Mortgage interest rates continue to decline driving greater home affordability, resulting in ongoing record breaking buyer activity.  But buyers continue to demonstrate patience and caution as evidenced by low contract and sales volumes not seen in almost 15 years and an extraordinary number of showings before a buyer writes an offer.

Once again, this leads to sellers being frustrated and likely many confused due to poor agent representation not capable of market analysis and quality information sharing.

Interest Rates

It’s hard to overstate the significance of this moment.  All signs point to a deluge of contracts and sold properties if we hit a tipping point.  No one knows exactly what that tipping point is, but I suspect it is a modest drop of interest rates.

As we have been discussing and you will see by the “showings” charts below, there is a direct correlation in interest rate decline to growing buyer activity.  Rates began their decline in early May and immediately, buyer showing activity increased.

If rates decline much further, I suspect we will cross and emotional threshold for many, many, many buyers and the volume of activity we see in the market will turn into results of contracts and sold properties.

Showings

The nature of showing activity right now is almost silly.  Last week we experienced an almost record breaking volume of home showings at 25,749, surpassing all years on record, except 2020 (not shown).

But as has been the narrative, buyers are really taking their time.  I MEAN REALLY, REALLY TAKING THEIR TIME.

At the moment we are seeing an unprecedented number of showings required before a  property goes under contract.  This isn’t bad properties or bad pricing, this is cautious, patient, maybe scared or reluctant buyers who just aren’t sure of market conditions.

On average this time of year it takes about 19 showings to get a contract on a property.  Last week it was 28.36 showings, and the week before 30.57 showings to get a contract.  Both well over 50% above average.

Why this dramatic increase?  I can only speculate, but I think its a solid hypothesis.  There are a number of geopolitical and macroeconomic factors giving rise to an under current of “curiosity or concern” to the average person (like I don’t know, let’s say “the presidential election”).  It’s likely just a feeling people have and they can’t quite pinpoint why they are looking at all these homes, but “something” doesn’t yet feel right.  Most people don’t know how to reconcile their desire to buy with this feeling.  That results in engagement but not decisiveness.  

What will shift that?  I believe some modest decrease of interest rates that has a majority of buyers cross some emotional tipping point. It might be directly related to some calculation of affordability, or it might be more simple.  It might just be a widening gap between the height of rates just 9 months ago and some threshold that has a buyer unconsciously feel…”ok, its time.”

Remember, we are in a market where people are for the most part buying due to necessity.  Life circumstances.  And every purchase, whether a new phone, blouse or home is an emotional decision.  Marriages, divorce, babies, jobs, empty nesting and end of life are life circumstances and they are all emotionally charged moments.  When the market doesn’t feel safe, the need for safety may override the emotion of desire, or even need of the life circumstance.

But when rates drop below a certain threshold, the emotional equation of desire and safety is likely fulfilled.

Buyer Opportunity and Agent Action

Stay in touch with every single person in your database.  Keep them informed on these market conditions and let them know we may soon reach a point of tremendous opportunity for buyers.  As inventory continues to climb, prices continue their slide and interest rates continue to fall, we will reach a nexus, a moment, a window where serious buyers should act.

Now, trying to time the market is exhausting and rarely valuable, with the risk of waiting often too great.  But the point is, 10% of your database wants to buy, today, right now.  And many of them don’t think they can or should.  And be they can, and should.  But they won’t know if you don’t keep them informed.

Remember to remain their guide of their goals and dreams.  The consultant who commits to acting in their best interest, not the sales person who tries to get what he or she wants.

Inventory

I’ve been saying it was coming and we are finally there.  Inventory in the Denver 7 county MSA crossed the threshold of 10,000 homes on the market, just over 4,000 homes more than the same time last year.

There is no good or bad to this.  It’s just a condition that has obvious consequence (Note-Consequence simply means the events to follow, not good or bad).

Sellers:

  • Days on market will continue to climb making the pricing and preparation of a home more important than it has been in a very long time.
  • More homes will reduce their price.
  • The average sold price will slide.
  • Offers from buyers will be more aggressive.
  • Buyers will negotiate harder during inspection.
  • Contingent offers will become the norm.
  • Buyers will start to get lazy before too long, not be prepared with their lending and contract issues will be more regular due to poor agent professionalism in client guidance.

Buyers:

  • Prices will decline.
  • Sellers will negotiate with aggressive, maybe even unreasonable offers.
  • Buyers can expand their price range and negotiate down on the right properties.
  • Interest rate buydowns are getting some buyers into the low 5% range range.
  • Homes will be in better condition upon purchase due to sellers needing to better prepare to be competitive and more willing to negotiate at inspection.
  • Buyers can take their time and not feel the anxiety of selling their home or being under contract on their current property before writing an offer on a replacement property.

Inventory won’t likely climb too much further this year.  Based on historical patterns, we’ll cross over the 11,000 home mark sometime in September, but just barely.  But with this election year…its anyone’s guess!