Joe Marino

If you have not heard already, the inventory of home on the market in Denver has been declining. This is not true in many regions of the county. Your clients, who often only see national headlines, might not be aware of this favorable news. Our market has some unusual factors at work. Let's explore them, so you can better help your clients.

If you look at the first chart (MOI 1), you'll see the MOI (months of inventory) for Denver's suburbs on the bottom axis and the average sales price in that suburb on the axis on the left side. Denver metro currently has about six months of inventory (a balanced market, on average), but you can see there is a lot of variety from one city to the next. Lower cost areas, such as Thornton, are seeing inventory move fast. Sellers (mainly banks) don't have to wait long for offers. Thornton's average price in the last year was around $250,000 and the average MOI was about 3 months. Greenwood Village, on the other end of the scale, had about 13 MOI and an average price of about $1.4 million. Sellers are suffering there. The city of Denver is about in the middle.

If you look at the second chart (MOI 2), you'll see the MOI information sorted by the price of the home. In some cases, this might be more useful when you meet with clients. The city of Denver, for example, has many neighborhoods with homes under $100,000, and they are selling fast. On the other hand, upscale neighborhoods like Cherry Creek and Hilltop have significant levels of inventory and it's taking a long time to get homes sold, especially over the $1 million price barrier.

The left part of the chart show what percent of the active listings are REO (in red) and which are regular sellers (in green). For homes priced between $0 and $100K, regular (e.g.,, non-bank) sellers are 17% of the active inventory, but only 12% of the sales in the last twelve months. You can see on the left that since they are not getting their "fair share" of the sales, the MOI for the regular sellers under $100K is 2.7 months. For REO under $100K, it's a blazing 1.9 months. This probably isn't a surprise to any Realtor that has written an offer for a low priced REO and the listing agent has told them their buyer is competing with ten other offers. It's a strong seller's market at this price point!

Compare the homes from $480K to $1MM. Here, MOI is around 14 months - a very slow market. Your seller's experience with marketing time depends greatly on their price. I hope this information will help you demystify our market for your clients.

(c) Copyright 2008, Your Castle Real Estate

The big message has not changed since last quarter - it's still a great time to be a buyer in the condo market. Prices are at a three year low in many areas, and interest rates on mortgages are still historically low.

The average condo price in Metro Denver declined 4% between 2006 and 2007: from $187K to $180K. Homes dropped 3% in that time period. Looking just at the first nine months of 2008 vs. the same time period in 2007, the price dropped 6%: from $181K to $172K. Homes dropped 11% in that time period. From their peak prices in 2006, condos have dropped around 9.5% while homes have dropped 12%. These numbers will be slightly different than Metrolist, as they are just Denver Metro and don't include outlying areas like Fort Collins, Colorado Springs, or Boulder.

Some areas did better than others. The attached chart shows different neighborhoods in our region. Each region has the neighborhood's name and the percentage of sales in the last twelve months that were either short sales or bank-owned properties. The second line has the price change the twelve months from October 2007 to September 2008 vs. the twelve months immediately preceding. Next, you'll see the average condo price in the last twelve months and the average days on market (DOM) in the last twelve months. There had to be at least twenty sales in the last year for an area to be included. The numbers are more reliable in areas where there were more sales.

Last quarter, we reported that days on market (DOM) had been declining for condos, which should be a leading indicator that we are due for price increases soon. That still seems to be the case.

(c) Copyright 2008, Your Castle Real Estate

Take a look at the first page, for AUN (Aurora North). Note these positive market trends this year:
- number of active listings steadily declining
- average list price pretty stable (finally!)
- U/C up dramatically
- Number of sales / month up (partially seasonality)
- DOM dropping
- Stability in average sold prices and sold price as % of list
- Sold price as % original price UP a lot - banks are getting better at pricing
- Number of expired listings down

Every indicator is improving this year in AUN. You will see the same trends in DSW (southwest Denver County), but not as marked an improvement as AUN.

By contrast look at DSE (southeast Denver County).
- listings are up (they should be - seasonality)
- Note the average list price ($758,000) is a lot higher than the average sold price ($418,000). Lots of expensive listings brining up the average ask price, but apparently they are not selling
- DOM (Days on Market) declining as it normally would due to seasonality
- Average price declining rather rapidly. Probably a mix issue - smaller, cheaper homes are probably selling better.

Since these homes in DSE are pricier, it has more of an effect on the "average" sales price on metro Denver. Oddly, we could see improvement led by the cheapo neighborhoods, with the lux neighborhoods falling behind for a while. It will be interesting to watch.

(C) Copyright 2008 Your Castle Real Estate

Recap of First Quarter 2008 Home Price Performance

The average home price in Metro Denver increased +2% in the full year 2005 to the full year 2006, from $309,000 to $317,000. Comparing 2006 to 2007, the average home price across the metro dropped 2%, to $311,000. The first quarter of 2008 was $278,000 vs. the first quarter of 2007 was $296,000: a 6% decrease. Note that prices in the first quarter are usually a bit less than the rest of the year. This is because families that tend to purchase larger, more expensive homes tend to move in the summer months when their kids are out of school.

The average price of a foreclosure or short sale dropped -3% to $188,000 from 2006 to 2007. The average price of a non-distress sale increased 5% to $370,000. Sales volume over the last twelve months is off -4% for DSF/ASF. Foreclosure and short sale volume is up +31%; non-distress seller volume is off 20%. This trend continued in the 1Q 2008; foreclosure volume was up another 15% at the expense of the non-distress sellers.

Some areas did better than others. The attached chart shows different neighborhoods in Denver. Each region has the neighborhood's name and the percentage of sales in the last twelve months that were either short sales or bank-owned properties. The second line has the price change the twelve months from April 2007 to March 2008 vs. the twelve months immediately preceding. Next, you'll see the average home price in the last twelve months and the number of homes that were sold.

The good news is that the foreclosures are likely to peak in the next six to nine months. Many of the foreclosures were due to resetting rates on ARMs (adjustable rate mortgages). There are two reasons. First, according to Bank of America data, the volume of ARM resets is set to peak in March 2008. It often takes six months or a bit longer for an ARM reset to conclude in the sale of a foreclosed home. Second, the index rates that many ARMs use have declined lately. As a result, some borrowers that might have had a huge shock if their rate reset a year ago might get less of an increase today. For these reasons, we're likely to hit the bottom of this cycle this year.

There had to be at least twenty sales in the last year for an area to be included. The numbers are more reliable in areas where there were more sales.

Source: Your Castle Real Estate analysis, MLS data

Home appreciation near T-Rex light rail line stations have out-performed the market
Other cities such as Portland found that homes near light rail lines have out-performed the market in terms of price appreciation. The newest light rail line on the south east corridor (it was built during the T-REX I-25 expansion) bears this out. In the last two years, the average home within two miles has appreciated 4% while the metro Denver average is off 8%. We've shared this with our clients, and many decide to try to purchase homes near future light rail stops in anticipation of future appreciation.