How do you tell if a housing market is scorching hot? One way is to see what portion of homes are designated Redfin Hot Homes. It’s an algorithm Redfin developed to identify homes likely to sell within two weeks. By this measure, Denver, Seattle and Portland are the hottest housing markets of 2016, with Hot Homes making up a larger share of listings than in any other market Redfin tracks. In those markets, and in Boulder, Colorado, more than 60 percent of homes listed this year were forecast to sell within 14 days. By comparison, San Francisco, which is often discussed as one of the hottest housing markets in the country, had 43 percent of homes labeled as Hot Homes.
Indeed, in April a typical home found a buyer eight days after it went to market in Seattle and Portland, Oregon. In Denver, that number was 10 days.
In all three metros, prices are shooting up faster than the national pace.
San Francisco has justifiably gotten lots of ink over the past several years about high prices, low inventory, heated bidding wars and fast sales. But this year, there are three more markets that standout: Denver, Portland and Seattle.
How much have Denver, Portland and Seattle heated up? In April 2012, a typical home in Denver found a buyer in 36 days and in Portland it was 65 days and in Seattle it was 50. Last year, homes in those markets found buyers in 14, 18 and 10 days, respectively. This year, homes are finding buyers seemingly the day they are open for tours.
It’s not unusual for a home in Denver to have more 100 showings in one weekend, with sellers having their pick of up to 30 offers, reports Redfin agent Karla Kirkpatrick Adams.
“The market is moving so quickly that I can no longer use recent sales as a guide for what my clients should offer on a home. Instead, I call listing agents of similar homes that are under contract but haven’t yet sold. I ask them the contract price, which is a more up-to-date reflection of the current market than the prices of homes that have already sold. That way, I can advise my clients accurately,” said Kirkpatrick Adams. “In a more balanced market, that doesn’t happen.”
In Denver, 64 percent of offers Redfin agents wrote last month faced competition. In Portland, that number was 67 percent, while Seattle outpaced them both, with 78 percent of offers facing competition.
The Anatomy of a Hot Real Estate Market
[redfin_table file=”https://www.redfin.com/blog/wp-content/uploads/2016/06/UpdatedDenverPortland-Stats-chart-2.csv” footnote=”(All stats from April data, aside from Redfin Offers Facing Competition, which is May data)”][/redfin_table]
Why is this happening? It has to do with the number of homes for sale.
Low Inventory Drives High Prices
Economists consider a housing market that has six months supply to be balanced between buyers and sellers, with anything between five and seven months considered healthy. The fewer months of supply, the more the market favors sellers. As of April, Seattle had 1.2 months supply, Denver had 1.3 months and Portland had 1.4 months, all extremely low numbers.
“Here in Portland, we’re seeing many buyers from out-of-state competing with locals,” Redfin real estate agent Charles Blanchette said. “A lot are paying cash as a way to make their offer more desirable to the seller. That’s led local buyers, most of whom need mortgages, to increase their offer amounts, leading to a surge in prices.”
“One strategy that has led to success for our local buyers is writing a personalized cover letter, where the buyer paints a picture of growing up in the Pacific Northwest, contributing to the community, and how meaningful it would be to live in that particular home. Some sellers care more about their home’s legacy than getting the highest offer,” said Blanchette.
“Strong job growth and relatively affordable home prices have been lightning rods of buyer demand for Denver and Portland,” Redfin chief economist Nela Richardson said. “Their economies have a lot in common with the tech enclaves to the west, Seattle and San Francisco, but there’s a big difference–home prices.”
The typical home in Denver and Portland is an incredible $850,000 less than in San Francisco. Portland and Denver also offer a respite from Seattle, where homes typically sell for around $90,000 more than those two cities. That said, for San Franciscans, Seattle home prices may seem like a great deal.
“The combination of jobs, affordability and a desirable western lifestyle is a triumvirate that buyers are flocking to this year,” Richardson said.