Read below for a detailed overview of what is happening in the Denver metro housing market as we head into the third quarter of 2022. For five simple ways to maximize your home-selling opportunity or buying position in this rapidly changing economic climate, click here.
Market Update – August 2022
July’s active inventory was up 21% from last month and up a whopping 81% over last year, according to DMAR‘s just released Real Estate Market Trends Report. It marks the first time in two years that we have seen an increase above 2020’s steadily declining inventory levels. This in itself is a significant statistic.
Despite the rising short-term numbers, active listings in the 11-county Denver metro are still 21% less than 2019 and 4% lower than 2018. If you were in the market to buy or sell back then, you may remember the cooling indicators of a recession until we were caught off-guard by a global pandemic. However, increasing inventory is a GOOD thing. It should be seen as not just a relief, but a grateful transition from the unhealthy housing frenzy that we have experienced since the pandemic began.
It is also important to note that rising active inventory does not mean that we have a flurry of new listings hitting the market. In July, sellers barely showed up to the party. Last month, new listings were down 18% from June 2022 and down 11.5% from the same time last year. In fact, new listings were lower this past July than at any point since 2018. This should not come as a surprise, though. Fear of layoffs, an impending recession, and current homeowners locked into incredibly low-interest rates are keeping people where they are. If today’s median homeowner traded into a new home with a similar size mortgage, their new monthly payment would go up on average $550 a month. That is substantial! This means that it doesn’t make sense for anyone to move without just cause to do so. It also adds a level of discernment for buyers putting in offers.
Where have all the buyers gone?
July 2022 saw pending offers drop 4.5% from the month before, and 23% year-over-year. Mortgage applications, a leading indicator of future pending offers, were also down 18% from 2021 as of the end of July. In mid-June 2022, mortgage rates peaked at 6.25%, but have dropped in the weeks since and have been hovering around 5.5%. The National average fixed rate ended July right at 5% with some lenders quoting mid-to-high 4%.
In addition to higher interest rates, buyers are only seeing a slight decline in close-to-list price. Homes in the Denver metro closed at an average of 100.8% to list price, down from 103% in June 2022. The number of days a listing is sitting on the market also increased to 13 days. We have been sitting at an average of 4 days on market for the past year with agents holding a listing through the weekend to garner multiple offers and going under contract the following Monday. High prices paired with higher rates have had a major effect on buyers; however, buyers now have the opportunity to get a home at or below list price with improving mortgage rates.
Lower close-to-list price and longer days on market should and did, result in a softening of prices. The Denver metro’s home price dropped an average of 3.3% from last month. However, year-over-year, we are still seeing double-digit increases in sales prices. Home prices were up an average and median of 11% from the same time last year. In 2022 alone, home prices have risen 15.4% since January 1. Prior to 2020, the average growth rate for the 11-county Denver metro was 6% per year. So, just to reinforce the point, more inventory, less buyer demand, and slowing home prices is a GOOD thing despite how the media sensationalizes it with headlines of a housing bubble looming.
Now that things are slowing, one Denver metro mortgage broker reports that 16% of her buyers are now using FHA or VA loans to buy their homes. This is great news considering that for the past two years, these buyers were unable to compete at all for a home. Even better, half of those buyers are using down-payment assistance to purchase. Slowing (but not gone) are the days of full appraisal gap coverage and waiving home inspections.
So, are we in a recession?
July ended with the FED taking a strong stance against inflation and increasing their rate by 7%, thus slowing demand for durable goods and business reinvestments. Lower corporate earnings, slower factory production, and softening earnings all tell tales of a recession. The first look at second quarter GDP was released at negative 0.9%, following a negative 1.6% in Q1.
The technical definition of a recession is two consecutive quarters of GDP decline. However, recently The National Bureau of Economic Research redefined a recession as a significant decline in economic activity that is spread across the economy and that lasts for more than a few months. Regardless of the new definition, we have never had two consecutive quarters of GDP decline without a recession. We have also never had a recession while having continued consumer spending and job creation, which happened in both Q1 and Q2 of 2022.
A recession does not equal a housing bubble. Americans are coming into this recession with $2 trillion in savings and twice the home equity as in 2006. In Colorado, 33% of homes are owned free and clear, with only 1.7% of mortgages in delinquent status, and a current foreclosure rate of 0.1% as of July 2022. If home prices continue to slow, as I expect they could for the second half of 2022, recent buyers could lose a little value. Some homeowners may even need to sell quickly, but most will simply not sell knowing that as rates drop (which they typically do during a recession), pent-up buyer demand will reengage. Considering our still very limited housing supply, this will force multiple bids and yet again, higher prices. Institutions, first-time homebuyers, and buyers who have been waiting in the wings will all be ready to buy on these dips. And, since we have not yet achieved an inventory level that can comfortably sustain a surge in demand, the idea of a housing bubble alludes me.