If you are buying a home in Denver right now, you already know how tough the competition is. In fact, most buyers have to submit several offers before they finally get one accepted. We’ve been talking (a lot) about our ridiculously low inventory, the increasing home prices, and the speed at which homes sell. It can be discouraging to say the least, but what’s really happening out there? We dove into February’s closings and here’s what we found out.
Median Original List vs. Close Price
We broke down several price brackets to look at the median close price versus the original list price for single family homes (the original list price is the price a home is first listed at on the market before any price adjustments; the close price is what the home actually sells for). It’s not a surprise, in our current market, that every price group sold above its original list price. If you are one of the lucky ones who’s come out on top this year with a signed contract, you’re probably wishing that these median differences were all that you paid over list price! Again, I want to point out this is the median for all sales within a given price range in Denver. This means that the ridiculously overpriced home that sat on the market for eight months because the sellers didn’t want to admit reality is included in that number. If we could pull this statistic for only homes that went under contract in 7 days or less, there would likely be a huge shift upward in these numbers. Sadly, we’ve reached a limitation on the data the multiple listing service will let us pull or we’d show you!
We wanted to dial out our numbers to show what the last six years have looked like. We’ve been in a deep seller’s market the entire time (a.k.a. a market with less than five months of inventory) and the close-to-original-price ratio remained between 92% and 98% the entire time. Right around the start of the pandemic, the chart shows a drastic change. The most surprising takeaway is that homes priced over $1M, which typically offer buyers the most negotiating power, now happen to have the least!
How to Succeed
Like most savvy buyers, you’re probably already aware of the hot market strategies you can employ to help you successfully buy a home. They will work if you give yourself margin. This means you’ll need to leave room to escalate your offer price upward to beat out other buyers. Unfortunately, this also means you’ll need to consider looking at homes in a lower price range than your maximum budget. Developing the right “secret sauce” for your home purchase game plan is crucial to success. While the ratios we shared above reflect Denver as a whole, you’ll want to have your broker share more stats specific to the neighborhood you’re searching in. Or, you could wave the white flag of surrender and have your broker send this text to the listing agent of the house you’re trying to buy:
The choice is yours! 😂
I’ve been saying it since the first week of January… “It’s like someone flipped a switch and turbo charged this market!” If you aren’t on the hunt for a new home, let me be the first to tell you it’s a crazy, crazy, crazy market with the sellers in complete control. I took a quick peek at the multiple listing service statistics today, and here’s what I found:
There’s nothing to buy.
In Denver County as of February 11th, 2021, there are 895 active listings for sale and 1,831 listings that are pending (under contract). In January, there were 889 property sales. That leaves us with one month of available inventory, one month! I’m concerned for February’s stats after seeing that massive pending number. For buyers looking for properties under $1 million, it’s a very frustrating time. There isn’t much to look at. 895 homes is 0.003% of the 338,341 total homes in Denver, per the US Census as of July 1, 2019.
The competition is stiff.
Buyers are showing their resolve to succeed in this market. I was recently involved in two separate negotiations that came in over list price; one ended up $50k over list price, the other $130k. Each negotiation had over 15 offers, and not one was at or under list price. In fact, January’s single-family close-to-list price ratio was 101.3%, so my experiences were not the exception, but the rule these days. While the reality of the market may seem disheartening, let’s take a turn and break down how you can succeed in it.
Competing requires strategy.
I’ve seen some very aggressive offers in the last 30 days. Below are some of the popular tools used to get your offer accepted, though it’s by no means a comprehensive list.
- An aggressive initial offer.
- An escalation clause.
- Purchasing the home “as is” and limiting inspection asks to a low dollar amount ($1-5k).
- Appraisal protection (gap) clauses that waive the buyer’s right to object if the appraisal doesn’t come in at the above list contract price.
- Buyer paying seller’s closing costs.
- Higher earnest money deposits with a portion of or all of it non-refundable.
- Shorter close periods (2-3 weeks for financed purchases).
- Free seller lease backs after closing to allow the seller to find a replacement home (good luck).
Buyers need a Plan B.
If you find yourself on the losing end of things, don’t give up! Backup offers are becoming competitive — I just experienced my first multiple offer backup negotiation (no joke). It used to be a slam dunk to get a backup offer accepted after the home is pending, but not anymore! Have your backup prepared and submitted as soon as you receive the bad news. Being quick to the punch when everyone else is sulking could make the difference.
Backup contracts are free insurance policies that don’t prevent you from submitting other offers on new homes that you find. In the event that the primary contract terminates (which they do), you automatically become the first contract with zero negotiations. If you find another home you like while you’re in the backup position (and can get it under contract), a simple email terminates the backup contract, and voila! The best part? No earnest money is required for backup contracts!
It’s easy to get discouraged in this market, and I understand the urge to just take the “blue pill” and sign a lease to ease the endless anxiety and disappointment. But I would encourage you to take the “red pill” and work the plan that you and your real estate broker created. The end result will be worth it. Stay the course!
Our New Normal
COVID-19 has sent our market into uncharted territory. Since the start of increased COVID-19 precautions a few weeks ago, we have seen a significant decrease in showings in the Denver Metro area. This is in part due to buyers, sellers, and agents alike staying home to help slow the spread of the virus. With individuals and families facing financial hardships, we are also seeing buyers have to put their home-buying process on hold or even terminate on homes that were under contract due to loss of job or income.
Many sellers are also pausing all business until this subsides in the hope of slowing the spread, but also out of concern that showings will decrease given the situation at hand.
Governor Polis has issued “Stay at Home” orders for all non-essential businesses in the State of Colorado. For those of you who either have to buy or sell immediately, all real estate professionals have been deemed “essential” and are allowed to continue operating business while maintaining COVID-19 precautions.
