Denver Metro versus Downtown Denver: one is a buyer’s market and one is a seller’s market. Something for everyone.

In Condo Tracker, Development, For Sale, Investment, Market Trends, Press, Purchasing Condosby Denver High-Rise LivingLeave a Comment

All neighborhoods in the 7 county Denver metro region we have been watching, have remained consistent in showing a strong seller’s advantage, except downtown Denver which clearly shows it has become a buyer’s market, with LoDo showing signs of being the best market for buyers.  Because we are in the middle of a unique time, we’ve been analyzing numbers weekly and will continue to do so until we can find some form of consistency or patterns that will help us better predict where we truly are and where we might be headed.

Our analysis not only includes your standard real estate watch of listings, sales, showings and such, but we are also watching mortgage and fed rates, current housing trends, consumer confidence, forbearance reports, local business reports and current legislative issues and concerns specific to Denver.  We are comparing the real estate numbers week over week, to pre-covid’s peak week of March 4-10, as well as a comparison against the average of the past 7 years on this day and year over year.  We are watching how the past few months have affected local businesses and how other companies who are new to Denver or moving to Denver are responding, such as the tech industry, and their plans to expand in Denver.   Understanding what is happening within each of these areas, and then applying that information locally, will help us to see a more specific picture of downtown Denver, which is very different than the 7 counties it is usually lumped into when you read most housing reports.

At a national level, purchase loan applications have been up for 6 weeks in a row, up 54% from early April and 6.7% higher than a year ago.  Refinance loan applications are 176% higher than a year ago.  Historically low rates and shortage of inventory are driving this demand.  As of Friday, mortgage rates hit an all-time low of 3.15% on a 30-year loan. The week before that rate was 3.25% and a year ago, we were at 3.99%.   If you are considering waiting to buy, hoping home values will decrease, consider the cost to borrow with the purchase price today, it is important to consider the overall risk of not purchasing now.

Forbearance requests have slowed down substantially with only 7000 new agreements implemented the week ending May 26, 2020, bringing the total number of mortgages in forbearance to 4.76 million, 9% of all mortgages.  The first quarter of 2020 ended with a spike in delinquencies, similar to what we saw after the hurricane in the third quarter of 2017, which was documented as the highest rate of delinquency since the Mortgage Bankers Association began tracking in 1979.  However, even with that spike, we are now seeing lower levels of delinquencies compared to year over year, primarily because of the forbearance opportunity many have taken advantage of.

For those waiting for foreclosures to purchase, in hopes of getting the “better deal,”  remember, each borrower who has a forbearance agreement under the CARES act can be given up to 180 days in delayed payments, plus the possibility of extending another 180 days, before they would start making or missing payments.  Then consider the time foreclosure takes.  This means the soonest an opportunity would surface is probably close to 12-16 months, conservatively.  Now consider the potential difference in interest rates today, historically low, versus where they could be next year.  Purchasing at today’s price with today’s rate could potentially equate to a 10% difference in your overall gain even if the rate only increases by 1%.  Also, most borrowers have more equity than what we saw on homes in the 2008 crisis where homes were overleveraged.  This will allow more opportunity for the homeowner to sell their home before at or close to market rates, or the bank to recoup a value closer to actual market value when the time comes, which means we might not see high numbers of foreclosures.

Reports are showing that urban sales are down, and the suburbs are seeing more activity since COVID-19.  The market share of homes sold in urban areas dropped from 22% to 15% in February 2020.   Many believe this is a new trend, people want more space, including office space at home, a back yard (pools are in popular demand) and don’t want to be stuck in a condo or apartment in the city if this should happen again.  This might make more sense in larger cities like New York and San Francisco, which is why we anticipate seeing movement from those cities to Denver, just like what happened after other major events affecting the United States, however, we believe urban sales are down for different reasons.

Some also believe we will continue to see more single-family home sales in the suburbs amongst the millennials who are starting families, leaving their single life in the city behind.  This makes sense, but considering a millennial is defined by someone who is between the ages of 23 and 39 years old today, it is easy to see how there are still plenty of millennials ready, or close to ready, to purchase their own urban home, replacing those who are heading to the suburbs. This year was slated to see the largest percentage of first-time homebuyers and the pandemic hasn’t changed that.  In April of 2020 first-time homebuyers increased from 32% a year ago to 36%, during COVID-19.

It is impossible to determine a new trend based on 1-2 months of activity, during a worldwide crisis.  Many urban homes are purchased by investors as vacation homes or to rent to those who fit the urban profile.  Oftentimes, that is the same group that was affected the hardest during COVID-19, food service, hospitality, recreation workers and retail trade workers.  That same group are also some of the buyers of condos, purchasing urban homes as their primary residence, and for obvious reasons are not in the position to be purchasing right now.  Many urban dwellers are not ones to stay home for long periods of time.  They’ve purchased a condo for low maintenance and lifestyle reasons, they want to experience life outside of their home.  This group enjoys the advantages of a lock and leave home, whether it’s to head to the mountains, travel for pleasure or work, or to simply be on the go in their own city.  They don’t spend the same amount of time at home as most suburban homeowners do.  So now think about how social distancing has affected this personality-type.  Now that businesses, restaurants, parks and travel are slowly reopening, they are more than likely catching up on lost time.  At least for now.  Therefore, this group of buyers might not immediately be in the market, and instead, are out enjoying their reclaimed freedom.

