Mary Beth Loves Denver

I have a buyer who’s trying to decide between Thornton and the northwest Denver Highlands area.

Well, he’s actually pretty well decided, but I did some research anyway, to demonstrate that all real estate is TRULY local, right down to the neighborhood. I checked sold statistics for each area over the past 12 months. What I found was fascinating.

Let’s start with Thornton, a suburb north of town. I have other buyers under contract up there, and I’ve been amazed at how much house one can buy up there for around $200,000. No wonder. Prices have come down significantly. Over the past 12 months, the average home price in Thornton has decreased 7.7%, while the median price is down 5%.

Meanwhile, in the Highlands neighborhood, the average price is UP 17%, while the median is up 16%.

Of course, it’s important to keep in mind that there is a lot of scraping going on in the Highlands neighborhood, which can skew the price statistics. If you scrape a $100,000 house and erect a $750,000 house in its place, the average sold price in the neighborhood is going to skyrocket, but it won’t reflect the increase in value of the individual homes. So, since my buyer is looking in the 200K price range anyway, I searched the Highlands for sold properties under 300K, to eliminate the “scrape effect.” And I still found that the average sold price was up 1.3%, while the median was up a whopping 14.3%.

So, what’s a buyer to do? Well, if he needs a lot of house for the money, and plans to stay a while, and wants to take advantage of recent price drops, he might want to look at Thornton. However, if he’s buying with resale in mind (and wants a very cute, charming area) he might want to stay in northwest Denver, knowing that it has held its value even in a declining market.

This kind of knowledge is important, not just for buyers, but for seller, and for everyone who owns a home or who follows the market. So often we hear news reports that say “Home values in Denver dropped x% over the past year” or even “Home values nationally dropped x%”, and we automatically think “Well, what’s x% of the value of my house? That must be how much value it has lost.”

But it doesn’t work that way. Not only are different cities appreciating and depreciating at different rates, but so are neighborhoods within those cities. Often values can shift fairly dramatically within a block or two. Even though a metro area (like Denver) may be depreciating, neighborhoods within that metro area can be appreciating — sometimes significantly.

Location, location, location.

Everywhere I turn, I hear that the Denver market has turned and is poised for a rebound. 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.

In a word, “yes.” Now is most definitely a good time to buy real estate in Denver.

I remember Denver’s real estate bust in the 1980’s. I wasn’t living here at the time, but I’d come home to visit and see that I could buy a condo in Denver for less than I paid for my car. (Well, less than the average person paid for the average car. I don’t think my ride at the time was worth a whole lot.) I, of course, had no interest in buying any of these bargain-basement condos because a) I didn’t live here, b) I had no money, and c) I naively assumed that their value would always remain low.

If I’d only known then what I know now. If I had scraped together every dime I had, bought one of those condos and rented it out, I’d be thanking my young self for it today.

Unfortunately, my crystal ball is in the shop, so I don’t know at the moment when housing values in Denver will start to climb. The market indicators show that we’ve reached the bottom. So it should happen sooner rather than later. I don’t know if the wider economic crisis will delay it. I do know that Denver’s economy frequently runs counter to the national economy. Given that interest rates are likely to remain low, and that Denver’s employment situation looks "relatively" good, I have every reason to be optimistic about the Denver market.

So yes, I believe that this is an incredible time to buy. Market conditions have driven prices down in many areas. Housing is “on sale.”

Get in on the sale while you can.