February 2021 saw many of this winter’s trends continue. Low average days on market, limited inventory, and creative offers characterize the market. It is hard to overstate the speed at which homes are being listed and going under contract. The average days on market for all February transactions was 23 days, down 41% over February 2020. Even more dramatic, was the average days on market for detached homes, at only 19 days. 3,641 homes closed in February which is up 3.7% from this time last year. Record-breaking low inventory continues to be a problem in the Denver market. This can be credited to the low days on market, lack of new construction inventory, and eviction moratoriums, as well as a number of other factors. Denver had only 2,024 active listings at the end of February. This is down 58% from February 2020. We generally see a surge of inventory in the spring months, so we will keep a close eye on this number.
A new normal structure for offers.
Because the market is so competitive for buyers, sometimes, just going over asking price is not enough to get a home under contract. Many buyers are creatively structuring their contracts to entice sellers. In general, buyers have multiple opportunities to terminate the transaction as milestones are reached. Buyers have been waiving some of these contingencies to limit risk for sellers, ensuring transactions will close smoothly and quickly. The three big opportunities for termination are inspection, appraisal, and financing. When it comes to inspection, we are seeing buyers commit to a limited inspection or entirely waiving their right to terminate based on issues found in an inspection. Waiving an appraisal contingency or offering an appraisal gap means that buyers are willing to pay the “gap” between the appraised value and the agreed-upon price out of pocket at closing. Sometimes a buyer sets a maximum for this gap, but not always. A financing contingency is often the last opportunity for a buyer to terminate and occurs if they are no longer able to get financing for the purchase. This is not a factor in cash transactions. As we see home prices continue to rise, we expect that waiving or being creative with these contingencies will continue to be commonplace.
Signs of change
For months now, we have been seeing a similar story of low inventory and rising prices. We expect this trend to continue until we start to see some key changes. The first of these changes would be a dramatic improvement in the global health crisis. As vaccines become more available and travel increases, we expect to see a shift in both home-buyers priorities and sellers’ desire to move. Next, interest rates are closely tied to home prices and what buyers can afford. February saw a small interest rate increase and if it continues, fewer buyers will be able to pay a premium for a home. More new construction will also be an indicator of changes to come. The price of building materials, especially steel and lumber, has been steadily increasing and many builders are waiting instead of committing to large projects. Homebuyers continue to move to Denver and more new construction means more options.
One thing remains constant, we have never been more confident in the value that we, as advisors offer to both buyer and seller clients. When transactions involve over 60 showings and 15 offers, having a partner to advocate for your interests is crucial. A creative and dedicated advisor makes all the difference throughout the transaction. If you have specific questions about your real estate goals, we are always happy to help.