Months of Inventory for May landed at 0.67% or 20 days. A balanced market, when supply equals demand, is defined by 6 months of inventory. Yet, on the street, real estate agents and buyers “feel” like we are headed towards a balanced market. Close to List came in at 105.33% telling us buyers are still paying more than asking on average. If you look at over $1 million dollar homes, those went for 107.12% close to list. And median days on market were still a hot 4 days.
Yet some listings had few to no showings their first weekend on market and the median closed price actually dropped 0.24%. 197 more homes sold and 631 more homes went under contract than last month, while 72 fewer homes came on the market to choose from.
Given these numbers it’s obvious that the active listings count pulled on the last day of May, on a Tuesday, would jump 14% from last month and 76% from last year giving buyers 3,652 homes to choose from. Right?
Buyer demand as measured by the United States MBA Purchase Index dropped 12.3% during the month of May. Mortgage purchase applications softened as interest rates hit an average of 5.62% for a 30-year fixed mortgage on May 7th per the Mortgage News Daily survey. Application numbers remained muted even while rates dropped 0.5% during the 2nd half of May. With all the graduations and holidays, did buyers not notice?
Buyers and sellers alike are trying to figure out how to time this market. A market in transition is sending mixed messages. Inventory is still painfully low. Closing 5,445 units last month means we need 32,670 homes for sale for a balanced market, an unrealistic number given Denver’s propensity for being a sellers-market. I’d be thrilled with even the 10,527 average active listings we’ve seen in May from 2008 through 2022. There is a third of that today. But rising inventory will be the tell-tale of an easing market. And we would expect to see rising inventory given consumer inflation of 8.3% and mortgage rates above 5% should cool buyer demand.
Mortgage rates are expected to stay above 5% through 2022 as the Federal Reserve kicks off quantitative tightening on the 1st of June and plans on raising the Fed Rate by 0.5% in June and again in July. We will know more as the Fed releases their Dot Plot Map at their June meeting; giving us clues as to where they see the Fed Rate going for the rest of 2022 as well as 2023 and 2024. Many economists expect rates to stay where they are or even go a little higher as inflation continues to prove less transitory and weighted more on longer-lasting wages, housing, and the geopolitical events happening around us. These higher borrowing rates on top of our 18.42% year-to-date higher median closed prices could and should yield us longer days on market, higher active inventory counts, and softer month-over-month price growth as buyers become more decerning and slower to pull the trigger.
Sellers will need to adjust their strategies to continue to attract more buyers. 8.3% of closed transactions this May reduced their asking price prior to receiving an offer. This compares to 6.9% in May of 2021. Those properties that reduced their price spent a painful average of 28.4 days in the MLS compared to 7 days for those with no price reductions. Sellers with homes on busy streets, odd layouts, or deferred maintenance might have missed their winning opportunity. But for the rest of the sellers, pricing right and staging well will continue to reap rewards given our current months of inventory and close-to-list.
Because buyers are still buying and willing to pay a premium.
Despite consumer confidence dipping 2.2 points, retail sales are up 0.9% month-over-month and 8.2% year-over-year. Luxury sales, travel, and housing are all winners in the eyes of today’s buyers. As the number one hedge against inflation, housing will continue to remain strong even as we move inches towards a balanced market. Because while the wealthy are spending $195 million on Andy Warhol prints of Marilyn Monroe and $143 million for 1955 vintage Mercedes Benz as hedges, the rest of us can count on a good home continuing to grow at a good pace providing stability and financial security as our hedge against inflation.
Until next time, that’s a wrap for this month’s Market Trends update. It’s my pleasure to keep you updated,
Nicole Rueth of The Rueth Team of Fairway Mortgage
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