We are still watching and waiting for the aftermath of the businesses hardest hit and how the city and community responds.  Besides tracking showings and pending contracts to understand consumer confidence, this will be a determining factor that will send strong messages to consumers one way or the other.  That includes watching companies that recently made Denver their home, like those in the tech industry, and those that had said they were going to make the same move and whether they still do.  It sounds positive!  Not only are the companies that came here doing well, but the companies with plans to come to Denver in the near future are forging ahead.  Plus, now we are hearing of more and more companies that are considering making Denver their new corporate headquarters or even just adding an additional hub in Denver.

Earlier this year there was concern about SB138, extending the time allowed for legal claims to be filed against contractors under the Statute of Repose, when the proposed bill made it through initial votes in February.  The proposition of this bill has already scared several developers away and would have been detrimental to the need for attainable and affordable urban housing.  This would have reversed so much of what was accomplished in changes made to that statute in May of 2017, which we are now starting to see positive effects from.  Thankfully, that bill was killed last Thursday and is off the table, for now.

As mentioned, the 7 county Denver metro region we are watching clearly indicates we are in a seller’s market and will be for quite some time.  Remember, we won’t flip to a buyer’s market until we are able to balance the demand between buyers and sellers.  Once we are able to do that, then we could see movement towards a buyer’s market. However, as we’ve been discussing, downtown Denver is clearly sitting in a buyer’s market at this time.  The blue on the map shows a seller’s market and the red shows a buyer’s market.  You’ll see that the LoDo neighborhood, around the ballpark, seems to be the strongest buyer’s market currently.

 

The information below compares pre-covid peak week, March 4-10, with May 20-26.  You will also find data comparing the week of May 20-26 with the average of the past 7 years for that same week.

The following information is an average of all types of residential real estate in Denver and 7 surrounding counties, comparing May 20-26 to pre-covid peak of March 4-10:

  • There were 9.3% more properties under contract in comparison to pre-covid peak and 9.2% fewer from the previous week of May 13-19.
  • There were 8.4% fewer new listings in comparison to that same pre-covid week and 10.1% fewer from the previous week.
  • Memorial Day weekend is fairly quiet for showings and contracts and down from other weeks around that time by about 60%. In comparison to the past 7 years, we should have seen about 18,735 showings but actually had 23,190.
  • Today we only have 15.3% of the inventory needed at 6,472 units in inventory, to balance the market between buyer and seller. The market will not shift to a buyer’s market until we have 42,256 units on the market.

Comparing the same market today (all residential real estate in the same 7 counties) May 20-26, against the last 7-year average:

  • We still have the same number of active units in total at about 6,500 today as we did over the past 7 years.
  • We put 1,619 units under contract during this week, versus the 7-year average of 904. That’s a 79.1% increase!  We might still be playing catch up from the dam that has broken.
  • The 7-year average usually has 1.6 months of inventory, yet we are at 0.9 months, which is down 43.8%.
  • Days on market, median was 7 over the past seven years but during this week we were at 9 days. Up 28.6%.
  • We saw price reductions in about 19.5% of listings over the past seven years during this time, now reductions are up to 26.8% of listings, but the amount reduced is lower. The average price reduction was 4.7% but is now 3.7%.
  • The average home was $566,000 and is now $534,000. The average condo sale was $393,000 and is now $363,000.
  • Attached single family median price was $328,546 and is now exactly $325,000 – basically the same.

The 3 Strike Rule.  If a property strikes out on all 3 of the questions below, it may be time for the seller to consider a new marketing strategy, including a potential price reduction.  For a buyer, if you know the numbers in the table below for a property you are looking at, it might give you some room for negotiation.  Knowing we are in a seller’s market for most of the region considered in these numbers; this will more than likely only be the case if a property is truly priced incorrectly or if it’s not being marketed properly.  These numbers change weekly and have been good to follow during this unprecedented time, in hopes we can eventually have enough consistent data to give us an idea of how the market is standing up and where it might be going.

Remember, at this point, Denver’s 7 county region needs 42,256 units on the market before it balances between the buyer and seller and before there is any chance it flips to a buyer’s market, and today we only have 6,472 units in inventory.

In regards to downtown housing, we feel the urban market in Denver is not going to be a buyer’s market for long.  The demand has been strong the past few years, with a shortage of supply, and is simply on hold at the moment.  We continue to see companies make Denver their home because they know it is a city that not only has the talent they need, but will help them attract top talent from other areas of the country as well.  The Downtown Denver Partnership and the City of Denver remain committed and ahead of the game in building a city that continues to attract residents and businesses.   Developers are committed as well and removing roadblocks for them, such as the bill that was proposed earlier this year, will continue to help us work our way towards the housing needed; attainable, affordable as well as luxury.  Much more work needs to be done at the legislative level to support affordable and attainable housing, but if we don’t have what developers needed to start with, then none of that work would matter.

So for now, it seems buyers have the upper hand in purchasing downtown while sellers are enjoying the benefits of multiple offers in the suburbs.

If you’d like to be on our mailing list, please email us at:  info@denverhighriseliving.org or you can register on our web site at www.denverhighriseliving.org.

*Data was gathered and supplied by Megan Aller with First American Title.  Reports available upon request.

 

Lori Greenly

Lori@DenverHighRiseLiving.com

(720) 985-7455

 

 

 

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