** All market information and data is taken from RE Colorado, IRES, or PP MLS.  If you believe there is an inconsistency or misstatement, please let us know!! **

 

The Skim

Macro – Mode: wait & see.
Demand – More buyers still riding the rate wave.
Supply – Pace of new supply slowing.
—————————

Net – Confused.

 

It’s Time to Sell EVERYTHING, Maybe.

I got a laugh as I wrote that subject and think some of my former colleagues at Credit Suisse will chuckle reading it as well. I was extremely bearish at the start of the equity rally in 2010 and didn’t really gain any confidence until the successful initiation of the Fed’s taper program in 2017/2018 (go ahead, laugh). Luckily, derivatives traders don’t make our living trading cash directionally.

The subject is relevant because I’m starting to “feel” like everything is going to be OK and the current rally could keep going much longer than many of the pundits expect.  The trade war looks like it’s getting resolved, hiring activity remains decent, and the US is the bright spot in a global economy that doesn’t look entirely certain.  We can be cautiously optimistic at the top of the cycle AND it’s important to note that we’re not allowed to be irrational, greedy or exuberant.  When you notice my tone going beyond my current mental state into “greed,” make sure to call your brokers (Blue Pebble included!) and sell everything.

 

“I will tell you how to make money. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful.” – Warren Buffet

 

Wait… You’re feeling better now you’re a seller?!

Yup! Exactly! Do you remember the depths of 2008/2009 when the market was moving 5-10% and thousands of jobs were being cut across the country each day?  I remember the talking heads on TV and having legitimate conversations on our trading desk about the few steps remaining before we would have to call the official end of the global financial system.  If you had paid attention to the fear in the market and sold all your investments to buy gold and guns, you’re probably not feeling too good right now.

Hopefully, you were one of those people who stuck it out and we just take those lessons and apply them today.  Just as one shouldn’t pay attention to fear at the bottom of the market, one should endeavor to tune out the greed and exuberance at the top of the market.  Here’s an article from 2008 that is still relevant today:

http://www.minyanville.com/businessmarkets/articles/markets-cycles-psychology-bull-bear-panic/8/29/2008/id/18736 . 

 

I’m going to self-diagnose my own, brief sentiment shift as one from “Confidence” to “Enthusiasm” while staying short of “Greed & Conviction” for now; don’t sell everything, yet.  I’m limiting my diagnosis because (1) there are aren’t enough “great” deals in the market right now, (2) capital sources have not gotten so lax in their standards to lend to bad credits, (3) and media sources are still focusing on downside risk which is not symptomatic of “greed” or irrational exuberance.

Now is the time of year when financial advisors and banks put out their year-end research notes, so I’m going to keep the macro brief & general as I catch up on some of my reading. Please, let me know if you’d like to read any of these reports and I’ll be happy to forward my favorites. In the meantime, here are links to a few articles I’ve enjoyed lately:

  1. Article on the October Jobs Report from WSJ
  2. Impact of Rising Seas on Coastal Cities– More people moving to CO!
  3. The Best Small Places for Business & Careers– Interesting read.

 

The Demand Side – Einhorn is Finkle.  Finkle is Einhorn.

The Denver residential real estate market IS the US bond market. The US bond market IS the Denver residential real estate market. Well, not really, but kinda — they are pretty well correlated at the moment and one could definitely make an argument for causation. For the second month in a row, we saw above-trend purchase activity which we believe is being catalyzed by lower rates later in the season.

** Table summarizing activity in the Denver metro residential market over the last year.  Note: active inventory is lower year-over-year in October for the first time in more than a year. **

 

As we head into the end of the year, nominal buying activity will slow down and the pace of new listings will slow nominally as well. Inventory will reach its lowest point in the annual cycle which means it might be a little harder for buyers with discerning tastes to find property. 

Days on market has been higher all year and we expect homes to sit on the market longer and longer as we approach the new year. Sellers (on the whole) are on the market this time of year because they have to sell and they will be forced to market to fewer buyers who are less motivated to offer as properties sit longer. If you are a bargain hunter and are willing to endure showings during inclement weather, then you will have the opportunity to find good deals through the end of the year.

 

The Supply Side — Just when we had it figured out…

I was convinced that supply levels would continue to go up, the trend of building inventory would continue, and this spring would be disappointing. We’ve been tracking affordability very closely and believe this will become more and more of a problem if interest rate go back above 2.5% with corresponding mortgage rates 4.5% or higher. From our perspective, an oversupplied spring with higher rates and less affordable homes could mean nothing but a tougher market than expected.

 

** Note the trend of higher supply until this month.  The decrease in supply is primarily attributable to increased purchase activity. **

 

And then the market did what markets do: confuse me.  We started seeing less new listings hit the market in August and then witnessed the same behavior again in September.  October new listings were light by approximately 200 units and was the third month in a row with less listings coming to the market year-over-year.  These new listings are the units that refresh our supply and had been boosting our market inventory levels for the last 15 months.  

When less new supply is combined with several months of increased purchase activity due to lower rates, it does not take long for supply to come down and reverse the trend we’ve witnessed over the last year. 

 

Looking Ahead.

Some weird stuff happened in the residential real estate market last winter.  Days on market spiked over 20 days, supply levels hit 50% higher than previous years, and new inventory hit the market at much faster levels than historically seen. 

When weird things happen, it typically means there are opportunities to find deals, so keep an eye out for “weird” things happening over the next few months. 

Historically, November, December, and January are the best times to buy property in the metro area as prices are on the seasonal lows, sellers are motivated, and there are fewer buyers competing for the listings.

Thank you for taking the time to read our note.  If you have any questions, comments, or need help with a real estate transaction, please call us at 720-526-2583 or send us an email at info@BluePebbleRE.com.