Colorado continues to be one of the fastest growing states and Denver remains one of the fastest growing cities in the country. Realtors should be rejoicing, but all this growth has a dark side. How could 2018 be tough for Colorado realtors when the state continues to set records on appreciation.
According to the Denver metro association of realtors: “Since 1985, the number of homes available for sale at the end of November has dropped an average of 8.8 percent from October’s inventory. But last month, the inventory dropped 18.7 percent to 5,131, a record low for November.”
This inventory shortage is not unique to Denver; in the mountain community of Steamboat Springs, there is only one house listed under 500k and seventeen under one million. There is a severe shortage of inventory in the most desired price point (under 1m). The Steamboat Springs Board of Realtors reported at the end of November 2017 that there were 404 homes — single-family, condominiums and town homes — listed for sale with the multiple listing service. That number is down from 918 at the end of November 2016, a drop of 56 percent. (source Steamboat Today).
Why is the lack of inventory important? As inventory declines, the amount of closed transactions also declines. Furthermore, as inventory declines, many people are reluctant to put their house on the market as they have limited options on move up or down properties which further perpetuates the inventory issue. Realtors rely on closed transactions to earn their commissions. With such severe constrained supply, the number of closed transactions will also be constrained. At the same time the number of realtors has increased by about 5% which makes the reduction in inventory even more difficult (source Colorado Department of Regulatory affairs)
Why don’t we increase supply? There are several factors that continue to hold back the supply. First is the amount of buildable land. In many markets like Denver and pretty much every mountain community, there is limited buildable land. Along with limited buildable land, the costs of building have increased considerably including water, labor, new energy requirements, etc… The supply part of the equation does not seem to be changing anytime soon.
How can a hard money loan help? In a market that is tilted towards sellers, the strongest offers are the ones that can close quickly without contingencies. On an investment property a hard money loan could be a good fit. We can typically close a loan in 5-10 days, so this is basically a cash offer. A hard money loan does not have the same requirements as a traditional bank mortgage since we are privately funded and are focusing on the property as opposed to just the borrower. This is especially useful in situations where the borrower’s have large down payments or properties that don’t quite fit the box for traditional lenders.
2018 will be challenging for realtors. The transaction volume in many areas will continue to fall as inventory remains constrained. This inventory issue will translate into lower sales volume. On the plus side, the lower inventory should translate into higher sales prices but this will not be enough to offset the steep decline in transactions.
Sources/Additional reading
- https://www.denverpost.com/2017/12/05/number-homes-sale-denver-november-record-low/
- https://www.steamboattoday.com/news/scarce-supply-steamboat-facing-shortage-in-housing-inventory/
- http://www.westword.com/news/denver-has-many-more-real-estate-agents-than-real-estate-listings-9002254
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Written by Glen Weinberg, COO/ VP Fairview Commercial Lending. Glen has been published as an expert in hard money lending, real estate valuation, financing, and various other real estate topics in the Colorado Real Estate Journal, the CO Biz Magazine, The Denver Post, The Scotsman mortgage broker guide, Mortgage Professional America and various other national publications.
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