Which 5 Factors Determine a Market’s Strength?

Updated: Nov 11, 2020

Here are the five factors that determine a market’s strength.

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People ask me daily whether or not we’re in a hot market. Real estate is hyperlocal—one part of Denver may be hot while another part may be cooling. However, there are five general factors we look at to determine whether a specific area is hot or not:

1. The volume of inventory (or how many homes are on the market). When Denver was at its lowest point back in 2010, there were anywhere from 26,000 to 40,000 homes on the market. Right now, there are somewhere between 3,500 to 6,000 homes on the market. This drastically reduced supply means fewer choices for buyers and a better chance for sellers to demand a premium.

2. The median sales price. The median sales price is the exact midpoint between the highest and lowest home price. If the median price is trending upward, it likely means you’re in a strong market.

When you take all these factors into consideration, they point to a very hot Denver market.

3. Time on market. Not only does the number of homes count, but the amount of time they spend on the market also counts. When activity is crazy in Denver and homes are flying off the shelves, a property might fetch multiple offers the same day it’s listed. Conversely, when the market is slow, homes might average 60, 70, or even 90 days on market. Right now, the average days on market for homes in the Denver metro is between 20 and 35 days. The homes that are selling quickly, though, are doing so in 10 days or fewer. Again, this indicates we’re in a pretty hot market.

4. The ratio of active homes versus those under contract. Believe it or not, more homes are going under contract in Denver each week than the total number of homes being listed. I’m not sure how long inventory will stay in this declining phase, but it’s still a great time to buy because interest rates are so low and there are still a lot of homes to choose from.

5. Homes’ sale prices vs. original list price. Very often, if you look at the data of sold homes, you’ll see their original listing price, updated listing price (if applicable), and sale price. Sometimes homes are sold for a lower price than what they were listed at. Other times they’re sold for a higher price than what they were listed at. If the average list-to-sale price is 101%, it means homes are selling for more than their list prices. Traditionally, though, this ratio is somewhere between 92% and 97%. Across Denver, our ratio varies from above 100% to somewhere within that traditional range.

When you take all these factors into consideration, they point to a very hot Denver market. If you have any real estate questions or are thinking of buying or selling a home, don’t hesitate to reach out to me. I’d love to help you.

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