It's Not Just the Weather Cooling [Analyze This]

Note: The following was analysis was published in House Einstein's Fresh Listings newsletter. Subscribe to access the full report, which includes a discussion of notable sales, interesting new listings to hit the market, and homes worth a second look. 

How's The Market?

As you already know, the real estate market is in the early stages of a correction. Yet, what you read in national news is not always what's happening at the local level. The market varies dramatically by price range, property type, and location. What's happening on average in Colorado is also not necessarily what's happening in Boulder. 

Let's dive into the data to see how things look: 

  • For several months in a row, pending sales and closings have been much lower than average in Denver, Boulder, Longmont, and Fort Collins.
  • Perhaps it shouldn't come as a surprise that many potential sellers have decided to not list their homes. Active inventory is up, but new listings are down.  
  • The net result is that buyers have more selection and negotiation leverage, but we’re not quite in a buyer’s market. Not yet, anyway. 
  • Take a look at the charts below for Boulder County (the pattern is similar in other local markets): 

  • New listings are one of the most important and reliable forward looking indicators to track. The green shaded area in the chart above represents the average inventory per month (3 year average). The yellow line is the most recent data. Sellers are holding back. New listings are now more than 20% below average for this time of year. 

  • The chart above shows inventory of active listings for detached dwellings. Last month was about 7% below average. Unfortunately, active inventory is not a very good indicator of market activity because of how the MLS reports this metric. Methodology is not disclosed, but after tracking it for nearly 20 years, I can tell you that it's inaccurate during periods of extreme market activity (such as 1Q22). During that time, most listings were available for only a few days before going under contract; true inventory is thus undercounted.

  • Pending sales are a more reliable and robust indicator, worth your attention. For the past four months, listings under contract have been well below average. The chart above is for Boulder County, but with slight variation, you'll see the same pattern in Fort Collins, Longmont, and Denver.  

  • Closings naturally follow pending sales. In July, sold volume was 38% below average for the month in Boulder County. In August, it narrowed to 28% below average. The market for detached homes in Longmont, Denver, the City of Boulder, and Fort Collins show similar patterns; between 20% and 30% below average. Townhomes and condos are less impacted. 

  • As the chart above shows, the median sale price (on a $/SQFT basis) in Boulder County last month was down 15.2% from the peak in March. It's still up 8.4% year over year, but there's no arguing that the median sold price has clearly declined. I'm well aware that other real estate agents aren't telling you this information, but there's no denying it. Last month was the 5th consecutive month of declining median sale prices in Boulder. 
  • Conclusion: we're in a standoff between sellers and buyers: Would-be sellers who acquired homes during the past 3 to 5 years did so at record low mortgage rates. They were well qualified because underwriting standards were kept high, unlike in the previous real estate cycle and subsequent downturn. These sellers will be reluctant to give up their gains and are better able to hold during a down period. Of course, the three d's - death, divorce, and debt - will force some sellers to market, but many others will simply hold. Potential buyers, on the other hand, are now forced to confront rates that have eroded their purchasing power by 30% or more. Remember, the vast majority of entry and mid-level buyers need a mortgage to purchase property. Buyers in luxury markets, or at the higher end of the market where cash transactions are the norm, are less impacted by rising rates and may indeed look at real estate as a safe place to park wealth while currencies decrease in value.  

Osman Parvez  is the Founder and Employing Broker of House Einstein. Originally from the Finger Lakes region of New York, he lives in Boulder with his wife and their Labrador Retriever. He has been a Realtor since 2005.

Osman is the primary author of the House Einstein blog with over 1,200 published articles about Boulder real estate. His work has also appeared in many other blogs about Boulder as well as mainstream newspapers, including the Wall Street Journal and Daily Camera. For more information, click HERE.

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The ideas and strategies described in this blog are the opinion of the writer and subject to business, economic, and competitive uncertainties. House Einstein strongly recommends conducting rigorous due diligence and obtaining professional advice before buying or selling real estate.  

Image credit:  Jakob Owens

Please Note

This document contains forward-looking statements. You are strongly cautioned that investment results are subject to business, economic and other uncertainties. There are no guarantees associated with any forecast and the opinions stated here are subject to change at any time. Always consult your financial advisor before making an investment decision.