Denver Real Estate Market Pulse | February 2021

Feb 24, 2021 | Market Pulse

If you were looking to buy, February may have been a frustrating month in the Denver real estate market. However, as with any market, there are still opportunities. In the Downtown 80202 area, the number of condos on the market is currently at 6 months of inventory which indicates an even market. As people start going back into the office and the hustle and bustle of downtown life recovers from COVID-19 shutdowns, I suspect that it will only be a matter of time before the Downtown condo real estate market reverses course.

High Demand for Denver Real Estate

In addition to a shortage of supply and an increase in demand from new arrivals to the area, increasing materials costs have also contributed to higher prices, particularly on new housing construction. Building materials costs increased 5.4% in 2020, putting more upward pressure on prices. However, despite the increasing costs, reasonably priced homes should continue to receive multiple offers upon listing, while rates and inventory remain low.

Another contributing factor to the low inventory is people staying in their homes longer. According to ATTOM Data Solutions, the average tenure of home ownership rose to an all-time high of 8.3 years. It wasn’t too long ago the average tenure was only 5-7 years. This increase tenure represents lower turnover of homes and less inventory for new buyers.

Denver Luxury Real Estate Market ($1 Million Plus)

The Luxury Market in Denver has seen an unparalleled drop in ‘months of inventory’ over the last year. This time last year, we had roughly 7 months of inventory in the Luxury home market. Currently that same market is down to 2.2 months!

Several factors are to blame for this dramatic drop including, low interest rates, buyers scaling up, and relocations from pricier cities. However, there has been a slight release in pressure over the last month, as days in the MLS rose slightly and the average close-to-list-price ratio sits at 97%.

Denver Signature Real Estate Market ($750k – $999k)

The “Signature” Real Estate Market in Denver reflects the market as a whole, marked by low inventory and high demand. This market is moving fast, as the average days on the MLS is only 12 days – compared with 52 at this point last year.

There is hope for buyers in this market, as we are starting to see more inventory. To this point, January has seen 326 new Signature listings compared to only 190 in December. Historically, we have seen inventory come on the market in the Spring – before school gets out. However, with online learning dominating the pandemic, we are starting to see that trend spread into earlier months of the year as people try to capitalize on this hot market.

Denver Premier Real Estate Market ($500k – $749k)

With the average price of homes recently hitting a high of $629k, the Premier Market appears to be the most active of the bunch. Demand in this segment is high enough that we are seeing the average closed price for a single-family home at 101.3% of listing price.

Working backwards from these numbers, the Conforming Loan Limit for Denver indicates prices in this segment should be in the mid 6’s. A Conforming Loan is one that meets certain criteria where it can be purchased by government sponsored enterprises, such as Fannie Mae and Freddie Mac. These are some of the easiest to purchase and provide the least amount of risk to the originator, because they can sell them immediately to Fannie Mae and Freddie Mac. Conforming loans can go as low as 5% down, but 10% is the most popular.

Conforming Loan Limit in Denver

In 2020, the conforming loan limit in Denver was $575k, which represented the maximum amount for a conforming loan. Assuming 10% down, the budget for buyers in this price area maxed out at $638,000. For larger purchases, buyers would require a Jumbo Loan, which are more expensive.

With interest rates historically low, buyers were quick to max out the 575K loan amount, since each $10,000 in loan amount is only about $40 per month in additional mortgage cost. In 2021, the conforming loan limit has risen to $596,000 which brings the 10% purchase price up to $662,000.

In 2020, we saw desirable homes bid up to the 630k range, even when the list price was $575k.  In 2021, I expect more of the same but believe the bids may get into the $660k range, due to the accessibility of low-cost loans.

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