Extreme bidding wars set to continue in Denver, Housing enters a national recession

The Denver Metro Association predicted “extreme bidding wars” will continue in their August Newsletter.  At the same time the National Association of realtor’s chief economist said: “We’re witnessing a housing recession in terms of declining home sales and home building”.  Will Denver buck the national trend, or will the housing “recession” overtake Denver’s market?

What was in the Denver metro association of realtors “extreme bidding wars” report?

The average price of a detached home in metro Denver went down slightly last month, after a surprising jump in December 2021. But according to the latest report from the Denver Metro Association of Realtors, another decline will be ultra-unlikely in coming months. Because the number of homes available for sale in the area is at what’s described as a “historic…low,” DMAR predicts “the continuation of extreme bidding wars.”

Demand continues to overwhelm supply in the local real estate market, as has been the case for more than a year. The number of new single-family, detached-home listings active at the end of January, the most recent month for which statistics are available, landed at just 788, an 18.60 percent slide from the 968 lingering at the close of December, and a 37.61 percent dip on a year-over-year basis.

What is predicted by the National Association of Realtors?

More signs are pointing to a housing slowdown as existing-home sales—completed transactions for single-family homes, townhomes, condos and co-ops—fell 5.9% month over month and 20% year over year, according to the National Association of REALTORS®’ latest housing report. “We’re witnessing a housing recession in terms of declining home sales and home building,” says NAR Chief Economist Lawrence Yun. “However, it’s not a recession in home prices. Inventory remains tight and prices continue to rise nationally, with nearly 40% of homes [on the market] still commanding the full list price.”

The median price for an existing home jumped 10.8% from a year ago, reaching $403,800. However, that’s down $10,000 from last month’s record high of $413,800, NAR reports. July’s decrease in home sales, the sixth consecutive month of declines, likely was due to higher mortgage rates sidelining more buyers, Yun says. Homebuilders echoed that sentiment this week, reporting that new-home sales fell 10% annually in July and were at the lowest level since the onset of the COVID-19 pandemic in 2020.

All four major regions of the country reported a drop in existing-home sales last month. The Western region of the U.S. posted the sharpest annual sales decline as well as the largest housing inventory increase. “It’s likely some Western markets will see prices decline, and that will be welcome news for buyers who watched rapid price jumps during the past two years,” Yun says.

Will Denver’s real estate market succumb to National forces?

Denver, like every other market, will not be immune from the macro forces slowing housing for the rest of the nation.  As interest rates rise, recession fears linger/increase, and the stock market resets Denver will be impacted.  Over the remainder of the year and into next year there will be considerable increases in inventory which should all but eliminate bidding wars and put downward pressure on prices.  Currently I don’t foresee a free fall in prices, but Denver, like the rest of the nation, is due for a “reset”.    This real estate reset should lead to about a 10-15% decline in prices over the next year or so.

Summary

The Denver metro association’s prediction of a continuation of bidding wars is a bit optimistic.  Based on macro factors the bidding wars in Denver will be almost eliminated by the end of the year with price cuts replacing the huge price increases over the last several years.  In the last data I have seen in July, 58% of all listings in Denver had price cuts.  Unfortunately with prices being cut, bidding wars a pandemic relic, the only step left is a reset in the real estate market that will lead to declines in the 10-15% range.  Remember Denver was up almost 30% year over year the last two years so a little air out of the market in the 10-15% range is to be expected.

Additional Reading/Resources:

1. https://www.westword.com/news/denver-home-buying-extreme-bidding-wars-update-13370952
2. https://magazine.realtor/daily-news/2022/08/18/latest-home-sales-data-points-to-housing-recession
3. https://www.housingwire.com/articles/homebuilders-are-done-until-mortgage-rates-fall/
4. https://www.housingwire.com/articles/the-housing-market-recession-continues-despite-starts-data/
5. https://www.bloomberg.com/news/articles/2022-08-22/cheap-homes-house-prices-are-being-slashed-in-former-pandemic-boomtowns?srnd=premium

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