The Denver MLS trends data for February 2021 is out. Comparing year over year (Feburary 2020 to February 2021) is better than comparing the previous month, because we have defined seasonality trends.
- Listen to the podcast “#265: Denver Real Estate Trends – February 2021 + New Lending Guidelines” on the Denver Real Estate Investing Podcast
- Read the blog post. Note, the blog is an executive summary. Get the in-depth breakdown from the podcast.
New Lending Guidelines for Second Homes and Investment Properties
New rule means higher fees for investment property mortgages and second homes. Fannie Mae is making it tougher and more expensive to get an investment property mortgage or one for a vacation home. And it’s likely Freddie Mac will soon follow suit. The changes, outlined by Fannie in a letter to lenders on March 10, don’t affect mortgages already agreed and locked. Read the full article here.
Key Takeaways from February 2021 vs. February 2020
Here are the February market stats and some ideas and observations. Lets look at February 2021 vs February 2020
- Active Listings
- Down 58%
- Both homes and condos had a material decline in inventory
- I don’t expect this to improve until sometime in the summer.
- We need to get a critical mass of people vaccinated for some sellers to feel safe opening up their homes to strangers.
- Continued economic recovery and some good news in the headlines will continue to increase consumer confidence. That will enable first time sellers to want to commit to trading up, and bring listings to market.
- At the same time, interest rates are going up, which will pull marginal buyers out of the market.
- Adding inventory and subtracting buyers will help the market get a little closer to equilibrium by end of year.
- The average number of listings in February is 13,500. We currently have 2,025
- This is a record low amount of inventory, and that’s doubly dramatic if you think of active listing per 1000 people that live here.
- As the city grows, we should have MORE listings over time not less.
- +4% overall; +16% condos and -2% homes
- Good market demand (there’s a blinding glimpse of the obvious)
- Showing Traffic (not in this report)
- Up significantly from last year and from the typical seasonal trend line
- If your new listing is under $800K and you are not getting 20 showings in the first week, odds are you are overpriced.
- There’s lots of this in the media:
- Some listings are seeing over 100 showings in one weekend and have upwards of 20+ offers. Make sure your buyers are prepared to offer up to 20% over the list price if they want the home.
- And it’s true, that DOES happen, but it doesn’t happen to MOST listings.
- You’ll want to calibrate your seller’s expectations so they are not disappointed if you get 10-20 showings the first weekend, one offer, and that offer is at/near asking price. That still happens a LOT, and IS a good outcome.
- The media is really distorting client expectations, so we have to educate them.
- +19% (similar for homes and condos)
- As with prior month reports, we are under-selling entry level homes (relative to historical average) and over-selling big luxury homes.
- We sold 63% more homes over $1MM in 2021 than in 2020.
- That’s not sustainable! If you have a prospective seller over $1MM, GET IT LISTED ASAP while that market is still red hot and the rates are low.
- Inventory in the first time buyer $300-500K was down 23% vs. 2020.
- This is also not sustainable. There’s lots of pent-up demand to sell at entry price points.
- The big increase in price is largely driven by the mix of what we’re selling
- There is an increasing gap between wage growth and home price appreciation
- We’ve covered that gap with low rates, but with rates inching up a little, affordability will put a lid on future appreciation
- I think it’s unlikely prices will go down, so buyers “waiting for prices to drop” will be out of luck
- However, the easy days of 8-10% (or more) appreciation will be behind us soon.
- DOM – days on market
- No surprise homes are selling faster
- Entry level homes $300-500K, median DOM 4.5 days.
- Most homes sell for a small premium (1.9%)
- Media is loaded with garbage like this
- Very few homes are selling at more than a 5% premium to ask price, but EVERYONE that does is somehow featured in a media story.
- It’s misleading reporting.
- Under Contract
- +7% from last year
- I’d anticipate that March 2021 closing count will outperform March 2020.
Where are the best opportunities?
The only market in Colorado that is a buyers’ market right now is downtown condos, with multiple properties over 100 days on market. When baseball, sports and restaurants pick back up, will that market also pick up?
I think there is a 95% chance of downtown having a huge recovery within 24 months.
Source: The above executive summary is from Lon Welsh of Your Castle Real Estate.
Denver Housing Trends February 2021
Showing per active listing trends for Denver
One Reason Not to Fear Inflation
by Lon Welsh
I’m reading lots of articles by smart people about “will there be more inflation or not.” There are great arguments on both sides. I tend to think we won’t see a big uptick in inflation but certainly some increase. Here’s a chart from the Wall Str Journal to share with your clients that are talking about inflation.
You can see that real estate prices and inflation are highly correlated. That means, at least historically, when inflation is high, real estate appreciates at a high rate. In other words, you don’t lose wealth from inflation with your real estate investments.
At the bottom of the chart, you see long term (LT) govt bonds are negatively correlated to inflation. That means there’s a large wealth destruction effect if you hold this asset class. Usually LT govt bonds have a low interest rate locked in for a long time, so inflation erodes the purchasing power of the money you have invested.
There’s a lot of hand wringing from real estate investors that prices are high and cap rates (a measure of cash flow generated from a rental) are on the low end of the range. That’s true. But with near-record low mortgage rates, it’s still historically attractive to buy rental properties. And since real estate is a great hedge against inflation – even better than gold – it’s a good time for your clients to consider purchasing rental property.
It’s also a great time to trade up, as your clients’ investment in a bigger house will have good appreciation if inflation does come back. And unlike buying a pile of gold, you and your family will really enjoy a nicer house!
30-Year Mortgage Rate Tops 3% for First Time Since July
A recent Wall Street Journal article finds that Americans who purchased new homes or refinanced their current ones over the past few months may have done so at just the right moment.
The average rate on a 30-year fixed-rate mortgage rose to 3.02%, mortgage-finance giant Freddie Mac said March 4th. It is the first time the rate on America’s most popular home loan has risen above 3% since July and the fifth consecutive week it has increased or held steady.
Mortgage rates fell throughout most of 2020. That helped power a boom in mortgage lending, fueled by refinancings. When rates hit 2.98% in July, it was their first time under the 3% mark in some 50 years of record-keeping.
The recent upward moves paint a clear contrast: More vaccinations in the U.S. and recent progress on the latest coronavirus relief bill have brightened investors’ outlook on the economy, a key variable in determining borrowing rates.
Mortgage rates tend to move in the same direction as the yield on the 10-year Treasury, which has been rising. Treasury yields rise when investors feel confident enough in the economy to forgo safe-haven assets such as bonds for riskier ones including stocks.
Freddie Mac chief economist Sam Khater said he expects a strong sales season, partly because he thinks “the uptrend in rates from here will be more muted than the past few weeks.” The Federal Reserve has said it would maintain ultralow interest rates until the economy improves. “The Fed has seen the carnage from the last crisis, and they don’t want to pre-empt the recovery by starting to raise rates and choking off that nascent recovery,” Mr. Khater said.
However, rising rates have started to weigh on home purchase and refinance applications in recent weeks.