Market Update - March 2024

The spring market in Denver is off to a great start. It seems that sellers are taking the prospect of interest rate cuts to heart and starting to list their homes in spite of the “rate lock” effect. New listings increased 16.27% above February 2024 but they were still down about 3.28% from March of last year.

You may have heard rumblings about the NAR ruling, if you’d like to read our thoughts and opinions on the settlement and its consequences check out our blog post on the topic.

Will Rates Fall?

The big question is if there will actually be 3 rate cuts in 2024. Job growth has been really strong, data from the Bureau of Labor Statistics (BLS) showed that February marked the 38th consecutive month of job growth in our economy, which is the fifth longest period of employment expansion in the history of our economy and the longest stretch of unemployment figures below 4% in over 50 years.

After the jobs report came out Jerome Powell stated that there would be no interest rate cuts in March, and in the days following the Federal Reserve meeting two other members of the Fed board came out and stated that they are not sure if inflation and job numbers will support any rate cuts at all this year.

Obviously markets reacted to that news and the stock market had the worst week it’s had in a year. Investors are anxious that the Fed will not actually cut rates in 2024 which could lead to some pain for large corporations who will eventually be forced to refinance their debt.

Whether or not there will be rate cuts depends heavily on inflation trends and the jobs reports that the BLS puts out. The US Federal Trade Commission also recommended that Congress scrutinize grocery profits as the FTC released a report that found that large market participants like Kroger accelerated and distorted the negative effects of the pandemic to increase profit, also known as price gouging, which they absolutely did all over the country.

I bring this up because grocery prices are part of the inflation calculation and simply cutting interest rates with no congressional oversight into corporate price gouging likely won’t solve the inflation problem. How is it $8.50 for a bottle of Cholula at the grocery store? Price gouging! Check out Kroger’s stock price, it was about $29 a share before the pandemic and today it’s at $55.32 which is way outpacing inflation.

Source: Yahoo Finance

Crazy, right? That’s probably enough waxing philosophical on the economy for now.

Market Anecdotes

In March we saw a flurry of market activity in spite of intense weather, spring break, and Easter, all of which normally contribute to some sleepiness in the market. We had high open house traffic, even on Easter weekend.

We also saw competition at all price points below $2M for properties that are nicely updated and priced well. Dated properties or properties that are overpriced continue to sit on the market longer which is driving up average days on market. The competition for properties priced between $500k - $750k can be very intense as this is the most active segment of the market from a pending and closed listings perspective.

Buyers tend to have high expectations of properties because the cost of borrowing is so high. We’re seeing a lot of pushback on properties that were updated in the early 2000s - buyers think these updates look dated now while many sellers think a kitchen remodel done in 2004 is still chic and fresh despite being 20 years old. Warm color palettes with beiges, skinny horizontal glass tile backsplashes, and tuscan style tile work and cabinetry are all turnoffs for buyers looking for updated move-in ready homes.

The Stats

The number of pending listings is often used as an indicator for buyer demand. In March 2024 pending listings were at the highest level they’ve been since August 2022 when interest rates first started increasing. This is indicative of an uptick in buyer activity and a resilient and fast-paced market.

3,106 pending listings in March 2024 and 3,178 pending listings in August 2022.

Average Closed Price

Average Closed Price for Detached Single Family homes was $776,919 which is a 4.34% increase Year-over-Year (YoY) and a 3.19% increase from February 2024.

Average Days on Market

Average Days on Market (DOM) was flat YoY at 39 which is a huge increase from 2021 and 2022 numbers, but has been around this level since interest rates increased.

Local Topics

Denver approved a blanket rezoning of the Hale Neighborhood to allow for Accessory Dwelling Units (ADUs) to be built which eliminates the need for a homeowner to apply to rezone their property in order to build an ADU. More and more neighborhoods in Denver keep changing these zoning regulations to respond to the need for more housing in the city.

The Colorado state legislature approved Senate Bill 94 which will require landlords to finish serious repairs within 7 days and less serious issues within 14 days. The bill aims to close a bunch of loopholes in the Warrant of Habitability Law from 2008 and is headed to Governor Polis’s desk for review.

The City of Denver released a budget plan showing exactly how the city plans to fund programs for new migrant arrivals through the end of 2024. They have already spent $25M of the $90M plan with the bulk of the funds going to Shelter & Housing. You can check out a breakdown of the budget here.