There are many new guidelines being implemented by companies to ensure the buying and selling process can keep moving forward while also maintaining social distancing. Fannie Mae and Freddie Mac have issued new temporary appraisal requirements, allowing for desktop or drive-by appraisals. Many title companies are also implementing ways to close at home and electronically, or even “drive up” closings where there’s no need to get out of your car.
A Light at the End of the Tunnel
The federal reserve learned a hard lesson back in 2008, and that was the need to act quickly during times like this. Luckily, they did this time. The federal reserve is currently throwing everything they have to combat this. They have dropped the federal rate to 0, added another $700 billion in purchases, and have announced that they are going limitless. This means they will spend as much as it takes to keep businesses afloat. However, the most important factor is the containment of the virus. The sooner that happens, the sooner the economy can begin to recover and all of society can return to normal.
While we certainly don’t have a crystal ball, through all of this the Denver real estate market seems to remain strong. Many sellers are still receiving multiple offers, buyers are still actively searching, and Denver still has incredibly low inventory. These factors, alongside incredibly low rates, are still pushing Denver’s market forward.
What You Can Do
If you have to buy or sell due to personal circumstances (death, divorce, finances, etc.), if you are a renter who has received notice to vacate, if you have already bought a home and need to sell your current home, or if you have already sold your home and need to purchase your next home, you are still able to move forward with your buying or selling plans. Please feel free to reach out to any Love Your Hood broker to discuss your buying or selling needs and how to best navigate them at this time.
And of course, please stay home, and abide by government-issued precautions if you must leave your home.
If you or someone you know is struggling financially during this time and own a home, it is possible you have equity in your home that you could tap into. Talk to your financial advisor, lender and realtor about your options to refinance, take out a HELOC, or to sell if you need to. If you are having trouble making payments, talk to your mortgagee about payment forbearance as soon as possible.
Rest assured, Love Your Hood is taking COVID-19 precautions very seriously. Our heart goes out to all of the individuals and families who have been personally affected by this. At Love Your Hood, we truly love our neighborhood and those within it. If there is any way that we can support you or someone you know during this time, please reach out. We are happy to help.
All the best,
Your neighbors at Love Your Hood
Let’s address the elephant in the real-estate-market-room: the Federal Reserve dropped interest rates to zero.
So… What does that mean?
The reason the Fed has dropped rates to zero is to support the economy during the nation’s current self-quarantine. It’s looking like COVID-19 is not going away anytime soon, and the economy is feeling that impact in several ways.
With everyone holed up to avoid the virus, consumer spending is down. Making up 70% of the GDP, consumer spending’s dip is negatively affecting industries such as travel, entertainment, hospitality, and dining. This loss of business may lead to the laying off of workers in those industries, in turn creating a further lack of spending. Last week, we shifted from a bull market to a bear market, meaning stock markets are down at least 20% from recent highs. Investors are converting to cash and to other, safer investments due to this consumer spending concern.
The drop to zero is also to provide easier access to business and personal borrowing to weather this financial storm. It will provide businesses the opportunity to acquire short-term loans to help maintain payroll, keep employees, and keep doors open.
It’s important to note that mortgage interest rates are not necessarily directly correlated with the Fed’s rates. While mortgage rates are still at an all-time low, this doesn’t mean they will continue decreasing (however, this is still possible).
The good news in this is that the housing market remains strong. We ended February with a supply of 4,835 homes on the market (attached and detached). To add context to this, the record high for February was back in 2006, where we ended with 25,484 active homes on the market, while heading into a recession! So, demand is still high, and supply is still very low.
The buyer side of the market continues to be competitive, often with multiple offers over list price. With COVID-19 spreading, we anticipate a buyer slowdown as buyers avoid public places, like open house tours. However, this also presents an opportunity to continue (or begin) your home search in a less competitive environment, at least temporarily. Once the virus begins to stabilize and financial markets start to recover, you can bet it will be a mad dash to start touring listings.
Sellers remain in the power seat in this market in almost all price points — this is with the exception of homes over one million, where buyers are able to take back the process a bit more.
So, with the safety of our clients and our employees as our priority at this time, all Love Your Hood Brokers will be taking the recommended precautions against COVID-19. If anyone at Love Your Hood becomes sick, you can rest easy knowing they will be home, and another one of our amazing (and healthy!) team members will assist you with any property tours. We are also available to do virtual video tours of properties for you while you stay safely at home — please reach out to us to schedule one.
Here are the precautionary measures we will be taking to ensure that your home buying and/or selling journey is not affected:
- We will carry disinfectant wipes to clean all surface areas — particularly lockboxes, keys, and doorknobs.
- We will ask you to please refrain from touching any surfaces when touring homes.
- If you’re showing signs of illness, please let us know. We can do a video tour on any available home.
- Our entire team will be working from home as much as possible to do our part in slowing the spread of the virus and flattening the curve.
- All meetings will be done via conference calls or virtual video chat.
We encourage you to visit the Centers for Disease Control and Prevention website for additional information regarding COVID-19.
With regards (and washed hands),
Your neighbors at Love Your Hood
Source: Aldo Svaldi of the Denver Post
Anyone with a “Native” bumper sticker can tell you how fast home prices have risen in the past decade. The median price is now over five times the median household income, a new record which has economists scratching their heads. This article touches on a frequently overlooked contributor to our current home prices: the size of new homes. With new homes going bigger and bigger in scale, some developers are focusing on building smaller homes to be able to reach the “median” Denver residents.
Read more about the reasons for the rise in Denver home prices and how one developer, Mission Homes, is thinking small in the full article below!