First Quarter ’23 Real Estate Market
The national residential real estate market is performing naturally. The Federal Reserve’s focus on breaking inflation through measured, broadcasted interest rate tightening has reduced mortgage application rates. The “market” response has been a return to the 30 to 60 day selling cycle for typical listings.
While rates at almost 7% have removed some buyers from their preferred/desired neighborhoods, the supply of homes nationally and locally remains below demand. Import issues (Europe to China) has a lot to do with the problem. Similarly, the residential market continues to be burdened with lack of skilled works. From framing to custom cabinetry, large and small, the construction industry is faced with major labor constraints. Lack of labor and lack of desirable homes is forcing the buyer to weigh what remains essential in their next home. As Bloomberg reported, pandemic job shifts have been matched with an increase in new salaries that offset the actual and near term effects of inflation.
Building Constraints Continue:
While the rush to sunbelt communities from the heartland (think Chicago to Miami) remains strong, many local communities are firming up because of supply constraints.
Denver’s Central Park/Northfield and Cherry Creek North are two examples. Both have fewer areas to develop. Large vacant lots on the periphery in Northfield originally intended to be new owner occupied communities are now under development as multi-family rentals.
Cherry Creek North desirability remains firm because the community has replaced end of life structures with either new homes, new office buildings or new multi-family residences conducive to the live-work-walk lifestyle rarely found in a major city like Denver. Other Denver neighborhoods have experienced “Pandemic neglect” – as is evidenced by the rise in active listings found in nearby neighborhoods. Downtown Denver’s 80202 zip-code is home to multiple highrise condo buildings. Only 1 major new residential for purchase highrise is actively out of the ground. Pre-existing resale residences now average around 120 units a month. Cherry Creek North’s zipcode of 80206 has resale supply currently hovering at 40. The price points range from $300K to $15mm, with the average detached home sold value at $1,253,616 and the attached condo sold value at $593,836.
Quality vs Quantity:
The old adage is evident in what the home buyer has as a selection today. Stale homes left as is but in a strong neighborhood likely will find a buyer. Those homes cared for and with more than the basics being updated should find buyers readily and at listing value. Unique properties will continue to be the outliers requiring knowledgeable advocates for sellers and buyers alike. The test for the residential real estate market is whether a soft landing remains possible. If consumer debt continues to rise – currently with 4% beyond 90 days delinquent – the Fed will obtain and cause a mild recession by year’s end. Likewise, a significant rise in unemployment will unsettle the housing market. Beyond minor layoffs, the housing market will remain normal and not a hyper-active market.