Real Estate Market Update
“Now you see it…now you don’t”
A monthly market analysis capturing the observations and insights of the 8z Team
Buyers are finding that newly listed homes in many local markets are selling quickly. This “disappearing act” is becoming quite common.
In many cases, on the very first day a listing hits the market, multiple offers are received and the property is under contract before the clock strikes twelve that night. If buyers are not paying attention, a listing may come and go before they even know it was on the market.
The Spring market gathered strength in April. The volume of real estate sold across all Front Range markets increased 21.3% compared to last year.
(Figures above in millions)
The supply of active listings along the Front Range became even tighter in April, falling to 3.8 months as many markets continued a rapid shift from a buyers’ market to a sellers’ market.
This “disappearing act” is not the norm in all markets, and is certainly much more prevalent in lower price ranges. That said, let’s see if the market data supports these anecdotal stories of listings flying off the shelf.
The available inventory of homes for sale across all Front Range markets fell to 3.8 months of supply. This lack of inventory is remarkable considering it is an average of all price segments, and as a result, includes upper price segments where supply is often much greater than six months. An average this low indicates virtually non-existent inventory at the lower price ranges, hence the “disappearing act.”
In Boulder County, the same holds true, although to a lesser extent, since a larger portion of the market is in higher price segments. Current supply is 5.5 months, the first time inventory in Boulder County has dropped below the six month benchmark since the market peaked in 2006.
Even in the city of Boulder proper where prices are higher, inventory fell to 5.4 months in April. Clearly, the acute inventory shortage is working its way up into higher prices ranges.
Transactional volume is up on a year over year basis, but probably not as much as it would be if the market had more inventory. The lack of inventory is actually choking the market a bit.
There are many ready, willing and able buyers in the market who simply cannot find a property to purchase. They are getting beat out in multiple offer situations and may be on their fourth or fifth attempt to purchase.
Even with these impediments, transactional volume is surging this year. The volume of real estate that closed in April across all Front Range markets was up 21.3% over last April.
In Boulder County, sales volume was up 29.5% year over year in April. Boulder proper volume was up 31.5%.
So where do we go from here? How does this inventory shortage play out?
The immediate effect of the constrained supply is that prices are rising. Positive appreciation rates of 2% to 4% are already being reported, and as noted in this newsletter last month, home price index data lags the market by months, so expect the news of price increases to get even better in the coming months.
As the news of rising prices gets out, potential sellers who have been holding off may realize that now is not such a bad time to sell. Even home owners that assumed they were underwater may find the recent gains in home values allow them to sell without taking a loss.
The end result should be more homes coming on the market. This increase in supply will have a positive impact on the market, with inventory levels moving back toward the six month benchmark of a balanced market that favors neither buyers nor sellers. The market would even welcome more foreclosures and short sales to meet existing demand.
Overall, look for a stable market that delivers modest appreciation of 3% to 5% in 2012 for home owners, and also offers buyers a growing selection of inventory so they can take advantage of low interest rates.
Inside Real Estate News by John Rebchook
A monthly conversation with John Rebchook, Editor of InsideRealEstateNews.com and former Editor of the Rocky Mountain News, and Lane Hornung, President of 8z Real Estate.
It almost sounds like the name of a play: “How to succeed in a low-inventory, high-demand home market.”
While it’s not the name of a Broadway show, the Front Range real estate market can lead to a lot of drama if you are in the search for a home in certain neighborhoods.
“This market has shifted more rapidly than anyone would have predicted,” said Lane Hornung, President, CEO and Co-founder of 8z Real Estate and COhomefinder.com.
With the year-over-year inventory of unsold homes down 42.5 percent and under contracts up almost 20 percent, bidding wars for homes are becoming increasingly common in along the Front Range.
“Whether it is sustainable is debatable,” Hornung said. “But certainly the reality is that in today’s market if you are trying to buy in the sub-$400,000 price range (sub-$600,000 in places like Boulder), there is a high likelihood you are going to run into multiple offers.”
The suddenly shifting market is the subject of this month’s question-and-answer session between Lane and John Rebchook, ofInsideRealEstateNews.com
John: While the low inventory is welcome news for sellers, it is a real challenge for buyers. How does a buyer prepare for a shortage of homes and increased competitors?
Lane: First, if you are trying to buy in one of those markets where there is a shortage of homes and a lot of interest, you have to get rid of the mindset that it is still a buyer’s market. Just leave that at the door.
John: Can you elaborate on that a bit?
Lane: If you are in an area that is a seller’s market, you have to dispense with the notion that you are going to be able to buy a home for 85 or 90 percent of the list price. Ultimately, that mindset will hurt no one but you.
