Has a cold front moved into metro Denver’s scorching hot real estate market?

Metro Denver’s housing market has undergone a shift in recent weeks, not unlike a cold front that ends a spell of record heat, and it could provide significant relief to buyers if it continues, according to local real estate agents.

“The market has begun to move over the last two to three weeks and has been very noticeable to most agents within the last seven days,” said Bret Weinstein, founder and CEO of BSW Real Estate in Denver. “There is absolutely a market shift occurring.”

Whereas a popular listing might have attracted more than a hundred showings and 15 to 20 serious offers earlier this year, now even a “great property at an affordable price point” might see 30 to 40 showings and three to four offers, Weinstein said.

Granted, at any point before the pandemic, that would still represent a robust seller’s market. But for buyers tired of putting in offer after offer and losing, any kind of tempering will improve their odds of actually landing a home.

“It still is a very difficult market for buyers — it has been an exhausting market,” said Brady Miller, the CEO of Trelora in Denver. “For the last two weeks, we have been seeing some signs of relief. We aren’t seeing 12 to 15 offers. There are more houses on the market and prices are leveling off.”

The slowdown isn’t just happening in Denver. ShowingTime, which manages the scheduling of showings for more than 1.5 million active listings, noticed a significant drop in showing activity in May compared to April in 28 of the 30 cities it tracks, including Denver.

“Although showing traffic continues at a historic pace, we saw a substantial month-to-month decrease from April’s levels,” Daniil Cherkasskiy, ShowingTime chief analytics officer, said in a release. “As we stated last month, even if demand begins to weaken, we’ll still be far from a buyer’s market since the demand for real estate remains at an unprecedented level.”

Weekly showings in Colorado, which has been increasing at a 50% plus clip in April compared to the first week of January, almost went flat in late May. They rebounded in June, but the rate of increase is only running around 20%, a fraction of the typical increase June has in showings over January, according to ShowingTime.

Besides having an easier time getting a slot for a showing, buyers should also start noticing a wider selection of homes to choose from and the ability to look at a property more than once before deciding whether to put in an offer. And they will have less competition when it comes to making an offer.

“In the last two weeks we saw 3,600 new homes go on the market, which is the biggest supply increase since the pandemic,” Miller said.

But he concedes the number of new listings hasn’t been the issue the past year as much as the absorption rate or the share of listings that get claimed. This year, through the end of April, 95% of new listings were getting absorbed, which Miller said is “outrageously high” compared to a more normal absorption rate of 60% to 70%.

The absorption rate dropped to 84% in May and is tracking closer to 74% in June, which Miller called much more reasonable.

Weinstein said the larger market seems unaware of the shift that has taken place, given that the three offers a home might average are as strong as the 15 to 20 generated earlier this year. Spooked buyers, out of habit or desperation, continue to unnecessarily bid up home prices against phantom competitors.

“Currently we are seeing the best offer winning by $20,000 to $30,000 with the assumption that there are other offers at that higher price point when in reality, there are not,” Weinstein said.

Another sign that the market is moderating is that fewer appraisals are coming back short of the price that the seller and buyer have agreed on, said Nicole Rueth, producing branch manager of The Rueth Team at Fairway Independent Mortage Corp. in Englewood.

When buyers are willing to bid way above the list price, appraisers can struggle to determine the right value on a home, which in turn complicates a mortgage approval.

About two months ago, 27% of Colorado appraisals came in low, Rueth said. In June, the share of appraisals falling short has run closer to 10%.

June is typically one of the strongest months for home sales and price gains can peak around the July 4th holiday or beyond. So what explains the Denver market losing steam in May?

For some people, the urge to socialize and travel after the easing of restrictions may have diverted attention away from house-hunting, Weinstein and others argue.

Wells Fargo senior economist Mark Vitner adds that as more employers call workers back to the office, the allure of plopping down in Denver to work remotely or buying a second home in a Colorado resort town may fade.

“With folks now thinking about going back to work, we aren’t seeing a rising number of people moving from the West Coast,” he said.

Vitner and others argue that affordability has become a headwind to the residential market after sharp price increases wiped out the advantage that last year’s big drop in mortgage rates provided in terms of lower payments.

“You can’t have prices going up 20% a year. Those price gains aren’t sustainable. Incomes aren’t growing anywhere close to that and interest rates won’t fall. Affordability is a real challenge in many parts of the country,” he said.

And metro Denver’s frenzied market may have simply has caused more potential buyers to get burnt out.

“I think what’s driving the decline is high price fatigue. Disappointed buyers and their brokers are giving up,” said Tom LaRocque, a broker associate of Your Castle Real Estate, of the decline in showings, which he began to notice in the second half of May.

Other pauses in the market the past year have proven temporary, and it is entirely possible more buyers may get back in the game, causing things to heat up again in August or beyond. But if the inventory of homes available starts to rise, the trend could have legs.

About one in five potential sellers cite low inventories of homes to buy as the key reason they delayed listing their properties, according to a survey from Homes.com. Just shy of 22% each said their home simply wasn’t ready to be on the market or that they were waiting for a better time to uproot their families, while a tenth were waiting for the pandemic to subside.

A calmer market, in theory, could make potential sellers more willing to list their homes, boosting inventory. The trend could become self-reinforcing. Yet, it won’t take much to get the market reheated, given how little supply there is.

“Keeping in mind that we have approximately 2000 homes on the market, we only need about 10,000 buyers in a city with 3 million people to have five buyers for one home,” Weinstein said.  “But for now… the shift is on. For those sellers who are thinking the market will continue to go up forever, that is not the case.”

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