The local real estate market remains very active. Many stories about multiple offers, sales prices over asking prices, homes selling within days of entering the MLS, etc. Although the stories are widespread, the market strength is not equally widespread and some areas and price points are still not sharing in the strength. I expect if this strong activity continues throughout the summer that the market strength will continue to spread and eventually all areas and price points will benefit.
I believe that the majority of this strength is due to the lack of inventory we are experiencing. Boulder County experienced a peak in inventory in 2006 when at the end of June we had 2,343 homes for sale across the County. At the end of June this year, we have only 1,147 homes for sale, a 51% decline in the number of homes available for sale. During this same time period, we have slightly higher numbers of buyers. In 2006, there were 588 homes under contract at the end of June and this year we have 655 homes under contract for an 11% increase in the number of sales. Whenever you have less supply and more demand, prices will rise and we are starting to see that.
Here is the Supply chart contrasting 2012 and 2006.
Here is the Under Contract chart contrasting 2012 and 2006.
One of the questions that I keep getting asked is why our inventory is so low. I still struggle to have a great answer to this question. Some of the answers that have been put forth on a national level, such as a majority of sellers underwater on their homes, don’t seem to apply to our local market. I think some local sellers are still feeling that they won’t get what they think their home is worth. While prices are starting to increase in some areas, we are still below the peak in prices in many areas. I also think that some sellers looking to make a local move are holding off on putting their homes on the market as they have looked online and realized that the options for their replacement home are very limited.
One theory that I just recently read about on the Calculated Risk blog that seems most likely is that as the market turns, price expectations are playing a role in the inventory story. When the expectation was that home prices were going to fall, many sellers tried to sell their homes quickly to get out before the bottom while buyers waited for the bottom to get the best deal. This thinking lead to our large increases in inventory and declining sales over the last decade. Now that the expectation is that prices have stabilized, many sellers are thinking of waiting until the sale is more convenient to their lives or they can recoup some of their losses and buyers seeing that prices are starting to rise are starting to get more serious about their buying plans and entering the market in larger numbers. This perception of the market has led to our lower inventory and we’re just starting to see the increase in sales.
While the market definitely seems to be on the right track for increasing home values, we still have some downside risks within the national economy, the continued collapse of the EU and the typical economic turmoil of an election year.
Mike Malec, CRS GRI, SFR, CDPE