As we head into the traditionally hot months for real estate, the expectation has been to see home sales take a big jump in May. But a sudden pull back in sales has Realtors and lenders scratching their heads. Discussions about properties sitting and buyers purchasing without competing offers has been the hot topic in real estate offices.
The typical real estate cycle in Denver has listings and sales booming in May, June and July, with sales slowing through the winter. May brought us an increase in listings and decrease in sales from the same time last year. What changed?
What the Numbers Say
Looking at the statistics of the market as a whole doesn’t tell the story. Instead, we need to break the market down into price ranges. Looking at the stats based on price gives a better picture. Homes under $400,000 remain in ridiculously high demand. Month after month there is still more demand for homes than inventory to fill the need. No big changes here.
Properties over $400,000 are a different story. This price range typically has more inventory than buyers, relaxing the demand. But in May there was a large influx of new listings, softening the over $400,000 market even more. Properties in this higher range are suddenly sitting for weeks instead of days, and buyers are being more selective.
The Effects of a Booming Economy
Both the national and local economies continue to get better. Unemployment nationally has hit a low at 3.8%, while Colorado showed a 2.9% rate in April. When the economy is good, interest rates go up. The Fed has indicated a bump in June and September. An increase in interest rates will have two effects on home buyers.
First, buyers in the lower price ranges could be pushed out of the market altogether. An increase in the interest rate raises the monthly payment, potentially making the payment unaffordable. Second, for the higher end buyer, the rate increase will force them to buy a lower cost home, and the higher priced homes suddenly have a smaller universe of potential buyers.
Interest rates also have an effect on the seller, who needs to remain competitive when rates push up the monthly payments. This could be the force that stops, and even reverses, the continued home price increases we have seen over the last four years. Rising interest rates will have sellers backing off their record setting prices to sell their properties.
What is the same
Even with massive amounts of building happening along the front range, from single family homes to condos and town homes, the increasing population continues to outpace demand. With the difficulty in finding a home to purchase, and the prospect of competing against multiple buyers, home owners are still leery of selling today. This doesn’t change until selling a home holds less risk, or it becomes clear we have hit the top of the market and owners scramble to sell at the highest price.
The continued demand in the under $400,000 market will keep prices high and competition even higher. New construction is all around the city, but has still not fulfilled the current need. At some point we will likely see a market correction, but not until demand begins to subside.
In the over $400,000 price range, we may be seeing a market adjustment already. A sudden influx of new listings is forcing seller’s to adjust prices downward to stay competitive and sell their properties. Of course location plays a part in this as well. The hot areas in the city won’t see the reductions like some of the outer suburbs.