DMAR’s December Market Report delivered some interesting news for the Denver attached home market (condominiums, townhomes, and rowhomes). While single family detached homes followed the ongoing Denver real estate trend of low days on market and low inventory, attached properties painted a different picture, with inventory up 6% since this time last year and days on market up almost 38%. This 38% increase represents over 11 added days before sale for attached homes – a statistic that would make any agent cringe. Continued historical lows on these trends have become the trademark of the Denver residential real estate market, until the past few months.
… So, Is The Bubble Bursting?
This is the news we’ve been watching for, right? Real estate and economic experts have pronounced, time after time, that the market bubble will burst or – at the very least – stabilize when inventory increases, causing days on market to swell and supply and demand to balance. But, take another look; the rest of the market remains business as usual (albeit “sellers’ market” business). Detached homes produced less inventory than this time last year and days on market remained quite stable.
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The Market Without That Denver Real Estate Trend
In fact, over the past several years, Denver attached homes have seen quicker appreciation than their detached counterparts. This is due largely to the billowing real estate market’s starter home price points – many opt for more affordable attached homes when they can’t afford those tiny (and expensive) bungalows in Denver’s trendy neighborhoods. Thus, condos and townhomes have become the starter-home-standard in Metro Denver.
So, why the sudden about-face in the attached Denver real estate trend this fall and winter? Many factors play into any given real estate data point, but there is one factor that is likely driving the inventory and days on market change… Metro Denver’s interest in building luxury condominium buildings.
The New Factor Affecting The Denver Real Estate Market
From Cherry Creek’s Laurel and Infinity buildings to Denver’s Sugar Cube and Boulevard Homes, the Metro Denver area has seen an influx of new build luxury and custom condo offerings. Of course, without the widely attainable price tag of traditional condos, these luxury condos are not only flooding the market, but also spending more time as active listings. These new builds appear to be the origin of this fall’s growing inventory and days on market.
Furthermore, new construction condos are coming on the market, even before the build is complete. According Your Castle Real Estate President, Charles Roberts, “The inventory of new condo construction that’s coming on the market is highly skewed towards new product which is mostly luxury. This skews the numbers and statistics in a way that is not obvious to the casual observer. There are currently 9.5 months of inventory for properties with 2016 build dates or newer. But much of this inventory is still being built. So, of course, it’s not being sold yet. This artificially raises the condo Days on Market numbers.” The data becomes even more confusing, given that most market reports offer Days on Market for residential properties as a combined statistic – detached homes averaged together with condos and townhomes. For example, December’s numbers presented residential real estate Days on Market as having increased by 8%! But, as you know, detached homes performed as normal (with inventory falling 12% year over year) with condos and townhomes inflating Days on Market with its 38% increase. As with all data, it pays to take a closer look than at the mere advertised numbers that can create headlines, as well as misleading information.
What It All Means for 2018 Real Estate
What may be bad news for luxury condo developers turns out to be good news for those fearing an impending real estate bubble burst in Denver. If the rest of the market is not turning, home equity will continue to rise and the market will remain strong. Though these numbers could be the first sign of a market downturn or stabilization, logic points in a different direction. Luxury condos aren’t flying off the shelves, but starter homes haven’t lost their competitive edge just yet.