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A Mixed Bag for the Housing Market

5/4/2012

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New data for the housing market came out this week, and although there are some strong data points for April 2012, the overall outlook is bitter-sweet.

April is a key indicator because it is the unofficial opening for the summer sale season, and in many ways it sets the tone for the rest of the year. Also, as Colorado comes out of the winter months and construction-friendly weather emerges, there is generally a pop of new projects that are undertaken.

I’ve spoken to several realtors in the Denver area who have said that currently the success rate on already-listed houses is fantastic. But, the untold story is how little inventory there is on the market for buyers to get their hands on. While home sales have increased significantly this year compared to 2011 (up almost 20% in some categories), the total inventory of homes for sale has been almost cut in half.

What this means is that while the demand for home sales increases with the slowly recovering economy, the supply has decreased sharply. The effect is to drive prices higher for those limited houses on the market without adding real value to the deal.

But, this is not all bad news. It has been a buyers’ market for the past several years, because there has been a huge surplus of homes for sale with very few buyers in a position to take advantage of the low prices and great interest rates.  So, what the new data may be telling us is that the market may be positioning itself for a rebound.

The thing to look for in the upcoming months is whether more homes come onto the market to meet the increasing demand. If good homes are listed to meet the inventory shortage, the market may find an equilibrium and everyone will win. But, if too many homes flood the market, we may see this year’s early progress stifled.

So, while we are certainly not out of the woods yet, there may be a glimmer of light on the horizon.
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    First Draft is a collaborative effort between Beth and Paul Padilla, both equity partners in the firm, and is intended to give you a brief overview of current legal topics and let you know what effects those issues may have in your life.

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