Just a few months ago, one of the biggest threats to the Front Range housing market appeared to be that a “shadow” market of homes would darken the prospects of a recovery.
Last June, one national report even predicted that the Denver-area housing market could see its inventory of unsold homes rise by a third as banks unloaded foreclosed properties on their books that aren’t currently on the market.
Instead, the opposite happened. The number of unsold homes on the market began an unprecedented drop, so by the end of January a mere 10,443 homes were competing for the market. That was the lowest inventory number since 2001, when there were 21,946.
At the same time, the number of homes being placed under contract in January rose almost 11 percent from January 2011, resulting in a weekly sales rate of 7.71 percent. In January 2011, the weekly sales rate was 4.06 percent.
Another way to look at it: Your chances of selling a home this January was almost twice as strong as a year earlier.
It was the first January that the weekly sales rate, a leading indicator of activity, had ever topped 7 percent and it was the highest weekly sales rate in any month since 1990.
The weekly sales rate metric is a worthy jumping off point for InsideRealEstate’s monthly Q&A session with Lane Hornung, Founder and CEO of 8z Real Estate and COhomefinder.com
John: Lane, what do you make of this super-low inventory and the resulting super-high weekly sales rate?
Lane: There is no question. The inventory is as tight as a drum at lower price points.
John: What has been the reaction of the house-hunting consumer?
Lane: It is really interesting. What I am starting to hear back from brokers is that the lack of inventory is actually slowing down the sales rate.
John: But the sales rate was as high as it has ever been in a January.
Lane: I know. I think we would have seen even more under contracts with a bit more supply. Let’s say we could add 10 percent to the supply of homes, the number of contracts would rise. I do not think it is unreasonable to think that one out of every 10 prospective home buyers is unable to find a home that meets their needs and they can afford-or they are out-bid for.
John: So with such a low supply, and demand picking up, many consumers can’t find their dream home?
Lane: Right. A lot of folks now are on their third, fourth or fifth attempt to buy a home. In some cases, depending on the neighborhood, they are getting out-bid, time after time.
John: That’s not true across the board, is it?
Lane: No. It’s still a bifurcated market. For every market where sellers are getting multiple offers I can show you a market where there is 28 months of inventory. If you look at the entire market, in aggregate, there is about a six month supply of unsold homes, that means there are some neighborhoods where there is only a one or two month supply.
John: In the Denver area, despite the low supply and strong demand, the numbers still aren’t showing an increase in average and median prices.
Lane: I think that is a function of the mix of homes being sold. At the lower-end, I would be very comfortable in saying that we have seen appreciation in home prices. In the lower price range markets, I think some lower-price points have disappeared, simply vanished. A big part of that is investors are snapping those homes up, knowing they can rent them out and gain immediate cash flow. In some places, 25 percent or 35 percent of the market is coming from investors.
In higher-priced neighborhoods, I would say for the most part, there is zero impact from investors. It is just not the product-type, on average, that investors are interested in. As a result, prices are softer in the upper end of the market.
Overall, I think we are very close to seeing year-over-year appreciation as appreciation at the low end overwhelms softness at the high end. Eventually, the law of supply and demand will work as advertised. I think we will see year-over-year appreciation in the Case-Shiller and FHFA indices very soon.
John: Is the threat of a shadow-market behind us?
Lane: It still could happen. The threat isn’t gone yet. I wouldn’t hold your breath and I think with every passing month without it happening, it will become a bit more unlikely. And the truth is, right now, I think there are a lot of Realtors and a lot of buyers, who wouldn’t mind seeing a bit of that shadow inventory hit the market to give buyers more options.
John: Thanks, Lane.