Not the Last False Peak
Are you a hiker? I love to hike, to get out where no one else is, to find the most incredible views, to take in the expansiveness of Colorado. Having moved here from Dallas, I took every advantage of living in Evergreen for 15 years, climbing many of our fourteeners and taking in all the trails surrounding our home. There’s a term every hiker knows – a “false summit” or “false peak” – it’s when up ahead you see a point on the trail that appears to be the mountain peak. However, once that peak is reached, you realize another peak on the mountain higher than you. You couldn’t see the actual peak until you reached the false peak, or several false peaks, in Colorado’s varied terrain.
Wikipedia says, “False peaks can have significant effects on climbers’ psychological states by inducing feelings of dashed hopes or even failure.” Sound familiar?
Did you experience the recent real estate false peak? It “felt” like it loosened up a little during the second half of May. Did you feel it? Like there were more opportunities for buyers as more inventory came on the market. Maybe a few fewer offers competing for the same house and a little less over asking got the bid. We also ended the month with Memorial Day. Holidays historically give those buyers who have been priced out of the market an opportunity to put in offers while others head out of town, entertain at barbeques and turn their attention away from the house hunt for just a few days of reprieve. This Memorial Day did not disappoint. Buyers who have been searching for months finally got under contract. That’s what I felt as May winded down; perhaps, maybe just maybe, a little more inventory would give some relief to our extreme buyer demand. But that is not what the numbers tell us, at least not yet.
In fact, what May’s DMAR Market Trend numbers do tell us is that less inventory came on the market, and more buyers went out looking for it. New listings dropped almost six percent from last month and 14 percent from last year, adding only 6,311 homes across our 11 counties. Buyers gobbled those up, and more as 6,719 homes went under contract, up 17 percent from last month and three percent from last year. The resulting drop in active listings reflects how the positive net migration, an abundance of first-time home buyers, and rate lock keeping sellers from selling has on our Denver real estate market . . . you know . . . those buyers with nothing to sell. Active listings dropped this month from last for only the second time in 30 years. 2000 saw an April to May drop in active listings of 3.15 percent. 2021 saw a 20 percent drop and almost fell below 2000 homes for sale for the second time this year.
The downward pressure on active listings kept days in the MLS at a record pace of four days and months of inventory at a paltry 0.39, or 11 ½ days. What number really stuck out was how high buyers had to go to win. On average, a buyer had to offer 105.20 percent over list to win the deal. For single-family homes, that number was just shy of 106 percent. For attached, it was still high at 103.58 percent. Any stigma attached homes had during COVID is gone as buyers simply want a place to call home. For example, suppose your buyer is putting in an offer on a $500,000 home. In that case, they have to be ready to pounce the day it comes on the market, look at it once, and offer $30,000 over asking, preferably without a loan condition deadline, a full appraisal gap, and closing in two weeks. And even then, you will be chewing your nails anxiously waiting to hear.
With full appraisal gaps and an intense market speed, it is no surprise we see high appreciation numbers. Just how high is the real shock. The average home closed 26 percent higher than last year, and the median home closed 23 percent higher. Remember, this is not true appreciation but a measure of how many and what homes are selling at each price point. With fewer homes available in our market below $500,000, the higher homes sold are pulling our average and median numbers up drastically. Our average closed detached home this month was over $700,000 . . . WOW! Year-to-date growth shows a bit more realistic numbers by leveling off monthly extremes. Year-to-date average home prices gained 19.5 percent, and the median price increase was 16 percent. CoreLogic, a data aggregator which measures true appreciation, i.e., the actual increase of individual homes sold, reported that Denver gained an average of 13.8 percent in value. Any way you slice it, this is too strong to be sustainable, pricing first-time homebuyers out while increasing the froth for sellers.
No, we are nowhere near the peak yet.
Another false summit happened with interest rates. Rates turned up mid-month with the news of an extreme jump in inflation. Increased inflation was not a surprise, but it was more significant than most expected. The Consumer Price Index (CPI) is the Fed’s preferred measure of inflation, and it jumped to 4.2 percent, the highest in 13 years. The core inflation number, which strips out food and energy, jumped to three percent, the highest monthly gain in . . . well, ever. Some of this gain was expected. Math dictated the roll off of April and May 2020 COVID-induced deflation. What was not expected was the spike in commodity prices and wage inflation due to extended pandemic unemployment assistance creating labor shortages. The pop in rates reminded us of the run-up we just experienced in February and March, thinking this was the moment where rates would begin their inevitable climb. However, the continued purchasing from the Fed, the elated run up of the stock market, and the fickle spending of the consumer are keeping rates low for the moment.
The economy continues to gain strength as businesses reopen and reengage, humans take their masks off, and spending the saved up stimulus money seems inevitable. There will be a lot to watch over these next few months.
Buyer demand will normalize as rates inevitably increase; builders will be competing to complete more homes once supplies and labor come back in line, and home appreciation will soften as supply and demand rules reengage. But the trail there is still long, and I do expect more false peaks along the way.
So if there was any hiatus in the last two weekends, the numbers don’t show it, or buyers simply took advantage of it.
That’s a wrap for this month’s Market Trends update.
Keeping you updated,
Producing Branch Manager with The Rueth Team of Fairway Mortgage