Market Update - January 2024

ReColorado and DMAR released market stats for January 2024. The big buzz in the industry is that mortgage rates dropped to ~6.7% in early January from a high of 7.8% in October, which drove a spike in buyer activity. Mortgage applications increased 39% above October lows due to lower interest rates and seasonality.

Showing traffic, offers, and pending contracts on detached single family homes priced under $600,000 picked up drastically in mid-January for houses that had been sitting on the market over the holidays and many new listings received multiple offers.

Anecdotally, we felt a noticeable pick-up in buyer activity. Tara had some buyers looking all over Aurora around $650k in Mid-January and one Saturday she showed them 6 houses, 3 of which already had multiple offers in the first 3 days on market. One of the home inspectors we partner with said that the third week of January was the busiest week he’d had since June.

Houses that are priced well, clean, staged, and nicely updated are getting offers quickly. There appears to still be a bit of a disconnect with sellers on pricing their homes, as listings that hit the market that are overpriced even by only $10k-$20k will sit for weeks.

The Stats

Average closed price for detached single family homes in Denver Metro was $734,836 which is a 4.48% increase over January 2023.

• New listings were up 14.73% YoY in January but still down 22.48% from January 2021 numbers

• Average Days on Market was 50 for Detached Single Family homes in January, up 2.04% YoY but up 163.16% from 2022 averages

• The average number of active listings in January from 1985 - 2023 was 12,215. January 2024 had 4,871 active listings, well below that average

• Flippers and developers are having a bad time. Higher mortgage rates paired with labor constraints and long waits for building permits has made flipping less appealing and many flippers are exiting the market. It has also made investment properties less lucrative.

Close-Price-to-List Price Ratio

One metric that we keep a close eye on is the close-price-to-list-price ratio. This metric is basically a proxy for the existence of bidding wars in the market. A value of 100% means that on average listings closed at their asking price, anything above 100% indicates that listings closed for over their asking price and likely had multiple offers, while a value below 100% indicates that offers were below asking price.

In January 2024 the closed-price-to-list-price ratio was 98.34% meaning that on average listings closed 1.66% below their asking price which translates to roughly $12,200 below list price on average. For reference, this ratio was 102.19% in 2022 when there were bidding wars happening all over the place.

Local Topics

The Colorado House introduced a bill that will classify any property used as a short-term rental for more than 90 days a year as a commercial property from a taxation perspective, increasing the tax rate from 6.8% to 29%. Mountain communities are up-in-arms over this proposal and it has been hotly contested by short-term rental owners and property managers alike. If it passes we’re guessing a bunch of urban STRs will be converted to long-term rentals and it may even drive an increase in listings hitting the market.

Property tax valuations went out after the big increases in assessed property values in 2023. Colorado has launched a program to the general public with the goal of helping offset some of these higher tax bills for property owners. Homeowners who experienced an increase in property taxes of more than 4% over the last two years may defer some of the annual payment up to $10,000. Here is a link to more information on the program.

Xcel Energy in all their greedy glory wants Colorado residents to pay them more money to offset their costs on improvements for both gas distribution and the electric grid. They are proposing a rate hike on natural gas that has nothing to do with the cost of natural gas and everything to do with improving their infrastructure. Yeah, you read that right. Xcel Energy made $8.347B (as in Billion with a B) in profits in 2023 and they think YOU need to pay them 7.4% - 10% more on your already high utility bill to improve THEIR infrastructure. Pretty outrageous, right? The Public Utilities Commission has to approve the rate hikes, you can submit a formal complaint to the PUC here and if you want some content for the complaint to paste right in place this reddit thread has some good suggestions.

Speaking of Xcel Energy, they are facing nearly 300 lawsuits for their role in starting the Marshall Fire - the worst fire in Colorado history that killed 2 people, destroyed over 1,000 buildings, killed over 1,000 pets trapped inside homes, and displaced over 37,500 people. In June 2023 it was determined that a sparking Xcel power line was one of the contributing causes for the fire. Good thing they make so much money.

There is a migrant crisis unfolding in Denver, which has taken in nearly 40,000 migrants. That’s the most per capita of any city in the nation and it is dramatically straining Denver’s municipal budget. Mayor Mike Johnston has made multiple requests for federal funding from the White House and Congress, which failed to secure funding after a proposed bill was unable to pass. Johnston has since announced up to $5M in cuts to parks and recreation and the DMV. If you’re interested in helping migrants here is a list of ways to do that.