Why Haven’t Home Prices Fallen When Fewer Homes Are Selling?

The Front Range real estate market seems to present a contradiction. Home sales are down, mortgage rates are substantially higher, affordability is challenging, homes are taking longer to sell, and price reductions are common. So why haven’t home prices fallen significantly?

The answer comes down to supply and demand. We have fewer buyers, but we also have fewer homeowners willing to sell.

At the end of July, detached homes in the Denver Metro area had just under three months of inventory. The median price was $660,000, up 1.54 percent from a year ago. Condos and townhomes tell a different story, with nearly 5.7 months of inventory and a median price of $380,000, down 2.56 percent.

Higher mortgage rates haven’t just affected buyers. Millions of homeowners purchased or refinanced when rates were around 2.5 to 3.5 percent. They may want a larger home, want to downsize, or simply want something different, but selling means giving up that mortgage and replacing it with one at a substantially higher rate.

For many homeowners, the numbers don’t make sense. They aren’t necessarily happy with their current house. They are happy with their current mortgage.

Buyers have also become more selective. A home in a desirable location that is updated, shows well, and is priced correctly can still sell quickly. Homes with deferred maintenance, dated finishes, poor presentation, an awkward floor plan, or even a slightly high price can sit much longer.

We’re seeing plenty of price reductions, but that doesn’t necessarily mean home values are declining. If a seller lists a home for $700,000 when its market value is closer to $650,000 and eventually reduces it to $650,000, the home’s value didn’t decline by $50,000. The asking price did. The market rejected the original price.

Today’s market is slower, and condition, location, presentation and pricing matter much more. But fewer sales do not automatically mean lower prices.

Supply matters. Demand matters. What really matters is the relationship between the two.

The market hasn’t stopped working. It has simply become much more selective.

Every home and situation is different in today’s more selective market. To understand what current conditions could mean for your home or your next move, call 303-905-8850 or visit BHHScoloradorealestate.com.