Months of Inventory is Closest Thing to a 'Crystal Ball': Denver Still Seller's Market

This awesome graph from 1985-2019 shows the key indicator of supply and demand for the strength or weakness of a market: months of inventory. This is as close as we can get to a "crystal ball." Months of inventory is the rate at which the demand for homes will diminish the available supply inventory. So the lower the months of inventory, the hotter the market, which would be a Seller's market. A market with high months of inventory would indicate a Buyer's market, because supply is high and demand is low. 

During the Recession of 2008, months of inventory were over 6 months, which is a Buyer's market. Today the months of inventory is just below 2 months, which still indicates a strong Seller's market. 

Now different price points have different months of inventory, so right now, homes above 3,100sf (mostly considered luxury homes) have 4.5 months of inventory, so is much easier for buyers to have a bit of negotiation power. Smaller homes under 1800sf have more demand and thus more competition. 

When months of inventory rise to 4-5 months, then we will begin to see a buyer's market again. But that takes time and does not happen over-night (see the graph below!). It's great when we can take the guessing game out of it and use key indicators to make decisions! 

Dissecting the Denver Market: Why is the Market So Hot?

Why is buying in Denver so hot right now? A brief summary of top tens and attention Denver is getting, then some statistics:

• Denver was #3 in the country for job growth in 2011
• Denver was #3 for relocating families in 2011
• House prices continue to go up in Denver-Metro
• High desirability (mountains, weather, life) AND high affordability(much cheaper than west competitors), which is a rare combination. 
• Interest rates are very low
• It's cheaper to buy then to rent right now

And one more thing: you gotta know your Months of Inventory. Months of Inventory are an excellent and accurate way to measure market action - whether it's a buyers or sellers market.  Months of inventory simply means the time it takes for all the houses on the market right now to be sold and gone at the current rate they are selling for.

For example, if there are 10 houses on the market in a particular neighborhood, and there were 10 sales in the last month in that neighborhood, the months of inventory would be 1 month - it would take about one month to sell all 10 of those homes at the current selling rate. And that would be a very hot market.

Here are the stats for months of inventory in the Denver-Metro area. As you can see, so much depends on PRICE RANGE:

Price               Months of Inventory           Price Change in the Last 12 Months        Market Type
$0-85k                        4                                                       +19%                                    Sellers - HOT!
$85-135k                    3.6                                                    +10%                                    Sellers - HOT!
$136-210k                  4.1                                                    +6%                                      Sellers - Great
$210-315k                  4.9                                                    +1%                                      Sellers - Good
$315-460k                  7                                                       -7%                                       Buyers - Slower      
$460+                         11                                                     -13%                                     Buyer - Slow

Conclusions: 

For Sellers: 

• It is a PERFECT time to sell anything below $210,000 - prices are going up in these ranges, demand is high, and supply is low. Buyers will usually compete against each other and pay higher prices. 
• It is still a good time to sell anything below $315,000, since supply is down and demand is high.
• You can still sell anything under $460,000, but it may take a bit longer.

For Buyers: 

• It is a PERFECT time to buy anything above $460,000 - supply is a-plenty! But demand is really low, and things aren't moving that fast. Sellers are very willing to accept low offers. 
• It is still a buyer's market between $315,000 and $460,000, and prices are a bit down. Sellers would be more willing to accept a lower offer. 
• It is tougher to buy anything below $210,000, since competition and demand are high, and supply is low.

2011 Denver Metro Trends

As a quick recap, last month (January 2011) total combined MLS Residential Statistics in the metro area (from the mountains to Aurora, and Fort Lupton to Lone Tree) had the following changes compared to January of 2010:

• Decrease in the Number of Closed Sales to 1,724 (down 6.4%)
• Average Days on Market increased to 120 days
• Number of Active Listings increased 5.2% to 13,714
• Absorption Rate increased to 8.1 months (up 21.4%)
• Average Sold Price increased (up 6.7 % from $260,530 to $277,922)

Beware though, that each price range differs dramatically. Here are the Months of Inventory stats (months of inventory are the number of months it would take for all the properties on sale right now to be sold at the current rate they're selling at right now). Below 6 months is considered a "Seller's market", and we're seeing that houses are selling at almost lightning speeds under $210,000, and average up to $315,000. Colorado is different than the rest of the nation! 

