Home buyers have traditionally viewed the purchase of real estate as a means of increasing personal wealth through market appreciation and mortgage debt reduction. There have been pockets of time when this didn’t hold true; when the real estate market was impacted negatively by the economy. Home values either plateaued or trended downward. Eventually, the market bounced back. Homeowners simply needed to be patient.
Things are somewhat different these days when it comes to residential real estate. To begin with, it’s important to acknowledge that real estate markets are like lumbering dinosaurs. They aren’t extinct, but they move slowly. Once they’ve started heading south it takes time and energy to get them redirected and headed back north. There has to be something to motivate them to make the shift i.e. exceptionally low mortgage interest rates or plummeting home values can provoke change, but the one factor that tends to outweigh all others is “personal need”.
Today’s home buyers and sellers appear to be more mindful of making calculated decisions regarding their real estate needs. Do they need a larger home or is it time to downsize? Can they remodel their existing home and stay where they are? If they buy a home today, will it be worth more (the same) three, five or ten years from now? Do they want to retire soon and reduce their financial obligations?
When it comes to buying or selling a home in today’s real estate market, it isn’t an impulse/knee-jerk decision. Buyers and sellers have access to an abundance of housing information; from a wide selection of general public Internet sites (who’s values aren’t always accurate) to Realtor websites and marketing materials. Buyers and sellers take their time and evaluate their “needs” before making a decision.
As the spring blossoms, the South Metro Denver real estate market normally begins to strengthen. Inventory levels of available homes ratchet-up and buyers shake-off the doldrums of winter. The days become longer, the nights shorter, and people’s attitudes brighten.
Thus far this year, South Metro Denver sales of single family homes are off approximately 10% through April/2011 versus April/2010. Attached unit sales are down about 15%. Some degree of this drop in sales activity can be attributed to the Federal Home Owner Tax Credit Program, which was in place for the first few months of 2010.
Another factor to consider in measuring the level of sales activity is the Absorption Rate for a specific geographic area or price range. The Absorption Rate is based on the rate of sales activity versus the number of available properties. (As an example, let’s assume there are 200 homes available for sale in Tiny Town, Tennessee. There have been 50 homes sold in the past sixty days. The Absorption Rate would be 240 days or about 8 months. That’s assuming the rate of sales activity remains the same and no other properties come into the market.)
For South Metro Denver, the Absorption Rate at the end of April/2011 was 173 days for single family homes. This compares with 190 days for April/2010. The available inventory of single family homes in the South Metro Denver market was down 18% in April/2011 versus April/2010.
Collectively, there are fewer homes for sale, but also fewer buyers. In this type of market, price becomes a critical element in determining if a home will sell and when. Price normally overcomes all objections. That holds true in good real estate markets and bad real estate markets.
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