Bidding Wars are Back? [Analyze This]

Note: The following analysis was published in House Einstein's client newsletter dated February 8th.  Discussion of active listings only available to subscribers. Sign up.

What's New?

The team at House Einstein is gearing up for a strong spring season. We have a number of new listings and several active buyers now entering the market. Anecdotally, we're also starting to see bidding wars (see notable sales below) but January market data paints a different picture. 

Deep market knowledge is how we help our clients make smarter real estate decisions. This means analyzing the market in detail, something that I've been doing religiously since 2005. Every month, we look at sales volume, sold prices, inventory, days on market, and pending sales. We do this analysis for the City of Boulder, Boulder County, Denver, Longmont, and Fort Collins. We also track Louisville, Lafayette, Niwot, and Superior - although these are much smaller markets and tend to be highly volatile. 

The data paints an interesting picture, but one that perhaps shouldn't surprise you; all real estate is local. This means that regionally, our market areas are responding somewhat differently to high mortgage rates and low inventory. Sales volume has plunged across the board, but it's a deeper drop in Boulder than in Denver compared to average. New listings have also plunged, allowing inventory to appear to skyrocket - at least compared with a year ago. Look at the average of the past three years, and the inventory picture is not massively higher - except perhaps in Longmont. Compare it to 2019, which many consider the "last normal year" and inventory is still dramatically scarce in Denver (51% lower) but less severe in the City of Boulder (16% lower). 

The Springboard Effect

With pent-up demand increasing, there's a potential springboard effect coming. Take a look at the following chart.

This chart shows sold volume over the last twelve months for single family houses in Denver (yellow line). With the exception of two months, sales volume was dramatically low compared to average (shaded area). The net cumulative difference over the past twelve months is 1,556 houses for the period ending January 31. That's an an astounding number for a market that sees an average of about 8,000 sales per year. 

Given the characteristics of housing demand on the Front Range, as it relates to location, housing type, and price range and the fact that our regional population is not decreasing, what substitutes have met that demand during the past twelve months? Some potential buyers have rented, perhaps temporarily. Move-up buyers are also likely waiting on the sidelines, especially given the extreme costs and long timelines associated with significant remodeling.

It seems likely that the market segments most sensitive to interest rates (the entry and mid-level) will see the most dramatic resurgence when rates eventually drop. This also happens to be where inventory tends to be low.  

While all eyes are on the Fed, a standoff is continuing between buyers and sellers. Yet cracks are starting to appear, in the form of sporadic bidding wars. Some are described in the notable sales below. Are these bidding wars early signs of a market recovery or simply sporadic, isolated events? Will sellers capitulate and finally begin flooding the market with listings this spring? So far, we're not seeing signs of that on the ground but we are seeing refreshed listings from last year come back to market with dramatically lower prices.  A lot of potential buyers and sellers alike are sitting on the sidelines.

One potential buyer strategy is to accept higher rates and payments now, knowing that when rates drop, you can refinance. When it happens, it will also likely become much harder to avoid a bidding war due to increased competition from the springboard effect. In short, you're trading a higher monthly payment in the short-term for better selection, and in some cases negotiation leverage. Arguably, you're also taking a chance that prices might drop further, but they're already so far off the peak that this now seems less probable. Of course, this also depends on neighborhood, price range, and property characteristics. Property selection matters. 

For sellers, the picture is murkier. Some are kicking themselves for not selling during last spring's frenzy, yet the market in many cases has not dropped at all. We have a new listing coming up in Boulder's Arapahoe Ridge neighborhood, for example, and while there was a six month period with almost no sales last year, it turned around in December. Two comps now strongly support a sale price showing little difference in value from last spring.   

Bottom line: consult with your real estate adviser. We're seeing a market with a high degree of variability right down to the street level. If you're seeking further analysis and would like to engage us to advise you on your real estate needs, call us at 720.310.5007. If you're not already working with an agent, we're happy to advise you based on what's actually happening in the market, relative to your unique real estate situation. 

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.  

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.