A Market Moving at the Speed of LifeJuly gave us a clear look at the Denver Metro market as it is: measured, patient, and increasingly shaped by life circumstances. Moves are happening less because
January Real Estate Update - Lon Welsh
Dated: January 10 2023
Views: 438
Is anyone else happy to see ’22 in the rear-view mirror? Here’s the initial look at December’s statistics from DMAR (The Denver Metro Association of Realtors), along with my editorial commentary.
LISTING COUNT (INVENTORY)
- Up 220% in Dec ’22 vs Dec ’21 year over year (Y/Y)
- Keep in mind that 2021 was the record low point for least inventory in the last 25+ years
- Homes were up a bit more than condos
- Total of 4,750 active listings on 1/1/23
- Same time in 2019 – last “normal” time – we had 5,050 active listings
- From 1985-2021, the average listing count at this time is 12,300 listings.
- It’s great to see more inventory from the record low counts of ’21, but we’re still well below “normal”
- Keep in mind, this metric can be misleading.
- The DOM have increased a lot, so any given listing is in the active count for a lot longer than it used to be
- A different way (better way IMHO) to consider it … how many new listings?
- 2019: 71,200 listings brought to market (full year)
- 2022: 60,200 listings
- There was about 15% less to choose from this year vs ‘19
- 85% of the mortgages in place are under 5%. That creates a barrier to people listing unless they have a strong reason (lifestyle, family) to drive them to move. Not many “elective” sellers.
NUMBER SOLD
- Dec ’22 Off 42% Y/Y from Dec ’21
- Condos and homes had the same level of decline
- The drop in sales is about as expected given the leading indicators we had for new mortgage applications, showing traffic, and under contract counts
- For the entire year
- 2022: 50,700 sold
- 2021: 64,100 sold (-21%)… keep in mind ’21 was a record year for the entire US and Denver
- 2019: 58,900 (this year is about -14% from the ’19 run rate)
- NAR expects the US to sell 7-13% fewer transactions in ’23 than in ’22. I think the decline in the Denver market will be 10-15% less than ’22.
CLOSING PRICE
- Up 2% Y/Y
- Homes were flat, condos were up 6.5%
- Core Logic found that Denver prices went up 45% from 1/1/20 – 5/1/22. That’s when prices peaked. Denver prices have dropped 5% since then. Net, we’re still up +40% since just before COVID.
- I expect ’23 prices to be -2% to +2% from ’22 prices in Denver.
- If we see price declines, I’d expect they would mostly decline in the first half of ‘23
- As discussed above, low mortgage rates in place will limit new listings in ’23, as it did in ‘22
- Since there won’t be as much inventory build as you’d historically expect, the lack of inventory will help support prices in a time of reduced buyer demand
- This limits how much the market prices can drop, regardless of the mortgage rates in my view
- For the US, NAR expects +1% for home prices in ’23.
DOM (DAYS ON MARKET)
- Up 131% Y/Y
- Average now 43 DOM (was 18 DOM a year ago)
- Condos and homes had similar changes
UNDER CONTRACT
- Off 26% Y/Y
- This looks like a great leading indicator compared to the 42% drop in closing in Dec ’22!!!
- Condos off 35%, homes off 21%
- When I mention that I think we’re a little past the worst of the correction, this is the leading indicator I’m relying on most
- Also, the showing traffic in the past few weeks has been up a little, which supports the improvement in UC
- Lastly, antidotally, I’m hearing that the number of new mortgage applications is starting to recover as mortgage rates have dropped off Nov ’22 highs
DISCOUNTS
- 1.6% average discount this year vs. Dec 21: average +1.5% premium paid to ask price.
- Condos and homes had generally the same trend
MORTGAGE RATES
- Peaked in Nov ’22 around 7.1%
- Dropped from peak and currently 6.4%
- The mortgage rate is historically priced as the US 10-year treasury + a spread of 1.6% or so.
- Currently the premium is closer to 3.0%
- There’s plenty of room for mortgage rates to drop even if the 10-year doesn’t change much.
- I suspect we are past the high point for mortgages.
- Some people forecast 5.5% mortgages this time in 2023. That might be optimistic.
- I think there is a higher change of mortgage rates going down than up at this point.
BUYERS
Certainly have a lot more leverage than they had this time last year
- Few homes sell above ask price
- Few homes sell first weekend
- More contingent offers
- More ability to negotiate price and inspection
I just helped my daughter trader up from her first condo to a house. It was a great experience – we were able to negotiate what I thought was a great deal vs. what we could have gotten in 1Q22
SELLERS
- Every showing counts – be “parade ready” for all showings
- Make showings as easy as possible, even though that’s more of a headache for sellers
- Showings after 5PM will set you apart a bit
- 53% of active listings have had at least one price reduction; if you are not familiar with the scripts to get these drops, call a managing broker for help.
- Historically, we’ve found that sellers that price correctly on day 1 (e.g., no price reduction needed before going UC) sell in half the time of the sellers that price too high and need 1 or more reductions before going UC. That is still true. It’s vital to price accurately when you first hit the market.
- It’s still a good time to sell if the client can be realistic about pricing and marketing conditions.
NET… it’s a pretty slow, messy market! I think we’ re at bottom-dead-center, or just past it.
Lon Welsh, Founder & Chairman
Your Castle Real Estate
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