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.