Purpose, Basic Findings, and a Note on Market Complexity

The data reported in this section is the product of research motivated by questions from several clients about what portions of the Denver metro area real estate market might be the safest to buy a condo in. To answer their questions, we pulled together some stats on market dynamics in 19 separate areas of the Denver metro region, areas that are defined by Metrolist, the Realtor owned MLS system that covers the region. These areas are illustrated on the following map provided by Metrolist:

Map of MLS Defined Search Areas for the Denver Metro Region

What you will see if you spend some time examining the data incorporated in the charts we'll link to in this section is a pattern of relatively weak sales and substantial price drops in the eastern and northeastern sections of the Denver Metro area. In any case, that's what we see.. These relatively weak sections of the market include the areas labeled by the Metrolist map as DNE, AUS, AUN, NSE, NSC, NSW. In addition, similar indications of a relatively weak market is reflected in the data for the southwest section of the City of Denver, labeled on map as DSW.

Of course, different conclusions can legitimately be drawn from these data. In our view, the current weak market provides a useful context to look at which areas tend to hold up well in a down market, that is, which areas are safer investments because you'll have a better chance of selling at a fair price in the next down market. Others may look at the same data and conclude that the areas with substantial price drops are precisely where they want to focus their home search, since they are more likely to find a bargain there.

One important concept that everyone should take from these data, though, is the fact that the sales dynamics of real estate markets are highly localized. If you look at our chart on price appreciation in the metro area based on sales stats provided by the OFHEO, you'll see that real estate prices are dropping for the Denver metro area for the first time since the late 1980s. But you'll also see that prices in Boulder County, which borders the Denver Metro area on the north, are rising. Moreover, the rate of price increases is trending upward. And just as our stats on Boulder County show radical differences between markets in various parts of the county, the stats we review here will show you that we've had price drops of 10%-20% in some sections of the City of Denver over the past two years while we've had price increases of 10% or more other areas. You can generate numbers by looking at average prices across a county, metro area, state or country, but these numbers won't generally tell you anything useful about prices in the areas where you want to buy a home.

Technical Notes

1. These data are based on homes and condos that were listed for sale through the Metrolist MLS system. They does not include sales by individuals, builders, and banks that were completed outside that system.
2. The list of areas listed in the charts is organized beginning with the northeast quadrant of Denver and moving counter-clockwise around the region as reflected in the Metrolist map of the area.
3. Prices reported here are net prices to the seller. They are, derived by subtracting seller concessions (e.g., credits paid to the buyer at closing) from the sales price.
4. "Days on Market" means the total number of days from when the property was entered into the MLS system and the day that it went under contract prior to selling.
5. Both sales prices and "Days on Market" (DOM) are reported as medians, not as averages. The median is the midpoint the range of sales prices or numbers of days on the market. It is commonly used in reporting sales prices, where there is generally little difference between median and average prices. It is rarely used for reporting DOM data and there is often a dramatic difference between median and average DOM, with median running about 50% to 75% of average DOM.

Numbers of Sales

Having noted how much variation there is in the current market in different parts of the Denver Metro area, we'll begin our review of the data by pointing out that there has been a fairly widespread drop in the number of sales from 2005-2007. For single family homes, there has generally been a 5% to 15% drop in the number of sales over that period. For condos and townhomes, the number of sales has dropped more radically, with the sales in most areas dropping between 15% and 30%. You can see that data summarized in the following charts:

Houses: Changes in Number of Total Sales from 2005-2007

Condos: Change in Number of Total Sales from 2005-2007

The exception to this general trend toward fewer sales are some of the areas in the NE quadrant of the Denver metro area which we've suggested are the weakest part of the market. Here, with both houses and condos, we're finding a 5% to 15% increase in the number of sales. (Note: The area labeled NSE actually had more than 100% increase in condo sales. We eliminated that from the chart because it made reading the rest of the data difficult.) At first blush, this increase in the number of sales in the NE quadrant of the metro area would generally indicate that this portion of the market has been doing relatively well. But consider first what has happened to the number of sales in those areas that are being made by individuals rather than by builders or as the result of foreclosure:

