How’s My Market: The Greater Denver Area
For this post, I have put together data for the greater Denver real estate market. To get an idea of the area I’m talking about, picture a rectangle over Denver. It starts a little west of Boulder and stretches out past Brighton, and the bottom edges go from Evergreen to Parker.
It’s no secret that the real estate market in Denver is crazy right now. Most areas are experiencing record numbers in property value and transactions, but what is going on?
The average sale price has gone up steadily from 2011, $246,077, to 2017, $406,352. That’s 165%! The 5 years prior, the price had stayed pretty stable around 230,000 to 240,000. But home value does not just go up on it’s own. This is a great statistic, but does not give us much insight into what is going on.
Average days on the market is another statistic that people like to quote. This one really does tell a story too, we went from an average of 93 days on the market in 2011 to 23 in 2016. So this means we went from an average of about 3 months to sell a house to about 3 weeks. While that is a pretty incredible trend, it doesn’t tell us what is going on.
Months of inventory is another one I have heard people talking about. This statistic is calculated by figuring out how many houses are sold in average per month, and then dividing the total number of houses on the market by that number to tell us basically, “If we had no new houses added to the market, how long would the current number of houses available out there last us?”
This statistic really shows a pretty interesting trend, and seems to be getting to something.
Looking at the data, the housing market crash of 2007 puts quite the spike in the beginning, even having an effect on 2008. But after that, you see a healthy growth, up into the elevens… Then, over the past few years, down into the 1s.
Getting closer to a cause, but not exactly. The pieces of data I really think tell the most about what is causing the current state of the market are a combination of the number of sales, number of active listings and the number of added listings.
To portray this a little bit easier, I have come up with a statistic I call the sales differential. Simply put, I took the count of active listings for each month over the past 10 years, added in the amount of added listings, then subtracted the amount of sales. It looks like this
A= Active Listings
B= Added listings
C= Homes sold
That chart looks like this
Illustrated this way, you can see that 2007 and 2008, there was a really low differential, meaning not a lot was going on, but we know this was because of the housing market crash. Then we had a surge of houses remaining on the market, from 2009 through about 2012. It had peaked in 2010 and then pretty much went straight down from there.
So now we find ourselves in a situation that is pretty well illuminated by this chart, and goes back to one of the key principles of economics, Supply and demand. There are very few homes available, so they cost more. But because of the massive population increase we have been seeing, this has been greatly exaggerated.
I’d like to call attention to one more aspect of this chart as well. And if you take anything from this article, let it be this last thought.
They always say Real Estate is cyclical. You hear about Buyer’s Markets and Seller’s Markets and all of that jazz. Well I think this chart is about as perfect of an example of that as I have seen.
That 2010 crest would have been a buyer’s market, the huge amount of leftover homes, the low home prices, the high amount of days on the market. Conversely, we currently find ourselves in a seller’s market. Ridiculously low days on the market, record high prices.
What does that mean? Well, these trends are unsustainable the way they are going. Continuing in this direction will cause a crash. But, we won’t continue in this direction. As we get into summer, more houses will be added to the market, which will cause the price to drop. That always has the same effect on the market; more people add their house because they were waiting to get the highest price. Now, not only have they missed out, they jumped in so late that they may get stuck in the crest.
So if you are holding out for the best price, now is your chance. Jump on before the wave starts.
Be sure to use the buttons on this page to contact me for a FREE market analysis on your home! Doesn’t get much better than free!