Persistent Low Inventory in Entry-Level and Mid-Range Markets
As the sand runs lower in the hourglass that is this turbulent year, there are still so many troubling uncertainties in the world. How and when will Coronavirus vaccines be distributed? Will we face new shutdowns or lesser disruptions to curb the latest spike in infections? What the heck is going on in Washington? (I’m not even going to touch that one.) Although I may not be able to help you predict your “2020 Bingo Card,” one thing remains unshakably clear in Colorado, there is no shortage of upward movement in the local real estate market this year.
Entry-level homes between $300K-$500K did not see much material change in number of homes sold this year. Despite this fact, people were still consistently buying homes through the financial upheaval and economic uncertainty of the pandemic. This remains a positive signal for the strength of the local market. However, as stated in some of our previous publications, the $500K- $900K price range really led the recovery after the initial shutdown this spring. Flocks of people cashed in on low-interest rates and high equity, trading up into that higher price range. The demand for their entry-level homes was sky-high and there was plenty of mid-range inventory to choose from. Who wouldn’t take advantage of that situation if given the opportunity?
During non-election years, home sales typically dip about 10% in the six weeks prior to November. Prices are not usually impacted. This is the normal seasonality. In election years, the number of sales drops 15% for the six weeks leading up to the election. This is election-year seasonality. Most likely, the media will not know how to reconcile this sudden drop in home sales with the inflated price averages from this spring. It will probably be reported as some shadowy force that signals impending doom for the real estate market. Do not believe the hype. Seasonal trends still affect our industry, regardless of who wins an election. In fact, based on historical data, which political party gains control does not change these stats from election-year to election-year.
An Unexpected Luxury Housing Explosion
What was somewhat unexpected, based on earlier 2020 data, is that luxury home sales (that is, homes over $1MM) saw an increase of 115% over the past year in the Denver metro area. It could be that many people who were planning to buy into the luxury market over the next few years saw that interest rates were exceptionally cheap for mortgages and Jumbo mortgages. This prompted them to advance their plans and get deals done sooner. Since so many luxury deals happened in 3Q of this year, next year may see a drop in luxury home sales. This means that the 12% increase in the year-over-year average sales price, seen in 3Q20, will also drop dramatically. There may even shift into a negative price appreciation for several months.
To some, this will be in stark contrast to the strength of 2020 price gains. Compare this year’s 12% y.o.y. avg. price gain to the 6% historical average! This year seems to have seen twice as much appreciation as the norm. When these averages abruptly reverse it might seem like the market is tanking and Denver homes are devaluing from some unknown negative influence. You heard it here first, the media is probably going to have a conniption. What will most likely have happened is:
A) The mix of homes available in 2020 was skewed far into the upper markets due to a serious lack of entry-level inventory and an explosion of luxury business. The mix of inventory is expected to lean towards lower priced homes in 2021, which will affect the data. More of those homes are expected to come out of the woodwork due to Covid delays this year.
B) So many luxury sales happened on the back end of 2020 that there will be less luxury deals to be made in 2021. This will lower the average price but will not necessarily mean that everyone’s homes are devaluing.
Despite any sensationalist headlines you may see about home prices, real estate activity will most likely just be shifting towards the lower end of the market in 2021. This is still a hot market, and that is unlikely to change based on the past decade of strong real estate sales growth.
Narrow Down the Search to Save a Ton of Hassle
One of our key managing brokers recently told me about a method that is extremely effective for narrowing down your house hunt. We are officially calling it “The Search Funnel.” Part of the problem with looking through homes online and via MLS searches is that there is just so much to consider. Depending on your price point, criteria, and desired location, there are literally thousands of possibilities. It’s best to start with what matters the most to you. Focus on your top criteria for a home based on your needs and wants, not what “Susan up the street” found online for you to see in person. It is generally recommended to start your house hunt with your top three homes and schedule showings for those first. Don’t set up too many showings to start or it can get overwhelming and leave you in a tizzy, not sure where to go next. Based on the first three homes you see it will help us decide a lot about your likes and dislikes, and where to continue the hunt.
So Many Steps…How to Prepare Your Home
Aside from any major renovations or planned upgrades to your home, there is a lot to consider to get your home up-to-par for successful showings. We recently compiled a checklist that can help you get going on the road to a quick home sale. Many homes sit on the market for longer than they need to, simply because some avoidable item was left out that deters buyers. Maybe you forgot to clean a crucial area of your home or have hidden your clutter away in a not-so-hidden place. Follow the link below for an interactive checklist that can help you get your home ready for outside eyes. https://bit.ly/homezchecklist