Everywhere I turn, I hear that the Denver market has turned and is poised for a rebound. (See the SmartMoney entry below.) Great news. But I wanted to see exactly where all of this optimism was coming from. So I started digging into the numbers. The numbers look very, very good.
From September 2007 to September 2008, inventory (the number of homes on the market), dropped nearly 20%. The number of houses sold increased 15%. The average days a home is on the market before it sells dropped 5%. And – get this – the “months’ supply” of homes on the market dropped a whopping 30%.
Why does this signal a rebound? Because the problem in our market (and in any difficult real estate market) has been that we’ve had a lot more sellers than buyers. And -- thanks to the law of supply and demand – when you have less demand for a product, the price tends to drop. How do we know we have more sellers than buyers? Inventory. When a lot of houses build up on the market, we know we have more people trying to sell their houses than we have people willing to buy those houses. So, with all of the competition for fewer buyers, houses sit on the market longer, reflected in the average days on market statistic. All of this leads to the “months of inventory”, which is what you get when you take the number of houses on the market divided by how many are selling every month. That tells us how long it would take to sell all of those houses if no new houses were to come onto the market.
When more houses are selling and less houses are sitting in inventory, that tells us that the market is becoming more balanced. It tells us we have more buyers in the market, buying houses and reducing inventory.
Why has this happened? Well, the average sales price might give us a hint. It has dropped 14.8% in the past year. Median sales price dropped 11.8%. Apparently prices have dropped to a level where homes are attractive to buyers. It’s the law of supply and demand again. When the price drops, demand increases. As demand continues to increase, prices rise to meet the demand.
At any rate, it’s very good news for Denver real estate.