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The Colorado Association of Realtors released their August statistics of the 7 county Denver metro area. Although Median sales price is up 2.5% YTD, two metrics are flashing warning signs. Days on the market has jumped 27% and percent of list price has declined. Why are these two metrics so important?
What is days on the market?
Days on market, or DOM, is the measure of time from when a property comes on the market to when it comes off of the market via a sale. The average days on market is figured by taking the entire number of properties that sold in a 30-day period, adding up the total number of days they were on the market, and dividing it by the number of sold properties.
Why is this metric important to watch?
Days on the market tells the “velocity” of the market and is an important metric to understand where the market is heading. The higher the Days on the Market means that the market is a “buyers market” and the market could be cooling/ slowing. In hot markets days on the market declines as demand outpaces supply. As Days on the Market increases either supply is increasing or demand is decreasing (or a combination of the two).
Why did Denver Days on the Market increase?
In the Denver metro market a jump in Days on the Market is concerning. Year to date inventory increased only 4% so an increase in inventory would not explain the large jump in days on the market. Demand seems to be the culprit. Demand is waning leading to the increase in days on the market. With decreased demand, the Denver market is entering a “cooling” phase. I suspect the cooling will be more like a cool fall day as opposed to a bitter winter as demand hasn’t total dropped off nor do I foresee a cliff drop for demand.
What is percent of list price?
The other metric that was concerning in the August numbers was Percent of list price. In the last several years sellers have been able to just about name their price and buyers would be willing to pay. Now the percent of list price is starting to decline from full priced offers to about 1% off the list price. Although 1% is a small change, this furthers the argument of the slowing real estate market as buyers begin to gain the upper hand and prices level off.
Not time to panic
The increase in Days on the market and the decline in percentage of list price are leading indicators for a slowdown in the Denver metro area. These two metrics point to a “change in the air” as the metro market cools and not just with temperature. Although Denver is starting to cool, the metro market is still doing well compared to the rest of the nation. The national average for days on the market is around 68 which shows that Denver real estate is still warm compared to the rest of the country just not as hot as it was last year. Even though Days on the Market made a significant jump I wouldn’t panic and assume the market will crash; the increase in days on the market indicates that the market is slowing and starting to become a bit more balanced.
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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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