Denver Market Sweet Spot

By Michael Canon

The information available on the condition of the Denver metropolitan area real estate market implies that some segments are doing better than others. “Foreclosure sales are booming” and “High demand for low-end homes,” are some of the recent story lines. Is there is a segment of the non-distress market that is vibrant and healthy?

The lowest levels of inventory of the 400 neighborhoods in the Denver metropolitan area are in the price buckets below $325,000. For example, in the chart below you see the months of inventory (MOI) for foreclosures and non-distress sales by price bucket.

Months of Inventory	Foreclosures	Regular Sales	Total
0-$100K 100-150 151-225 226-325 326-480 480-1M 1m+ TOTAL	1.9	2.7	2.0
	2.9	4.7	3.3
	3.4	4.3	3.9
	5.2	4.7	4.8
	6.7	7.5	7.4
	13.0	14.8	14.6
	59.2	31.0	31.7
	3.6	7.2	5.7

The National Associate of Realtors has defined a “balanced” market as 6 months of inventory. Below 6 months is a seller’s market and above 6 months is a buyer’s market. Denver clearly has two distinct markets, a buyer’s and a seller’s, and the break point is $325,000.

The market below $325,000 is a seller's market. The market above $325,000 is a buyer’s market.

If you look at the count of all homes sold, the <$325,000 segment represents 75% of the total sold homes in the Denver metropolitan area. This count by bucket includes bank sales and short sales (REO) and non-distress sales. To understand the dynamics of the market these subsets must be separated.

The active listings below $325,000 represent only 50% of the market. The logical conclusion is that properties below $325,000 sell faster than the properties over $325,000. Cheap houses sell faster than more expensive houses and their inventory levels are comparably lower.

Look at the active listings’ buckets separated into their subsets of REO and non-distress. The group of actives with the largest number of active listings is $480-$1M. Note how the number of foreclosures decreases as the prices increase. The $480K-$1M price bucket contains the houses being affected by the difference between conventional loans and jumbo loans. The wide spread (2.5-3%) has had a chilling effect on sales in this bucket. The difference in principal and interest payment on an 80/20 LTV on a $750,000 house is $1200 per month. Who will buy if they don’t have to?

The largest number of sold properties comes from the $151-$225K and $226-$325 buckets (representing 49% of all sales). The $151-$225K bucket demonstrates equilibrium between REO & non-distress sales. The $226-$325 bucket shows a dramatic shift toward non-distress sales.

Ranking the buckets, REO and non-distress sales, by sales volume gives the following results:

Bucket	Sales	%
$1< $100,000 REO	3416	10
$1< $100,000 Non-distress	486	1
$101,000 < $150,000 REO	3677	11
$101,000 < $150,000 Non-distress	986	3
$151,000 < $225,000 REO	4085	12
$151,000 < $225,000 Non-distress	4339	13
$226,000 < $325,000 REO	1653	5
$226,000 < $325,000 Non-distress	6171	19
$326,000 < $480,000 REO	682	2
$326,000 < $480,000 Non-distress	4224	13
$481,000 < $1M REO	301	1
$481,000 < $1M Non-distress	2420	7
+$1M REO	15	0
+$1M Non-distress	546	2
Total	33001	100%

The highest number of sales, representing 45% of the total market, is non-distress properties with a sold price between $151,000 and $325,000.

So not all sales activity is focused in the REO segment. The sweet spot for sales is $151,000-$325,000 non-distress.

A great segment of the non-distress market is vibrant and healthy.