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As winter gets further in our rearview mirror and we have our eyes on summer, this long road between seasons seems to be coming to an end. Similarly, Denver’s market is showing signs of coming to the end of the road when it comes to the extremely hot seller’s market we’ve experienced so far this year. However, this does not mean it’s completely behind us.
Today we are starting to see some price reductions and more and more homes selling at or even slightly below list price. This is especially true in the higher price point, meaning the $800,000 plus price point. It is because of this that many are starting to talk about the market shifting. It’s easy to say, and we even have a suspect to blame for the “sudden” shift in the market: interest rates. However, this market shift does not mean that values are coming down or that the market is even seeing a negative effect from this change. Let me explain.
The reason we’re seeing homes sell closer to list price and even some price reductions is not because of a loss of value but because of pricing. With several months of a hot market behind us, there are now more comps available at the new higher prices. This justifies why sellers and agents alike have started listing homes hitting the market today at higher prices. However, often the same pool of buyers that drove the list price up on that home a few months ago are the same buyers trying to buy today. If they were not willing to pay more for that home a month ago, they likely still aren’t today. This results in the new home available, which is listed at the higher price, selling near that list price rather than $50,000 over.
Currently, when a home doesn’t go crazy over list, it feels like a different market and perhaps even that the market is heading down because that house across the street sold for $50,000 over list and mine didn’t. However, the reality is that the market is exactly the same. To help you understand what I mean, let’s use some numbers. In February, four homes were listed for $875,000 and sold for $950,000. Today, a similar home is listed for $950,000, using the four homes that sold in February as reason for the listing price. Then it sells for $950,000. The seller of this home still saw $75,000 in new equity and value in 2022, as it was only worth $875,000 at the beginning of the year. The difference in today’s market is that homes are being listed at the current higher value. The hard part is understanding this because when a home is listed at the higher value, buyers are not as likely to decide it’s worth more than they felt it was just a month or two ago. This sudden change in sales price vs. list price often gets confused as a downward market, when in reality, list prices have caught up to the new values.
Although we’re not seeing this trend as commonly in the lower price point yet, I do believe we’re not far from seeing it. It is not uncommon for trends of the market to start in the higher price points and trickle their way down from there. We will also see how other factors start affecting the market in the upcoming weeks, including the Feds decision yesterday to increase rates by 0.5%, and hopefully, we will see a market with more inventory as we enter our busy selling season here in May and June.
Whatever happens, TK Homes will be watching closely to ensure we’ve got the best information and tools to help you achieve your real estate goals. Don’t forget to check back on the first Wednesday of every month for the most recent Denver Real Estate Market Update.
~ Article written by Team Leader & REALTOR®, Trevor Kohlhepp