At the beginning of the month, I wrote an article about the S&P/Case Shiller numbers that were released at the end of June. The data showed a robust real estate market for the nation and Denver. In fact, the market started to turn into the sellers’ advantage about 24 months ago. The question is: how long will it stay this way? Four years ago, it was a buyers’ market. Now the pendulum has swung completely the other way to the sellers’ market. Will there be balance? To answer this question, let’s take a look at a few key issues.
1) Federal Reserve Chairman Ben Bernanke has said on more than one occasion that he will stop pumping money into the market. This has been the primary reason for the rise in interest rate. Banks fear that they will no longer be able to get money from the Fed at little to no interest rate, so they will pass along that risk to the consumer. One thing is for sure: if the unemployment rate falls below 7% on a national average, the Federal Reserve will be forced to increase the rate at which they loan money to banks. When interest rates rise, it puts some buyers out of the market. Homes will have longer “days on market” and sellers will have less bargaining power. Interest rates could serve as a way to balance out the real estate market.
2) Inventory! We have been saying for a while now that the inventory shortage in Denver will not be going away anytime time soon. The main reasons are that distressed inventory is out of the system, those that had to sell did, and home builders are at least three years behind a normal inventory. If we continue to have record low active homes on the market, this will keep the balance of power in the sellers’ hands.
3) Jobs and the economy. There is no question that the unemployment rate is coming down, the economy is getting better, and more people are getting jobs. Granted, it’s not at the rate that it should be, but I think we all can say that it’s moving to the right direction. This means that people will have more money in their pocket and have more buying power. This sways the meter in favor of the buyers and could bring us back to a more balanced real estate market.
Obviously, there are many more factors that influence the fluctuations in the market in favor of one group over the other, but these clearly will be the three big indicators to watch for in the near future.