Any discussion of today’s real estate market should begin and end with inventory. Inventory is driving everything we are experiencing today. It is also the leading indicator of what will happen throughout 2015. Every day Realtors are experiencing the effect low inventory is having on both buyers and sellers.
Forget about price, appraisal issues, and the “wringer” that lenders put you through these days. Qualified and willing buyers simply can’t find a house to buy. They don’t get the choice of this one with a 3-car or that one with a lower price. They are making decisions based solely on availability. Sellers are having a rough go of it as well. Many would-be sellers are opting not to list their home because there is nothing to buy. Even with the prospect of being able to sell their home quickly and at a premium price they are reluctant to join the buyers group as described above who have to settle for something less than desired. Why move if you have to settle? If they sell and choose not to settle, they will get thrown into another unattractive situation…finding a short-term rental in an extraordinarily tight rental market. Things should start heading in the other direction soon. In the meantime, here’s a quick look inside the numbers.
This month’s graph is updated since the first time I printed it a year ago. It has one little hump on the far right end that represents our inventory levels for last year. The spot on the very far right end is almost exactly the same as it was last year at this time. Overall, last year was decent with sold volume down only 3.5% and prices up to record levels. So why all the fuss over inventory if things are turning out so well?
January 2015 Longmont Area Stats
- Longmont SFR Solds UP 18.5%
- Longmont ATD Solds UP 23.1%
- BoCo Pains Avg Sold Price UP 20.2%
- Carbon Valley Avg Sold Price UP 30.9%
The inventory I report here includes ALL of the following status levels: Active, Active/Backup, Pending, and Under Contract. I include all because the only other options are Sold and Withdrawn. When it closes, it goes in the sold column. If it doesn’t, it sits out there in limbo world and could possibly end up being withdrawn. The Pending, Active/Backup and Under Contract status’s represent a majority of the following months (February) Sold total. This number runs between 50-65% each month. Using this math, we should have about 79 solds in February. The Predictor says 73…let’s see which is correct. Just using the status of Active, it represents all those not under contract and fully available on the market.
Of the 207 Active reported here, only 84 are not under contract. Of those 84, 16 are under construction and not even built yet. So effectively, we have only 68 homes that can close in the next 30-45 days. If we are expecting 73-79 solds to occur, we are seriously short of inventory. Several homes will have to come on the market and go under contract within hours to fill that void. When the supply of available homes starts to rise in about a month, so will demand. This can go on and on, but can’t get better until significantly more homes are listed.
My prediction is that this will occur when more construction starts happening. Or, more precisely, when new construction is completed. My guess is that it will happen this year. There is a significant labor shortage preventing us from building any more homes any faster. This shortage is exasperated by many skilled workers going off to make big bucks in the oil fields over the past few years. Those jobs may be going away soon and those workers will be returning to their trades and filling the labor shortage gap, therefore increasing production. Prices won’t drop, but more homes may become available. With this availability, it will give us more resale listings…in the range of a couple of hundred over the next year. My take is that something is more than nothing and 200 is 16% increase.
In the meantime, I had a good discussion with Adam Ingersoll over at 1stBank. He said they’ve seen a very large increase in bridge financing over this past year. Nearly all of it was solving the problem of avoiding the circus in the market, not the traditional new house financing. So if you have people who want to sell, but not put their family in a very awkward position, take another look at bridge financing.