Holy smokes, I can hardly believe how well our market has fared. No one could have predicted with certainty this kind of response. I knew we had a strong market, but the signs have really pointed to a quick recovery as buyers came back faster than any of us could have thought. If you’re waiting for a “great deal” caused by a huge market drop, you’re going to be sorely mistaken. You’re better off taking advantage of the great interest rates right now.
So, let’s start here: Recession ≠ drop in home values.
In the last 5 recessions, only 1 resulted in a drop in home values. Of course, it’s the most recent so it’s also the most memorable. But we need to remember that a recession in our economy is not a direct correlation to a drop in home values.
So, what has been happening in our market over the last couple months?
First off, let’s look at our supply (Sellers):
Supply went down once the lock-down happened. Homes that were under contract were mostly closing, but fewer homes were coming on the market as sellers were waiting to see what would happen. However, today we’ve basically caught up. We’re less than 1% off of the 7 year average for total YTD homes listed. And we’re 5% ahead of the 7 year average for total YTD homes put under contract. Basically, in sales numbers we’ve pretty much caught up had COVID never happened. There’s not going to be some huge flood of new listings. If anything, we’re low on listings by about 24% and with as much demand as we have, we’re just not getting enough listings. Our total closed count is still a little low (15.7% below the average by now), but since we’re up 45% this month in putting homes under contract, we’ll soon be caught up once those properties close. If you’re a seller, you have a 50% chance of selling in the first weekend and most homes are getting their asking price (when priced correctly).
Now for Demand (Buyers):
Demand also went down once the lock-down happened. Most just decided to step away from the market to see what would happen. A few were forced to put their search on hold due to being furloughed. However, that demand has come back with a vengeance! We’re putting 50-80% MORE homes under contract than we usually would this time of year. This seems to be pent-up demand coming back into the market as we come out of the lock-down. They’re getting back to work and so now it’s time to get back to finding a place to live! If you’re a buyer, you’re probably competing against multiple offers and need to do a little extra in order to make your offer stand out against the others.
What’s impacting our market more than COVID-19? Interest Rates:
Fed Chairman Jerome Powell says that he’ll keep the FED interest rates near 0% but will not go negative. This has an influence on your mortgage rates, but isn’t the biggest factor. He also says that they will continue to buy mortgage bonds and mortgage backed securities which is what’s keeping the mortgage interest rates artificially low.
Oh, and on a side note, Powell believes inflation should stay low… around 1 to 2%. A healthy real estate market appreciates about 1-2% more than inflation. So here in Denver, we’re in a good place. Our market is staying healthy. Also, Powell believes that unemployment will go down to about 7% by the end of the year.
Speaking of unemployment, won’t high unemployment numbers cause a crash like in the Great Recession?
The short answer is no.
While there might be a small bump in foreclosures, the amount of equity in our homes suggest that the number will actually be quite minimal. Unlike in 2008, 95% of homes have at least 10% equity. Going into the 2008-2012 Great Recession, home values were inflated by subprime loans going to people with little to no down payment nor documentation. Some of these loans were for as much as 125% of the actual market value. The lack of equity when the Great Recession hit meant that homeowners who lost their jobs and couldn’t afford their mortgage were then forced to either short-sell their home or let it go to foreclosure.
Today, for those homeowners who end up in the unfortunate position of needing to sell due to a long term loss of employment, most of them will have equity in their home.
And, I finally have national data to back my statement up.
95% have 10%+ equity
87% have 20%+ equity
58.7% have 60%+ equity
42.1% have 100% equity
Due in part to tighter lending, regulations on appraisals, and healthy appreciation based on actual supply and demand; most of those who need to sell today will be able to do so and actually walk away with money in their pockets. And Denver has fared even better than the national averages. Once I have Denver’s exact numbers on equity, I’ll be sure to share them.
So, what does all this mean?
Basically, it means that NOW is a great time to do real estate. Interest rates are low, so it’s a great time to buy. Did you know that people buying today can afford more than $50k more than those who bought a year ago? That’s because of the interest rates. Homes are selling fast, so if you need to sell, it’s a good time to do that too. It’s one of the rare perfect storms of being a good time to both buy and sell! So, call me! I’m happy to walk through your situation to see if it makes sense for you.
Your Real Estate Consultant
REALTOR®, BOLD, EcoBroker, CNE, CHRE, ILHM, KW Luxury
Professional Denver Real Estate for the Urban at Heart