Adapting to the Slowing Denver Housing Market

Signs are that things are changing in the Denver housing market, indicating that buyers and sellers need to adapt to a slowdown.

Inventory has been increasing (the number of active residential listings in September 2018 was around 16.1% higher than a year ago), and homes aren’t selling as quickly as they used to, with sellers often finding that they have to be willing to negotiate a sale below their listing price.

Sales overall have slowed down, as roughly 28.9% fewer homes were sold in September compared to August of this year. Plus, since May and June, prices have dropped by 4.9%, and single-family properties priced over $500,000 experienced a 33% drop in sales.

Basically, all signs are pointing to a housing market that’s starting to cool. “Hot” markets are beginning to normalize, which is actually something that needed to happen. Up to this point, sellers have been spoiled by multiple offers above their listing price on the day their homes were put up for sale, and that was great for them, but that isn’t what a “normal” market looks like. What’s happening now—a slowing down and cooling off—was inevitable, really.

What Should Buyers and Sellers Expect?

In a stabilized market, it isn’t abnormal at all for a property to take a month or two to sell (it could take even longer in higher price ranges). And, when buying a property to fix and flip, investors should factor in “normalized” hold times, rather than assuming that they’ll sell their property over the listing price within a mere day or two. It’s no longer realistic to think that way.

Right now, it’s all about adapting. After all, there are successful real estate investors in every market, regardless of whether the market is “hot,” “balanced,” or “declining.” The key to smart investing lies in knowing which properties are the right ones to buy, and then staying on track with budget while completing a project on time. It’s also important to know the neighborhood and the comparables. Don’t compare a property you’re interested in to a superior property in a different neighborhood, or to a higher-priced section of a subdivision.

Staging a home to make it even more attractive for resale can certainly pay off, but in a cooling market, you also don’t want to overprice the property to begin with, no matter how stunning and modern you make it. Overpricing can stigmatize your property if buyers see future price drops, or if you end up taking it off the market to relist it as “new.”

Know Where to Look for Opportunities

With a cooling market, you might need to change your strategy, and that includes knowing where to look for the right investment opportunities.

Here are a few areas in Colorado that are worth looking at more closely if you haven’t already:

  • Boulder: Inventory in Boulder is quite low and prices are still up, so this is still considered a seller’s market. However, recent price reductions, combined with more days on the market, might be indications that more than just seasonal shifts are happening in this area, so that’s something to consider if you’re thinking about buying or selling there.
  • Broomfield County: Compared to last year, there are fewer listings in this county this year. Values are also appreciating at around 5.9% year-over-year, so this is an area that investors can look in to try to make a higher profit from a fix-and-flip. Just beware that overpriced properties are taking longer to sell, and price reductions are becoming more common, so price your property right to attract savvy buyers.
  • Glenwood Springs: While pending and sold listings increased, inventory has decreased compared to last year, and the median sale price went up 23.5%. However, as is the case in other areas, overpriced homes aren’t moving as quickly, and the market is becoming increasingly buyer-friendly.
  • Pueblo West: Those interested in building new homes should consider Pueblo West, where permits for new construction are holding strong and increasing. This is an active market, holding 61% of the construction permits for Pueblo County.
  • Pikes Peak: Compared to last summer, median sale prices were higher this past July, reaching $310,000 ($285,000 last year). The number of days on the market was the same, at around 22 days, and the number of sold listings was roughly the same as it was a year ago as well. Also worth noting is that homes priced from $300,000 and above saw an increase in sales, while those priced below $300,000 experienced a decrease in sales.

Denver’s rental market continues to remain strong as some potential homebuyers are sitting on the fence to buy due to increased interest rates (albeit rates are still very low, particularly for anyone who remembers the double digit interest rates of the 1970’s and 1980’s).  As a result, some investors are choosing to fix to refinance and hold as a rental for the excess cash flow. Ask one of our loan officers for details regarding this strategy.

Advantages of a Normalizing Market

Normalizing markets aren’t just good news for buyers; smart investors can also take advantage of the shifts that are occurring. A market that’s normalizing might provide lower purchase prices on homes that you can flip, and there might even be more contractors to choose from to help you get the job done. Selecting a market that’s showing signs of reductions in inventory and increasing home values can also yield an opportunity to make a wise investment that will provide a solid return. Then, it’s a matter of getting the right loan, whether it’s a fix-and-flip or a fix-and-hold loan. Ask a qualified loan officer for details and guidance on the best steps to take when diving into a cooling market.

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