$0-$85,000            1 month of inventory

$85k-$135k          2.4 month of inventory

$135-$210           2.6 month of inventory

$210-$315           6 month of inventory

$315-$460           6.9 month of inventory

$460,000+           15 month of inventory

And if you take short sales (which are very long sales) out of the mix, the month of inventory are even LESS. 

Click here to see each city or area you're interested in!

May 2010 MLS Stats vs. 2009

Here is a quick high-level recap of the May 2010 combined MLS Residential Statistics compared to May of 2009. Even after the expiration of the tax credit, the Denver area market is showing excellent signs:

• Increase in the Number of Closed Sales to 3,416 (up 19.6% for the month)
• Average Days on Market reduced 27.9% to 75 days
• Number of Active Listings increased 4.2% to 16,333
• Absorption Rate dropped to 4.6 months (down 15.3%)
• Average Sold Price remains strong (up 4.3% from $262,066 to $273,285) compared to May, 2009.

These are all very good signs for the market in the Metro Denver area and surrounding cities.

See ALL Metrolist areas

North Aurora - Competition and Appreciation

North Aurora has experienced appreciation over the last year. As youll see, many neighborhoods are green (appreciation), and months of inventory are very low. Many investors tell me how difficult it is to get a property even under $100K in North Aurora, especially because it's still a highly sought after area for cash-flow and a solid rental.

What was selling easily for $65,000 in 2007 now you couldnt get for $100,000 (and in 2003-05 was $150,000). But Aurora is still a safe and cheaper place to invest in Denver. It has Fitzsimmons to the East, Lowry to the West, Stapleton to the North, and South Aurora just south. Investors continue to try to get a hold of properties here.

Denver cities Months of Inventory

So, months of inventory is the time it would take to sell all of the homes on the market if the rate of sales in the last year continued at its current pace. 6 months is considered a "balanced market". More expensive homes have more inventory.

City -Average Sales Price-Months of Inventory

Federal Heights-$110,000 -2

Northglenn-$151,000 - 2.8

Commerce City-$149,000-3.4

Aurora- $180,000-3.4

Thornton- $195,000- 3

Wheat Ridge-$235,000-4

Westminster- $235,000-4.2

Denver- $235,000- 4.6

Lakewood-$251,000-4.8

Arvada-$251,000-5

Englewood-$280,000-4.2

Centennial-$300,000-4.3

Littleton- $320,000-5.2

Highlands Ranch-$345,000-4.6

Broomfield- $340,000 -5.7

Morrison- $320,000 -7.3

Parker- $350,000 -6.9

Golden-$415,000- 8.6

Castle Rock-$425,000-11.3

Evergreen-$475,000-14.3

News about Denver: We're PASSED Bottom

When Will We Hit Bottom? How to Know When the Market Hits Bottom

Not only did the TODAY show rank Denver the #1 city in America for the real estate rebound, but there is much hard evidence that Denver is passed bottom (including the number of bids on every good property under $200K...some up to 37 offers!).

Explaining the Charts Below:

The National Association of Realtors defines a "balanced" market as having 6 months of inventory:

• Less than 6 months is a Seller's Market: homes are selling relatively quickly and there are more buyers chasing homes.
• More than 6 months is a Buyer's Market: homes are selling relatively slowly and there are too many homes on the market.

While Denver has been a Buyer's market the past several months, the inventory of homes on the market in Denver has been declining. This is not true in many regions of the country.

Denver is at about 5 months of inventory...1 month LESS than a balanced market, making it actually a Seller's Market according to NAR. I've actually experienced this writing offers for clients - if the house is well-priced in a good neighborhood, or well under market-value, it's almost guarenteed there will be a bid war between buyers. The home ends up selling for more than the asking price!

It's a mixed issue. Lower cost areas, such as Thornton, are seeing inventory move fast. Sellers (mainly banks) don't have to wait long for offers. Thornton's average price in the last year was around $250,000 and the average MOI (months of inventory) was about 3 months. Greenwood Village, on the other end of the scale, had about 13 MOI and an average price of about $1.4 million. Sellers are suffering there. The city of Denver is about in the middle.

The second CHART below compares REO's (lender owned) homes to regular homes regarding inventory, solds, and months of inventory. It is jam-packed, but very helpful once you look at it. The main principle here is that neighborhoods with homes under $225,000 are selling fast, while upscale neighborhoods like Cherry Creek and Hilltop have significant levels of inventory and it's taking a long time to get homes sold, especially over the $1 million price barrier.