A long range look at the market

Whenever the market and the signals from the metrics I track are confusing me, I usually try to zoom out and look at the bigger picture. Is what we’re seeing within the bounds of prior experience? If not, why? If so, how does the current situation differ from the guidelines of the past?

This current market definitely has me confused. In the 25 years I’ve been selling real estate, I have not seen a similar market where we have fewer than typical sellers and fewer than typical buyers. Usually when our market has shown weakness it is because one of the two groups is out of balance compared to the other. Not enough demand or too little supply. To have both sides of the transaction showing weakness is a new one.

In an attempt to show how our current situation compares to the recent past and the more distant past, I created two new charts. In these charts I’m showing our current supply and demand against averages of the past on 5, 10 and 15 year time spans. Interestingly, we really don’t get out of the current hot market with the 5 and 10 year averages. Really to show a different market, we have to look at the 15-year average which included the Great Recession numbers.

As you can see in the supply chart, Available Inventory of Single Family Homes in Boulder County (homes not Under Contract) has been suppressed for quite some time. At the end of June 2023, we have 20% fewer Homes Available when compared to the 10-year average. To really see dramatically larger numbers of homes for sale we have to look at the 15-year average, which included the Great Recession when we had too many homes for sale. Compared to that time frame, we currently have 51% fewer homes Available for Sale here, now, at the end of June 2023.

The Buyer demand in the market right now as represented by the proxy of the number of Single Family Homes Under Contract is even lower than the Inventory numbers. So, in some ways, even though both metrics are very low, the demand numbers are likely lower than the supply numbers which has lead to our softness. I say likely as we have no true measure of the number of buyers in the market and are always using our best guess by looking at proxies of buyer activity. I was surprised by the relative consistency of the demand side of the equation over the different time frames and how far outside that normal band we are. Supply moved about quite a bit, but demand generally falls in a much tighter band on the chart. Demand at the end of June 2023 is down 37-43% compared to the 5 & 15 year averages.

So, we’re definitely outside the bounds of the past, short and long term. Trying to decipher why we are so far outside the bounds of normality is tougher. Structural changes to the market, being close to a built-out County, higher mortgage rates, and different buyer and seller behavior are all likely playing roles in the change.

Hope everyone had a great 4th!