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The news is out about the inventory levels in the Denver real estate market, and while it’s not the news we’ve been hoping for, it’s news that comes as a surprise to no one.
We started 2022 with 2380 properties – 1722 single-family homes and 658 multi-family homes – on the market in the Denver metro area. This level of inventory is truly unprecedented. The inventory absorption rate – meaning the amount of time it would take to absorb all the available homes assuming nothing new were to come on the market – is about two weeks. To give you a frame of reference, a “normal” absorption rate in a balanced market is about 6 months’ inventory. The Denver market is not a balanced market.
And the inventory has been steadily declining over the past few years. At the start of 2021, there were 3843 homes on the market, in January 2020 there were 7687 homes available and in January 2019 there were 8816 homes on the market. Amazingly enough, in each of those years, the conversation was the same; no one could believe the inventory levels were so low, but no one had any idea that at the start of 2022 inventory would look like this.
Why is our market so constricted and why has our inventory continued to decline?
Here’s where the principles of supply and demand come into play. There is very high buyer demand and very low inventory supply; as a result, home prices rise, and they have risen exponentially in the past couple of years. The tremendously high number of offers – many with unbelievably high over-asking prices – are a direct result of so many buyers trying to compete for so few homes. And Covid certainly hasn’t helped the situation.
So, what needs to happen?
The short answer is that more homes need to come on the market. Many sellers who have been wanting to move have been reluctant to list their houses because, while they know they can sell in minutes, they have been fearful of listing during Covid and, more importantly, they are fearful of where they will go. This is a very valid concern. However, until we have more inventory to satisfy the relentless demand, we will continue to see more of the same in the market – plenty of buyers, no inventory, stressful competing offer situations and astronomical sale prices leading to unsustainable appreciation rates.
Well, if Step One is to increase the inventory, is it a good idea for a seller to sell? The answer to that question is yes. If someone wants to move or needs to move, then it’s okay to sell, and it’s a really good time to be a seller. They will likely have their pick of any number of amazing offers as well as the leverage in the negotiation to get the desired price and the necessary terms.
For many sellers, the goal is to move once, but the fear is not finding the next home before selling the current home; the remedy for that fear is to have a good Plan B, a backup plan, especially if a seller needs to sell before buying. No one should list their house without a backup plan, and if they don’t have one, one must be determined before listing the house on the market. A backup plan might include moving in with family or friends in the short-term or negotiating for a 30 or 60 day rent back from the buyers. And while a Plan B is not what many sellers would want to have to rely on, the upside of being a seller in this unbelievable seller’s market may make the discomfort of a double move more than worthwhile.
