The Market is Slowing, So Why are You Exhausted?

Comparatives are funny because they can tell any story you want. Market slowing down? I have a story for that. Market still nuts? Yep, we can capture that too. The idea that real estate is hyper-local is at its epitome in times like these. Let’s dive into our local numbers and a bit about the economy but start with a story because perspective is everything.
My team is working with a highly qualified, highly educated couple right now, who took the path of diving into this market unrepresented. They reached out to a listing agent, Maura Putnik, over the weekend. Maura shared with me that her $890,000 listing had 80 showings, 18 potential offers – six of those retreated when they heard where the price was headed, 12 written offers of which a few improved their offer, to have that one get the deal. In addition, four agents offered to submit a backup. If that’s slowing down, now I know why we are all exhausted.

DMAR’s November Market Trends Report continues the story of Finding Nemo, I mean seasonality. Sorry, I couldn’t help myself. September active listings increased as buyers slowed their roll putting fewer homes under contract and closing less for a substantial discount of 101.90% from August’s 102.53% close to list. This month, as rates continued their trend upward, buyers decided to fight the good fight. Active listings dropped back to 3,376, partially due to 13.28% fewer sellers and 7.42% more buyers than last month. Buyers today have 782 more homes to choose from compared to the hot Spring market, can take an extra day to view the home, and will pay almost 3% less over asking than they did in the Spring. However, compared to last Fall, this market is on fire! We have nearly 1,500 fewer homes to choose from, yet we put the same number under contract for 1.5% more in almost half the time. Days in the MLS are down from 24 days to 14 days this Fall from last. If this Fall is a precursor to our Spring market, hold on tight, the ride will be extreme. And for buyers waiting for more inventory, their wait will come at a higher cost both in price and interest rate.

Closed Homes for September Continue to be Strong

While down 13% month-over-month and 19% year-over-year compared to 2020, the 5,233 homes that closed are in Denver’s 2013 to 2019 September sweet spot, where homes sold ranged from 4,400 to 5,250. There is a saying that high prices are the cure for high prices,  that eventually people will simply stop believing a thing is worth as much as being charged. However, what we are seeing play out in our housing market today is much like what’s going on in the stock market, if a price seems too high and its demand dips ever so slightly, there are a line of people willing, ready, and able to purchase on those dips. This cycle is keeping home prices relatively stable and upward for now, as highlighted in the average and median price changes. September had a 15% increase in average and median closed prices, which moved only half a point from last month. The Closed-to-List metric dropped 0.6% to 101.9%, which seems significant, but it speaks more to sellers pricing right and fewer buyers up bidding each home. Notably, it is still 1.62% higher than Fall 2020, when mortgage purchase applications were 12% higher, and the real estate market felt like a frenzy.

So, Let’s Talk Rates. Are They Going Up? Or Down?

The Federal Open Market Committee’s November meeting is happening as we go to print with this month’s Market Trends report. They are expected to announce the much-awaited tapering of $120 billion per month in agency mortgage-backed securities and Treasuries purchases. Federal Chair Powell has recently stated that inflation is now persistent, i.e., no longer “transitory.” Welcome to the club, Powell. September’s core personal consumption expenditures index, the Fed’s preferred gauge of inflation, rose 3.6% over last year for a fourth consecutive month; this is the fastest clip since 1991. Powell is finally saying what we are all feeling – a severe supply chain shortage is affecting the price of all things, which will last well into next year. Now, the Fed’s tapering actions will have a supply and demand impact on bonds, typically lowering the price (which raises rates) as they exit the market as the biggest buyer of mortgage-backed securities. Usually, the Fed responds to higher prices by raising its target rate to cool down an overheating economy. However, the Fed is not planning on raising the Fed Rate, which still sits at 0-.25%, until the second half of next year. Half of the committee currently favors a Fed Rate increase in 2022; the other half wants to wait until 2023. Powell will undoubtedly emphasize flexibility in his public remarks after the November meeting.

Interestingly, with supply chain constraints and the spike in the Delta variant pinching the just-released 3rd quarter GDP to a crawling two percent, which is down from the 6.3 and 6.7 percent seen in the first two quarters of 2021, some economists are taking a gamble that a dragging economy will keep rates low for a while longer. However, Fannie Mae, NAHB, NAR, and the MBA are sticking to their forecasts estimating 30-year mortgage rates hit 3.5 to 4% in 2022.

If Rates Increase, Will Home Prices Decrease?

The saying goes, high prices are the cure for high prices. So, the question many are asking is, will rising rates cause home prices to fall? Maybe, in some areas of the country, but highly unlikely for Metro Denver. In 2008, Denver had 19,600 homes for sale, and the impact of the great recession dropped home prices by 11.2%. In 2007, 2009, and 2011, there was less than a 3% annual decline in home prices. Today there are 3,376 homes for sale for .65 months of inventory. This is down from .76 last month. Appreciation will slow down, and the hope is this will happen sooner than later. But for now, the Denver market is feeling the heat. Core Logic saw two months in a row of 19.8 percent year-over-year appreciation before inching down in its recent September data report to 18%. FHFA (homes with conforming loans) saw 18.5%, down from 19.2%. These stats signal the peak has been reached. In Denver, Case Shiller reported a 19.1% appreciation in September; this month’s Market Trends report for October data reflects a median close price increase of 13% year-over-year. Up 1% month-over-month. Year-to-date, with the extremes we saw this Spring and Summer, we are nearing the end of the year, just shy of an annualized 17% price gain.

While home prices continue to increase, so do rents and the alternatives facing our first-time homebuyers today. Imitation Homes, the largest landlord in the US, just released their report showing new rents are up 18% year-to-date, while renewals are up 8%. Apartment List shows rents up 15.8% nationwide and 16.6% in Denver year-over-year. Affordability and the migration it will create will be the hot topic for 2022. Personal income is doing its best to offset the higher cost of everything. Private sector incomes were up 1% month-over-month and up 10% when annualized over the last six months.

The Denver housing market will finish 2021 strong. With two months to go, we sold 539 more homes for five trillion more in volume than 2020. So, while Shanahan’s home sale made headlines, it only moved the needle .3%.

That’s a wrap for this month’s Market Trends update.

It’s my pleasure to keep you updated,

Nicole Rueth
Producing Branch Manager with The Rueth Team of Fairway Mortgage