Temperatures are heating up across the state, but the real estate market is looking slightly cooler. With mortgage rates continuing to float around 7%, it appears that the majority of buyers have really had enough, as listings are sitting on the market longer, and de-listings as well as price reductions are more common. One could even make the argument that we’re finally seeing a real shift toward a buyer’s market rather than a seller’s market, the latter being the norm in Colorado for quite some time.
The current state of our real estate market is interesting to say the least. For years now, we’ve grown accustomed to a high level of buyer demand. One key metric that helps to illustrate that trend is ‘months supply of inventory’, or how many months it would take to sell all of the current housing inventory at the current market pace. Through the course of 2020 through 2022, that number stayed below two months in most areas, even falling to just 0.5 at times. But we’re starting to see a concrete shift in the opposite direction across the state. Let’s take a look at the May data:
- Denver Metro: 2.7 months supply | +42.1% year-over-year
- Boulder County: 3.3 months supply | +37.5% year-over-year
- Colorado Springs: 2.1 months supply | +75% year-over-year
- Northern Colorado: 2.6 months supply | +36% year-over-year
- Buena Vista: 5.7 months supply | +11.8% year-over-year
- Eagle County: 4 months supply | no change year-over-year, but it’s worth noting that much of the housing inventory in the mountains consists of vacation rentals and/or seasonal homes, unlike the Front Range.
By definition, a buyer’s market is typically characterized by over six months supply of inventory. Once the supply exceeds six months, there are more listings on the market than can be absorbed by the current demand. In that case, sellers have to compete more aggressively to sell their homes, leaving buyers with more of an advantage and negotiating power, hence the term buyer’s market.
However, there are other factors that contribute to the pace of the market, such as interest rates and housing prices. These two in particular are the main culprits creating a shift in the current market.
Both of these factors directly impact affordability, which is arguably the biggest challenge for consumers right now, especially first time buyers that don’t have equity to leverage toward their next home purchase. While interest rates have been a struggle for some time now, pricing is becoming even more of a contributor to the slowing pace of the market. What we’re seeing right now is a lot of overpriced listings coming to the market, and this becomes even more clear when we look at the data. Last month, we saw a decrease year-over-year in closed listings in most areas, while new and active listings increased. This suggests that while more homes are being listed, buyers aren’t making a move if they feel the pricing is too high. However, it seems that buyers are still quick to move when they see a good deal. While the overall data points to more time on the market, we are still seeing homes sell in less than a week when competitive pricing and merchandising strategies are in place.
When you look at the amount of de-listings and price reductions happening right now, the picture becomes even more clear. Mike DelPrete is a renowned thought leader in the real estate industry, who consistently brings clarity to the larger market trends through in-depth research and data. In his recent newsletter, he shared some interesting charts that reveal de-listings and price reductions are heading toward all-time highs.
He even suggests that we may be on the cusp of an overall price correction for the real estate market. It all comes back to simple supply and demand - supply is increasing, but demand has been hindered by affordability struggles, slowing the pace of the market and even forcing sellers to adjust their pricing to meet the current level of demand.
Again, there are still homes selling quickly, and over asking price, but it’s critical to nail your pricing and merchandising strategies to make that happen. It’ll be interesting to see how the remainder of 2024 plays out. If interest rates don’t come down in the near future, it’s possible that we’ll see months supply of inventory continue to climb, and buyers will gain more of an advantage as sellers have to be more competitive to sell their homes.