Houses: Changes in Number of Sales by Individuals from 2005-2007

Condos: Change in Number of Sales by Individuals from 2005-2007

In most areas, there has been a larger drop in the number of sales made by individuals from 2005 to 2007 than the drop in the total number of sales. For single family homes, this drop tends to range from 15% to 40% rather than 5% to 15% for all sales. For condos, the drop in sales by individuals ranges from 20% to 40% rather than 15% to 30%. Why? Because of the increased percentage of sales in all areas resulting from foreclosures rather than from normal sales by individuals. And what about the NE quadrant of the metro area where we saw an increase rather than a decrease in the total number of sales? The number of sales by individuals dropped more dramatically in the NE quadrant than any other. In that are, the number of individual sales has generally dropped between 30% to 40%. How can you have a 5% to 15% increase in total sales with a 30% to 40% drop in sales by individuals? Simple. You have lots of homes being foreclosed on and being sold by banks or government agencies.

Who is Selling?

If you read the press on the housing market in 2007 and 2008, you'll hear about individual home owners who are unable to sell their home because builders are cutting their prices and because banks are dropping prices so they can quickly sell the homes that they've foreclosed on. This is certainly happening in the Denver metro market, but it is happening at different rates in different areas. While foreclosures make up 10% to 20% of sales in most parts of the Denver metro area, they make up 40% to 70% of all sales in the NE quadrant. This is also true of south Aurora (AUS), which borders the NE quadrant, and of the SW section of the city of Denver. Here are the charts:

Houses: Percentage of 2007 Sales by Individuals, by Builders, and as Foreclosures

Condos: Percentage of 2007 Sales by Individuals, by Builders and as Foreclosures

What is Happening to Prices?

Once again, while average prices have been dropping across the Denver metro area for the first time since the late 1980s, they have not been dropping uniformly. Indeed, we've had price increases in many parts of the metro area from 2005 to 2007, particularly for single family homes and particularly for homes and condos sold by individuals. Consider first, these data on the price changes from 2005-2007, data representing all single family home sales and all condo sales.

Houses: Price Change from 2005-2007 for All Sales

Condos: Price Change from 2005-2007 for All Sales

In general, most areas have either experienced minor price drops of 2% or 3%, or they've had appreciating prices in the 5% to 10% range. The exception once again is the NE quadrant of the metro area, as well as AUS and DSW. Here, all the prices have dropped at least 5%, with most areas dropping 10% to 25%. The same general pattern holds for changes in condo pricing over the 2005-2007 period, though prices for condos in northern Jefferson County (JFN, JNC, and JFC) seem to have dropped more than prices for single family homes.

And what about the prices of homes sold by individuals? As illustrated in the following charts, prices on these sales have generally been more resistant to dropping. Indeed, for 13 of the 19 areas, prices for single family homes have increased by 5% to 10% over the 2005-2007 period. Why the resistance to price drops in the sales by individuals? And why the larger price increases? First, if individuals have the option of not selling when the market is slow, many will just chose to wait a year or two until the market is better. Rather than selling for below what they paid, or below what they think the property is worth, they'll delay moving or simply rent the property. Second, if an individual has to sell but can't sell for more than what they paid for the house, they are a likely candidate for foreclosure. And, third, where the market is weak, only the best homes on the market without "discounted" pricing are likely to sell. It isn't surprising that the median price for these outstanding homes is higher than the median price of the mediocre homes that were selling in 2005.

Houses: Price Change from 2005-2007 for Sales by Individuals

Condos: Price Change from 2005-2007 for Sales by Individuals

How Long Does it Take to Sell?

For single family houses, the data on median "Days on the Market" (DOM) follow much the same pattern as many of the previous measures. Where DOM for most of the Denver metro area tend to fall in the 40-60 day range, they tend to fall in the 65-75 day range for the NE quadrant . This is generally true of condo sales as well, though relatively high numbers for areas in northern Jefferson County and in Broomfield make the patterns less clear. Recall that this weakness in the northern Jefferson County and Broomfield condo markets was reflected in the pricing data as well. Here is the DOM data:

Houses: Days on Market before Contract for All Sales (2007)

Houses: Days on Market before Contract for Sales by Individuals (2007)

Condos: Days on Market before Contract for All Sales (2007)

Condos: Days on Market before Contract for Sales by Individuals (2007)