Demand exceeds supply of residential properties

The local residential real estate market is all about the inventory of homes for sale – or, better said, the lack of homes for sale.

The normal calculation is an average of the last 12 months of home sales divided by the current total listings to get a figure of supply. Generally a supply of six months is considered a balanced market. Less than a six-month supply gives the sellers an advantage, more than a six-month supply is considered a buyer’s market.

Using this formula, in the last 12 months in the four-county area (Boulder, Broomfield, Larimer and Weld), there were 18,447 homes sold. This is a demand of 1,500 homes per month. At the end of April, there were 5,795 active listings so the supply was 3.8 months, about 65 percent of a normal market.

We prefer to make a couple of adjustments to this figure. The market is cyclical and we predict the demand over the next six months will be for 11,000 homes or 1,800 per month. The other adjustment is that of the 5,795 active listings at the end of April, 2,583 were under contract so the net active listing inventory is just 3,212 homes or a 1.75-month supply.

It is even worse in the lower price ranges. For homes priced up to $300,000, there are 2,529 homes listed but 1,491 are under contract, leaving a net supply of 1,038 homes. The demand over the next six months will be in the range of 7,000 homes or 1,200 per month. On this basis, we have less than a one-month supply of homes available for purchase.

This demand is reflected in the “days to offer,” which stands at 41 for the year to date. For comparison purposes, the figure was 68 days last year and as recently as 2011 it was 105 days.

For the year to date, sales are holding fairly steady compared with last year with a current 4.7 percent decrease. We should point out that last year was a record-breaking one for home sales and that, even with the small decrease in sales this year, when coupled with the 5.5 percent price increase, the total volume of $1.5 billion for this year to date is the highest on record.

Obviously sellers are in control of the market, and it would seem like the relatively modest price increases are not enough to convince many of them to put their home on the market. If they are simply selling one to buy another, they probably can expect to enjoy the selling experience, but then they have to scramble on the “buy” side so many are holding tight. The only two things that are going to help are the thousands of homes purchased by investors or foreclosed on by banks during the recession that may be coming to market as leases expire, plus the construction industry, which is scrambling to build new homes to meet the demand.

We are entering the peak buying season with very limited inventory, and it is going to be difficult to prevent prices from reaching double-digit increases. Stay tuned!

Pam and Dave Pettigrew are local real estate brokers. Contact them at 2700 S. College Ave., Fort Collins 80525, at FCRealtor@msn.com or 970-282-9305.

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