While retailers here and around the country are optimistic about a great holiday shopping season in coming weeks, real estate agents are feeling no such glee as the inventory of homes-for-sale falls, driving long term prices higher.

“This market is going to be a function of mortgage rates, and that controls buyers and it controls sellers,” said Dan Polimino with Keller Williams DTC, who specializes in Denver’s southeast area.

Polimino now has to take potential home buyers on an “education journey,” he said, as he leads them toward a purchase — having to explain how a dwindling supply drives prices up even when sales activity remains low.

“You can’t have more inventory if the seller doesn’t put the house on the market,” Polimino said.

That’s the message between the lines of a December Market Trends Report issued Wednesday by the Denver Metro Association of Realtors, showing a drop in the number of active listings, down more than 10% from October.

The median price for a single-family home fell over the month a modest 3%. That home, now at $625,000, is still almost 2% higher than it was a year ago, well after rising rates had pulled much of the inventory and sales pressure out of the market.

Market Trends notes that the price on the median home is still 10% higher year-to-date than at this point late in 2021, when the runup in prices fueled by the COVID-19 pandemic was near its peak.

The median-priced attached home, or condominium, in the Denver area in November was $469,092, off less than 1% over the past year. The average home sale price stood at $659,152, a 3.5% drop from October but basically flat from November 2022 at .4% up.

Meanwhile, only 2,717 new listings of all types arrived for sale market-wide, around half of what was arriving last summer.

“While December is typically overrun by the holidays, this is actually a great time to get some of the deferred maintenance items completed while vendors are slower,” said Libby Levinson-Katz, chair of DMAR’s Market Trends Committee.

The number of homes sold dropped 19% over the course of the month, coming into the holidays when that number typically falls.

Deviree Vallejo, who with her partner at Sotheby’s International is on track to do around $100 million in sales this year, said agents are seeing some listings being pulled from the market, as sellers decide to wait for spring to relist.

Adding to that drop in volume, she said, is an unusually high number of deals that fall through during loan approval, appraisal or inspection — now running about 33% of total contracts.

“That’s high, usually around 10%,” Vallejo said.

Meanwhile, the DMAR report shows that it’s now taking an average of 22 days on the market to see a listing go under contract — up from 16 days last month and 21 days a year ago. Those numbers are still well within the range of a “seller’s market,” one favoring sellers over buyers.

Mortgage rates, still averaging between 7% and 8%, are absolutely the culprit behind the slushy sales, according to agents, who say they saw a little bump in activity during a slight decline last month.

“Why would you exchange a 4% mortgage for 7%?” Polimino asks. His company estimates that 89% of mortgaged homeowners nationally currently have rates of 5% or less.

“They are not over leveraged,” he said, “they can just wait this economy out.”

“We’re in a little bit of a stall,” said Ali Van Westenberg, broker/owner of Van Westenberg Partners in Lakewood. “We still have an inventory problem. For sellers, it’s not a move of convenience but rather a move of necessity.”

Despite the slower market, Van Westenberg said some areas still lure multiple offers, including popular neighborhoods such as Washington Park and Highlands, and for particular product types — homes that offer multiple car storage, or that have special appeal to empty-nesters.

DMAR Market Trends committee member Susan Thayer said higher-end properties beyond $1 million still registered a strong year.

“Removing the pandemic years and comparing to 2019, sales volume year-to-date has more than doubled, closed volume has nearly doubled, new listings are up over 66% and price per square foot is up over 14 percent,” she said.

And as the Federal Reserve continues to pass on further hikes, speculation grows that mortgage rates could slide in the new year, but at a gradual pace. Some national analysts are envisioning rates dropping into the mid-sixes a year from now.

Chief Economist Lawrence Yun at the National Association of Realtors told The Denver Gazette that the pace of improvement could indeed be better than that.

“Mortgage rates going towards 6% is a distinct possibility, with 6.5% in the spring months,” Yun said.

“If the economy softens measurably, then the concern will no longer be about inflation and the focus will shift towards stimulating demand,” he said.

Some agents are already cautioning their clients that rates don’t have to fall to the super-low levels of early 2022 to trigger a much-more active market.

Keller Williams’ Polimino said he copied his clients last month with a survey of Wall Street investors — the majority of whom anticipate a significant rate drop by March.

“Call me cynical,” he said, “but rates always come down before a presidential election.

“I warn buyers to be careful what you wish for. You know what will happen. It will be a frenzy all over again, with five or six offers and bids to $20,000 or $30,000 up.”

DMAR’s Market Trends report includes data for Adams, Arapahoe, Boulder, Broomfield, Clear Creek, Denver, Douglas, Elbert, Gilpin, Jefferson and Park counties. DMAR represents more than 8,000 Realtors in the metro area.