John: It’s a sea-change from not that long ago when a buyer could take their time and look at 30 or 40 homes and feel no sense of urgency, isn’t it?
Lane: It is a tough time to be a buyer. This is a market that has changed so quickly that it has even taken professionals by surprise. If we get some more supply, we could end up with a market a bit more in balance. But you have to be prepared with the realities of today’s market.
John: How fast does a serious buyer need to move on a home?
Lane: Very fast. You need to be prepared to come in quickly. In many cases that means the very same day. Realtors are watching the inventory to see what is new and when you get that phone call from your agent, you have got to be ready to act.
John: If you need to pull out your checkbook on the spot, it sounds like buyers needs to be prepared even before they walk into the home.
Lane: Absolutely. You need to be pre-qualified for a loan before you start looking. That means you have to have provided a lender with your work history, pay stubs and other documentation that is required to get a loan.
John: Let’s say you offer the full asking price and that is not enough. How do you decide if you want to get in a bidding war?
Lane: It may not be a pure financial calculation. It depends on how badly you want the home. You obviously don’t want to over-pay and have your basis way too high. But for some people, if the house really meets their needs and their finances, for very rational reasons they could be willing to pay a little more.
John: Is there a danger of getting carried away and bidding too much?
Lane: Yes. Talk to your Realtor to find out what he or she thinks is the fair-market value. Part of the Realtor’s job is to be objective and keep you from being carried away by emotion.
John: Any favorite tip for a buyer in a bidding war?
Lane: I always liked to have a buyer write down two numbers. The first: What do you want to pay? The second is what you are willing to pay. It’s not that you can’t scratch the number out and replace it with a higher one, but it always seems to help to have the numbers on a piece of paper before you get into the frenzy of negotiating.
John: What if you find yourself on the losing end of a bidding war?
Lane: At the end of the day, there is always more than one house that will typically work for most buyers. For most buyers, there are many houses that will meet their needs. It might just be a matter of time. You might need to wait another three months before you find the right home.
John: It must be hard if you have lost out on multiple offers for homes.
Lane: It is very taxing on buyers. Some buyers have bid on five homes and have lost five times. That is very stressful. Some people might need to take a bit of a breather before wading back into the market.
John: Lane, while most the stress in today’s market is on the buyer’s side, can you touch briefly on what it means for a seller pricing her home today?
Lane: First, you can’t count on a bidding war. The Denver/Boulder market, for example, is not anywhere near the frenzied market in the San Francisco Bay area during the peak, when you knew your price was going to get bid up. That said, a good Realtor can help you price your home correctly.
John: What will the Realtor bring to the table?
Lane: A Realtor will be able to tell you if you have very much competition in your area. You want to price it for today’s market and maybe in some sizzling markets maybe even a little ahead of the market. If well over 50 percent of the homes in your area are under contract, you might want to price it a little more aggressively.
John: But even in today’s improving market, you don’t want to ask for a ridiculously high price do you?
Lane: There is still a real risk of over-pricing. If you over-price your home and it becomes a stale listing, you can miss your shot at the spotlight.
John: Thanks Lane.
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– NAR’s composite quarterlyHousing Affordability Index rose to a record high of 205.9 in first quarter, based on the relationship between median home price, median family income and average mortgage interest rate. The higher the index, the greater the household purchasing power. This is the first time the quarterly index broke the 200 mark; recordkeeping began in 1970.
– The index shows the median income family, earning just under $61,000, could afford a home costing $325,500 in the first quarter, which is more than double the national median existing single-family home price of $158,100. The median monthly mortgage principal and interest payment for a median-priced home would take only 13.5 percent of gross income.
– Buyers paid $64.2 million for 41 luxury single-family homes and condominiums in April in the Boulder-Denver area, according to a report released today. The report also showed that while sales of single-family homes priced at $1 million or more are down in April almost 30 percent from April 2011, year-to-date sales volume is higher than in 2011.
– Foreclosure filings and foreclosure auction sales were down in Colorado’s largest counties during the first four months of this year when compared to the same period last year, according to a state report released today.The Colorado Division of Housing reported that foreclosure filings in Colorado’s metropolitan counties were down 1.0 percent for the first four months of 2012, comparing year over year, falling from 8,476 to 8,395. During the same period, foreclosure auction sales were down 29.0 percent, dropping from 6,177 to 4,387.
– Assumptions for the first-time buyer index include a lower income, at 65 percent of median family income, a starter home costing 85 percent of the median price, and a downpayment of 10 percent. This index means the typical entry-level buyer could afford a home costing $182,500, which is well above the overall median price.
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