.
Today, with about half a month of inventory on the market — well short of the four to six months that would signal a balanced market — the Denver metro remains decidedly in favor of sellers. There’s no evidence to suggest the possibility of a dramatic surge in new listings in the next few years to reverse that, experts say.
But in the short term, buyers are facing less competition, and extreme bidding wars are more rare, according to industry insiders. Homes in hot areas that may have drawn 40 or 50 showings in the spring might now see closer to 10 or 15, said Andrew Abrams, chair of DMAR’s market trends committee and COO and employing broker of BSW Real Estate.
“Sellers probably need to list the price more realistic to what they think they’ll get, instead of just a general, low-ish number and then letting the market take over,” Abrams said. “And then likewise for buyers, they just don’t have to compete with as many offers.”
‘An unprecedented market’
In a typical year, the market begins to pick up in February and March, with both new listings and closings peaking in June. Buyer demand typically wanes going into the second half of the year, as most families want to be settled in their homes by the time school starts in August. As a result of these homebuying trends, inventory usually starts low in February and rises steadily until August or September, when it begins to fall again.
Those seasonal patterns went out the window during the coronavirus pandemic. Buyer demand ran red-hot through the latter half of 2020 and well into 2021, pushing down available inventory to record-breaking low levels.
At the end of May, there were just 2,075 active listings for both attached and detached properties in the 11-county metro at the end of that month, down 71.06% from a year prior, according to DMAR.
Previously, month-end active inventory in the 11-county metro had risen from April to May every year since 2008 — sometimes by as little as 41 properties, or as many as 1,879 in 2019. This year, the number of active listings at the end of May was down 20% from April.
“I’ve been in the industry 24 years this year, and this is an unprecedented market,” Angela Hutton-Hall, managing broker of Denver-based City Park Realty, told Denver Business Journal in mid-June. “I’ve never seen where we’ve had such low inventory and high demand, and good interest rates. So those three things combined, it makes for a very unique situation.”
Plenty of deals were still getting done. There were 5,322 closings in May, a 48.74% year-over-year increase. An additional 6,719 sales were pending at the end of the month.
But buyers needed to be prepared to pay 5%, 10% or more above the list price, waive or limit their contingencies, and bring in plenty of extra cash to cover the difference between the home’s appraised value and contract price, according to Eric Romero, managing broker of Your Castle Real Estate.
The problem for Denver-area buyers is that there was a shortage of inventory even before the buying frenzy drove down the number of available homes further.
Romero has been a licensed broker for 30 years, and estimates that Denver has been a seller’s market for 27 of those years. He’s been dealing with multiple offers, and offers over list price, for almost as long as he can remember.
“The one thing that I’ve never seen before was not just people going in over list price, but people going in 15% or 20% over list price in some situations — that was something I’d never seen,” Romero told DBJ. “I never saw buyers willing to completely forgo their inspection, buyers willing to completely forgo their appraisal. Pretty much every protection they have in the contract, they were waiving, just to be able to be the winner of that property. Because that was so unprecedented, I think that it took people a while to get used to that.”
A return to normal? Not quite yet.
By mid-June, Romero was beginning to notice a change in the level of competition for listings. One evening, he brought a client to a new listing that had just hit the market that day.
“There was nobody in the house when I got there and nobody waiting for me to leave when I left. Two months ago, there’d have been a line outside,” Romero said.
He attributes that change to the seasonal shift that typically occurs going into summer, when demand begins to slow down. This year especially, people may be taking advantage of loosened restrictions to take vacations or enjoy summer activities before resuming their home hunt in the fall, some local agents speculated.
The latest data from DMAR also shows that the number of new listings in June was up 23.89% month over month, to 7,826 homes. More homes on the market means more chances for buyers, who may now be facing less competition than they would have in the spring.
“I’ve seen it, felt it and talked to other Realtors about it as well, that we are kind of in a deceleration mode,” Abrams said.
Hutton-Hall, of City Park Realty, said she’s now seeing buyers show more discretion. Several of her clients have decided to wait until the end of the traditional buying season before diving back into the market.
“They’re being much more aware and educated about what they’re willing to spend their money on, and where they spend their money,” Hutton-Hall said of current buyers.
David Babineaux, a broker with Coldwell Banker Realty, said he’s noticed things are slowing down a little bit — but just a little bit. A buyer might be competing against two offers instead of 10. A property might remain on the market for a week, instead of just a weekend.
“It’s still crazy, but it’s not as crazy,” Babineaux said.
The fact remains that the Denver market is nowhere close to what experts would consider a balanced market.
“I think this is going to remain a seller’s market,” said Joe Massey, a senior loan officer with Castle & Cook Mortgage. “I think inventory is going to inch up, but I don’t think it’s going to get to a balanced market. I certainly don’t think it’s going to get to a buyer’s market.”
The median closing price in June was $545,000, according to DMAR, more than 22% higher than a year ago. There were 6,672 sales pending at the end of the month, down from 7,294 at the same point last year, but still a substantial number of sales that will likely close this month.
“Our active inventory got some relief, but it’s not even normal yet,” said Nicole Rueth, producing branch manager of Fairway Independent Mortgage and a member of DMAR’s market trends committee. “We’re still on track to have more sales in 2021 than we had in 2020, and 2020 was a record-breaking year.”
Just as it took buyers and sellers time to adjust to the intense competition for homes early last summer, it will take time for them to adjust to the seasonal shift underway, Romero said. He recounted the case of one listing he knew of in early June.
“It got six showings in a weekend, and three offers,” Romero said. “Two of them were OK. One of them was $70,000 over. But that buyer wrote that offer, $70,000 over, assuming they were competing with a bunch of other people. And the reality is, there were six showings all weekend.”
Romero said he’ll need more data to see if seasonality is truly beginning to take hold.
He predicts that the last half of the year is going to follow a more normal cycle, although the market will still not have enough inventory.
“So it would be better for a buyer, but it’s still not going to be great for a buyer,” Romero said.
Rueth of Fairway Mortgage said she’s encouraging buyers to remain engaged rather than retreating to the sidelines.
“This train might not be going as fast, but it is still moving forward,” Rueth said. “And so to sit on the sidelines, it’s such a wasted opportunity right now. With low interest rates, slightly softer demand, slightly more inventory to choose from — all that gives a buyer an incredible opportunity.”