January 2024 Denver Metro Real Estate
In college, I had a professor who would put fruit snacks in his Cherry Pepsi and call it dinner.
In between sips, he would encourage us to interrupt him any time we didn’t understand something because it was his job to explain things in a way that we, the students, understood.
Poor diet aside, he was an amazing teacher and many students’ favorite professor.
Rather than making it his mission to sound smart, his mission was to teach and make his students smarter.
I never forgot that, and I now take a similar approach when teaching people about real estate.
I don’t care about sounding smart. I’m successful to the degree I help others understand.
If I ever confuse you, please “raise your hand” and ask me a question.
Will 2024 be the year the real estate “pipes” get unfrozen?
If 2020 and 2021 were years of red-hot housing frenzy, 2022 and 2023 felt like an early morning ice plunge.
COVID brought with it lifestyle changes (home offices, bye-bye work commute, homeschool rooms, etc.) paired with record low interest rates that prompted an unusually high number of people to move.
Home prices skyrocketed by 40% because most home buyers buying based on monthly payment now had unprecedented purchase power thanks to low interest rates.
The Fed jacked up those low interest rates in summer 2022 faster and more significantly than ever before, causing the housing market to almost grind to a halt.
Buyers were now being asked to spend $4,000 per month for a home they could have purchased for $2,500 per month just twelve months prior.
Not everyone could afford that spike.
Graph provided by Megan Aller with First American Title.
That loss in affordability shifted our market from a “want to” market to a “need to” market.
The real estate market will always move forward, and people will always be buying a selling for these seven reasons:
Death - family estate sales are sad reality of life
Divorce - courts can mandate the dividing up of assets
Diamonds - two households becoming one often involve buying or selling homes
Diapers - how many babies can you fit in a one bedroom apartment?
Distress - life challenges can negatively affect people’s ability to afford their current home
Deployment - job transfers, military or otherwise, keep people moving
Downsizing - as people age, fewer stairs and less lawn maintenance often becomes a priority
This “need to” mentality resulted in a steep decline in both buyer activity and new listings on the market.
Graph provided by Megan Aller with First American Title.
Fewer homes for sale and fewer buyers with capacity to afford the higher prices meant fewer total home sales.
The market followed the normal seasonality of a busy and slow fall, but notice the steep decline as interest rates peaked at 8% in October leading to the fewest number of monthly closings for the year in November.
Graph provided by Megan Aller with First American Title.
Market Balance Prevented Prices from Crashing
Voices calling for a market crash as rates climbed were proved wrong as the balance of supply and demand held prices steady.
During COVID, buyer demand pushed prices up while sellers were willing to sell and become buyers themselves, taking advantage of those same low rates.
In 2022-2023, homeowners happily sitting on 3% rates were reluctant to sell if their only option was to buy at 7% (potentially increasing their monthly payment by $1,000).
This limited seller activity is now keeping inventory low and fairly balanced with the similarly limited buyer demand.
*Odds of selling refers to selling or having a home under contract within 30 days of listing.
Graph provided by Megan Aller with First American Title.
Should everyone now wait for prices to crash like they did in 2008?
Current reports indicate the likelihood of a foreclosure tsunami arriving anytime soon is almost 0%.
Too many homeowners are sitting on too-low of interest rates and too much equity to be forced to sell or abandon their homes at a rate significant enough to move the needle.
Graph provided by Megan Aller with First American Title.
So, how do these real estate pipes get unfrozen?
Assuming interest rates hang tight in the 6-7% rate, the rest of the economy will adjust for the new normal.
People’s personal budgets will adjust as necessary. People will buy fewer “want to” items as income is allocated to the “need to” housing payments.
Incomes will adjust to the new economy.
Employment numbers will adjust.
New opportunities will arise.
It’s how this whole thing works and relentlessly moves forward.
We can’t change the past, but we can take steps to create a better future.
I’m not a future teller, but given enough time, you won’t regret owning good real estate.
I promise.
* proceeds to put some fruit snacks in a Cherry Pepsi in honor of my late professor *
If you have a desire to buy or sell in the coming year, let’s chat.
Life has a way of keeping us all moving, and I love to be your real estate agent.
Contact me here to set up your free and confidential consultation.
Kevin
