A quick anecdote before we dive into the current state of housing inventory: While most of us have started to sweat every time we fill up our gas tanks or pay the energy bill, wealthy buyers in Aspen are trying to outbid each other on ultra-luxury homes that are not even for sale. As the Wall Street Journal reported earlier this month, the Aspen luxury market has been supercharged by meager inventory, tight restrictions on new home construction, and an influx of buyers. Again, not dissimilar to what has been happening in the rest of Colorado… but what is quite different is the price points.
Since the pandemic hit, Aspen has seen a disproportionate number of $50 million and up home purchases. So many that even uber-wealthy buyers struggle to find a house in the ski resort town. It has become common for their real estate agents to cold call homes that have not even hit the market in hopes their offers will be so attractive that the owners will sell. This has created a “shadow market” where these luxury mansions are sold before the listings go public. 2021 was such a hot year for Aspen real estate; one house even set a record purchase price of $72.5 million.
Back in real life, the real estate market is starting to slow. As a local example, housing inventory in Metro Denver is increasing. The number of active listings at the end of May was up for the first time in recent memory, at +7.9% from April, or 4,051 active listings.
WHAT THIS MEANS FOR BUYERS
This rise in inventory is a sure sign that things are beginning to cool off and that the buyer pool has started to thin out. Some have undoubtedly been priced out of the market, given high average home prices and mortgage interest rate hikes. Plus, high inflation for everyday items like gas and eggs adds up fast. This increase in inventory is much needed for the remaining buyers, who have suffered through some of the worst housing scarcity. As a result, things should be a little less competitive right now than they have been over the past two years, and the marketing time for listings is likely to increase over time.
WHAT THIS MEANS FOR SELLERS
On the flip side of the coin, some sellers are looking to capitalize on their equity and move or trade-up before interest rates get much higher and are no doubt getting a bit panicky about a looming recession. For sellers who must make a move right now: remember that this is still a seller’s market. Buyers may be less willing to waive their concessions, but demand is still high for homes.
HOUSING INVENTORY PERSPECTIVE
One crucial thing to note about these recent changes is that the increase in active housing inventory, the slowdown in-home price appreciation, and the rise in interest rates are all likely bringing us closer to a more “normal” real estate market, not towards a housing crash. Housing inventory was already historically low when the pandemic hit, and then the move to remote work drove demand even higher. The net result was that traditionally low stock, around 8,000 homes for sale in December 2019, was driven even lower into the red. Over the past couple of years,, the list was as low as about 1,000-1,200 homes for sale in the Denver metro. Wow.
PRICE APPRECIATION PERSPECTIVE
In terms of price appreciation, having radical gratitude, as we have seen over the past couple of years, is not sustainable over the long term. The Denver Business Journal stated that Denver is one of the country’s country’s Top 5 Least Affordable cities for the first time. The fact that price appreciation is slowing down recently, but continuing to grow at a slower pace, is good for the local market balance. Plus, a recession does not necessarily equal home price depreciation. Given genuine demand for homes and a scarcity of supply, slower-paced price appreciation is the more likely scenario.
MORTGAGE RATE PERSPECTIVE
Lastly, mortgage interest rates were also already at historic lows when the pandemic struck. The FED drove those even lower to combat inflation. We hit a record low in December 2020: 2.68%. Although rates have been rising lately, they are still on the low end historically. All these factors point to a real estate market that is slowing down from its fiery pace over the past two years.