Denver Metro Market Stats - 2023 In Review
/Happy New Year! We get asked all the time what is going on in the Denver real estate market, so this year we’re going to publish monthly blog posts with updates on the market which will include hard data as well as some entertaining anecdotes about what we’re seeing month-to-month in the market.
Let’s talk about 2023. It was weird. The Federal Reserve began a series of interest rate hikes in June of 2022 and mortgage rates were around 7% at the start of 2023, essentially doubling what the rate had been from 2020 onwards. I realize that not everyone spends their working lives looking at closing disclosures and monthly payment calculators, so here’s a nifty little table that demonstrates the impact that increasing home prices and interest rates have on your monthly payment. Spoiler alert: it’s not good.
Interest rate hikes make it more expensive to borrow money which theoretically tampers inflation and drives down the price of things. The speculative narrative around the impact of higher interest rates was that the increase in rates would cause a decrease in buyer demand and home prices would fall as a result. As you can see from the table above and the graph below of Average Sold Price for Detached Single Family properties in Denver Metro, that’s not what happened. Average closed price remained more or less flat when looking at 2023 vs. 2022.
It turns out the housing market is just that, a market. Pricing in the market is dictated by buyer demand AND seller supply. Yes, home buyers got sticker shock from the monthly payments associated with interest rates above 7%. Buyer activity and demand slowed down quite a bit. However, housing supply slowed down as well. Homeowners everywhere are sitting on top of historically low rates and low payments, especially if they bought before 2020.
The Rate-Locked Homeowner Effect
I am a perfect example of this phenomenon, we bought our Sloan’s Lake house in 2016 and after 7 years in it I would LOVE to buy a new place with a bit more elbow room on a larger lot further out in the western suburbs. Several months ago I fell in love with a cute brick house on .75 acres in Lakewood. The list price was about $125,000 lower than what I thought I could sell my current house for. The interest rate on my current house is 3%, so if I sold my house and bought one that is $125,000 less my monthly payment would have increased by ~$1,300 because of the higher interest rate.
Yes, you read that right. I could buy a less valuable home AND have it cost significantly more every month?! Sounds like a pretty awful deal. In other words, the math just doesn’t add up. That makes no sense for me, because while my house is on the smaller side and there are some things about it that drive me insane (there’s no entryway, closet space is basically non-existent, and I don’t have a bathtub in either bathroom) I don’t need to move, I just want to move.
The industry has dubbed homeowners like me as “rate locked” meaning that we don’t want to walk away from low monthly payments. Instead, starter homes are becoming forever homes and homeowners are weighing options for upgrades and additions to their properties to keep their low rates and low monthly payments. This dynamic has kept “move-up” inventory off the market and helped hold housing prices steady.
What does this actually mean for buyers and sellers?
Sellers who did opt to list their homes in 2023 did so because they needed to sell, so they were significantly more motivated and willing to make concessions or take lower offers to make a deal happen. Average days on market (DOM) essentially doubled from 2022 to 2023 and it can now take up to 3 weeks to get 15 showings on a listing, a feat that used to take less than 8 hours in 2021.
Houses that are nicely updated, super clean, and priced correctly are getting offers more quickly but the terms of the contracts are less favorable to sellers than they were in 2018 - 2022. Buyers are asking for seller concessions up-front to use for interest rate buydowns which has become pretty commonplace, we've been baking these concessions into the pricing and estimated net sheets we give our sellers so they just expect them before hitting the market.
The inspection process is way more intense than it has been in the past. We had buyers who literally asked for 40 items in an Inspection Objection in Q4 of 2023 and we thought for sure the sellers were going to tell us to pound sand but, surprisingly, they agreed to do almost everything the buyers asked for. We've also had some of the most audacious Inspection Objections come in on properties we listed this year, including one buyer who asked for $12k because he didn't like the color of the stain on the deck (no, I’m not joking, that actually happened) and another buyer who asked for a $5k reduction in the purchase price because she thought the listing needed too much touchup painting. With rates at or above 6.5% monthly payments are really high and the buyers who are willing to swallow those payments want the condition of the property to be perfect.
All that said, everyone had huge equity gains from 2014 - 2022 so even with the less favorable conditions and more intense inspections sellers are still walking away with fantastic payouts, it's just taking longer than 3 days to do so with gnarly inspection contingencies. The only sellers who are "losing" so to speak are people who bought in the frenzy of low rates in 2021-2022 and bid up the list price by obscene 5 or 6 figure amounts that were well above the appraised value of the property and now absolutely need to sell for whatever reason.
Thoughts on 2024
I’ve been saying that 2023 was the year of “wait for it…” and I’m optimistic that 2024 will be when people decide to quit waiting and go for it. The Federal Reserve has signaled that there could be up to 3 rate cuts in 2024 which would improve affordability and hopefully drive more inventory hitting the market. Only time will tell, but we will keep you updated in the meantime!