We are officially in the summer buying season along the Front Range of Colorado! The period from the beginning of April until mid-June is when most buyers in Colorado prefer to move, so now is the time when things start to get busy, and new listings hit the market more frequently. The data also show signs of the market accelerating, even against a macro backdrop in which optimism regarding future rate cuts is fading: new listings are up, active listings are trending lower, and pending activity is higher, all in the last month.

The macro world was pretty slow last month unless you are in Bitcoin. Wow. The US equity market is digesting earnings, and data on the jobs market, inflation, etc. hasn’t been all that exciting or definitive. March is the time of year when buyers start coming out of the woodwork and the real estate market along the Front Range starts to heat up, so we’re going to focus this month’s discussion on Denver’s housing market and our predictions for the next several months. All signs are pointing to the market being absolutely _________ (read more to find out).

Maybe second to a George Friedman podcast, nothing gets the macro juices flowing on a Saturday morning like watching an interview with Barry Sternlicht, the Chairman & CEO of Starwood Capital Group. Even if you never read one of these emails beyond “The Skim,” you should take thirty minutes out of your day, grab a beverage, and enjoy hearing the perspective of what’s going on in the world from someone who has access to all the data he wants. Even though Mr. Sternlicht tends to argue for his book a bit (and who doesn’t when you’re responsible for financing billions of dollars a year), we do agree on 95% of the current landscape and that means our views are starting to converge a bit more. In these Insights, we will unpack some of the most interesting points from Mr. Sternlicht’s fireside chat and discuss the impacts on Colorado’s real estate market.

We hope you had a great holiday season and a very happy new year! 2024 is already off to a better start than last year with the University of Michigan’s victory in the Men’s College Football National Championship. (It also helps that the macroeconomic sprits offered some reprieve on mortgage rates over the last few weeks.) Last month, our discussion about trends in the labor market highlighted an argument the Fed might not be able to cut rates as aggressively as anticipated, and recent data is starting to give us more confidence in that thesis. Let’s dive into the Fed Funds futures markets and see what they say about the prospects of a hot housing market this summer.

In this month’s edition of our Market Insights, the first thing we want to say is “thank you.” To all of our clients, readers, referral partners, friends, & family members who support us as we pursue our mission of making real estate more affordable for the American consumer, we are very grateful to have you in our lives. We sincerely hope you have a wonderful holiday season, a happy new year, and that you are ready for an exciting real estate market next year! The trend of fewer listings hitting the market slowly reversed over the year, and November was the first month in the last EIGHTEEN when more listings hit the market than did in the same month of the previous year. At the same time, our market is slowing down similarly to how it did last year. Composite Days on Market (DOM) is up to 19 from a low of 5 this spring, and list prices are coming down along last year’s trend as well. That leaves two major questions for the 2024 spring buying season: when will supply start to build and will mortgage rates allow for our usual spring pop?

November and December are always transitional months in the markets we cover. The buyer pool is significantly smaller since it’s not at the top of everyone’s list to pack and move during the holidays; at the same time, sellers are typically unwilling to price their homes more aggressively since spring (and the buying season) is only a few months away. This time of year becomes more about finding the “weak hand” rather than making broad conclusions about the trajectory of the real estate market. You’ll see some listings get into bidding wars at the same time that others are aggressively lowering prices in search of any offer — this is what happens when there is less liquidity (read: activity) in the market.

Moving is rarely something people want to do, and I’ve heard that moving with young children during the school year is even more difficult, and that explains the substantial seasonal effects of back-to-school season. A material amount of demand leaves the market, and as a result, September and October tend to be awkward months when late-season sellers have to readjust their expectations and buyers put their plans on hold until next year. Sellers are caught off-guard by the speed with which the housing market goes from “hot” to “cold” every year, and this is why you’ll see many properties ensure a series of price reductions heading into January. To make matters more difficult, interest rates continued to climb higher last month (thus making affordability an even bigger problem) and many buyers are giving serious thought to “waiting for when rates come down.”

August tends to be a slow month for the markets. Bankers all over the world vanish from their desks, and many families across the country squeeze some fun into the last few days of summer break. Given these phenomena, it wasn’t surprising to see that not much changed in August in the equity or fixed-income markets. On the real estate side, August tends to be a slower month as conversations shift from summer moves to picking up some deals before the end of the year. Without much changing, now is a great time to see where our indicators currently stand and try to make some predictions for what’s coming up this fall.

If the Fed is going to pause, why are long-term interest rates going up? Last month, Chairman Powell hinted that the Fed will be much more cautious as it evaluates future rate hikes, and one would have expected long-term interest rates to start going down after that news—but the opposite happened. Since the July announcement, 10-year interest rates are up by nearly 0.50%, and that doesn't help the average consumer much. Even more interesting is that home prices haven't moved lower yet, and that's creating a major housing affordability issue across the country. In this Market Insights article, we will dive deeper into the affordability quandary with a discussion of proprietary analysis on housing affordability. Here's a sneak peek: the only times in the last 40 years when homes have been this expensive were 1987-1990 and 2006-2007...

Now that Taylor Swift left Colorado, it’s time to get back to business. The jobs market, as shown in the ADP Payroll and Non-Farm Payrolls reports, doesn’t appear to be slowing down at all. And while this is a good thing for most families, it is making the Federal Reserve’s job much, much harder. Average wage gains registered more than 4% year-over-year and this is a leading indicator for higher inflation. Additionally, there will not be any forced selling in the residential market without broad job losses, and that makes the short-term outlook for housing affordability worse. While there was a bit of a reprieve in borrowing costs after the most recent inflation report, the US bond market is reacting to primarily stronger economic news by driving interest & mortgage rates higher. At the same time, buyers are getting more comfortable with higher rates, and we’re seeing demand start to pick back up again which means higher prices are also here to stay for a bit.