Housing Inventory – Denver
by : Mari Takeshita
As the inventory of homes for sale continues to shrink, telltale signs of a bubble forming in the housing market are all around us. Prices are rising rapidly. Bidding wars are common. Many buyers, concerned that the window of affordability due to low interest rates may be closing, are becoming a bit frenzied.
Inevitably, market conditions like this spawn the classic bubble mentality of flipping: buying with the sole intention of selling quickly for a profit. The flipping strategy works as long as prices keep rising and new buyers keep entering the market. Of course, we all know what happens if the supply of new buyers dries up. The market grinds to a halt, prices drop, and the last flippers “in” are stuck holding properties they cannot possibly sell for a profit, nor can they service their mortgage debt. The result is a flood of foreclosures. Think 2006.
Fast forward to today. As the market keeps getting hotter, are we going down the same path that ends in a bursting bubble? Or are things different this time around?
Fortunately, there is one fundamental difference in today’s market compared to the bubble market of the mid-2000s. Back then, money was cheap (interest rates were low) and money was easy (almost anyone with a pulse could qualify for a loan). Today, with interest rates bouncing around all time lows, money is cheap, but money is not easy. Lending standards are much tighter today than they were in 2005.
Tighter lending standards should be the difference that keeps today’s housing market from becoming a bubble market. Today’s buyers will more likely be able to continue to pay their mortgages in the event that the market cools off.
Even investors who are purchasing multiple properties must satisfy tighter loan requirements. Also, many investors are not purchasing to flip. They are purchasing to hold properties and capitalize on rising rental rates.
Overall, even though signs of a bubble forming are evident and should not be ignored, today’s tighter lending standards are a solid foundation underpinning the market and should keep us from repeating events of the recent past. In the mean time, the market continues to surge.
The volume of real estate sold across all Front Range markets in March increased 35.5% compared to last March. The supply of inventory along the Front Range grew even tighter, shrinking to 2.5 months. The number of new listings simply could not satisfy existing demand.
The market stats tell a similar story in Jefferson County. The volume of real estate sold in March increased 58.2% in Jeffco compared to March of 2012. The supply of inventory dropped to 1.5 months in Jeffco indicating a market that heavily favors sellers.
Cherry Creek Properties llc