Waiting and Waiting

Anytime the market cools off we sometimes hear prospective buyers say “I think I’ll wait for the market to correct, then I’ll buy after prices come way down.”

The reality is this… History shows that this wouldn’t be a good strategy.

Our go-to source on price appreciation is the Federal Housing Finance Authority who produces a quarterly home price index.  They have been tracking Larimer County for 41 years.

Their numbers show:

  • Yearly prices have decreased only 6 times in history
  • The average amount of that decrease is only 1.7%

So, someone who is waiting for prices to drop:

  • Might be waiting a long time
  • Might be disappointed that prices didn’t drop by all that much

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83 Miles Per Hour

 

Pretend you have been driving on the Interstate at 100 miles per hour. 

Also, pretend you have been doing that for a long time.

Now pretend you slow down to 83 miles per hour.

How would that feel?

It would probably feel slow, right?

83 miles per hour is a 17% decrease from 100. It may feel slow, but it’s still pretty fast.

How does this relate to real estate?

Well, the market has been moving fast for a long time.

It’s been going 100 miles per hour for at least two years (some would argue even longer).

We’ve recently seen a 17% change in terms of number of transactions that are occurring.

There were 17% fewer sales in October 2018 versus October 2017 in Metro Denver.

It feels slow because we’ve been driving so fast for so long. But, our market is still moving.

For example, prices are still up. So, remember, that it’s all relative.

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Colorado Real Estate Market Update

 

The following analysis of the Metro Denver & Northern Colorado real estate market (which now includes Clear Creek, Gilpin, and Park Counties) is provided by Windermere Real Estate Chief Economist Matthew Gardner. We hope that this information may assist you with making better-informed real estate decisions. For further information about the housing market in your area, please don’t hesitate to contact your Windermere agent.

ECONOMIC OVERVIEW

The Colorado economy continues to perform quite well, having added 72,200 non-agricultural jobs over the past 12 months — a solid growth rate of 2.7%. Through the first eight months of 2018, the state has added an average of 6,700 new jobs per month. There has been a modest slowdown in employment gains, but I really don’t think this is a cause for concern and still hold to my forecast that Colorado will add a total of 82,000 new jobs by the end of 2018.

In August, the state unemployment rate was 2.9%. This matches the level seen a year ago. Unemployment rates in all the markets contained in this report rose between August 2017 and August 2018 but this is not actually a concern. Growth in the workforce is not only due to recent college graduates, but also discouraged workers who are starting to look for work again and this puts upward pressure on the unemployment rate. All of Colorado’s metropolitan areas are showing unemployment rates at around 4% or lower, suggesting that the regional economies are at, or close to, full employment.

HOME SALES ACTIVITY

  • In the third quarter of 2018, 16,550 homes sold — a drop of 6.2% compared to the third quarter of 2017.
  • Sales rose in just two of the 11 counties contained in this report. Gilpin County again led the way, with sales rising by an impressive 21.1% compared to third quarter of last year. There was also a significant increase in Clear Creek County. Sales fell the most in Arapahoe County.
  • Slowing sales in the quarter can, to a degree, be attributed to continued home price growth, but I believe it is more a function of the rapid rise in the number of homes for sale. The number of listings in third quarter rose by 5.4% over the same period in 2017, but was up by 31.2% compared to the second quarter of this year.
  • What the numbers are telling us is that inventory growth is giving buyers more choice and they are being far more selective — and patient — before making an offer on a home.

 

HOME PRICES

  • Even with the rapid rise in listings and slowing home sales, prices continue to trend higher. The average home price in the region rose 7.9% year-over-year to $460,982. However, the average price dropped 4% between second and third quarters.
  • The smallest price gains in the region were in Park County, where prices rose by a fairly modest 3.6%.
  • Appreciation was strongest in Clear Creek County, where prices rose 10%. All other counties in this report saw gains relative to the third quarter of 2017.
  • Affordability is becoming an issue in many Colorado markets and this, in concert with rising inventory levels, has started to dampen home price growth. Although I do not expect prices to drop, I do think price gains will moderate over the next few quarters.

 

DAYS ON MARKET

  • The average number of days it took to sell a home in Colorado remained at the same level as a year ago.
  • The amount of time it took to sell a home dropped in three counties: Gilpin, Clear Creek, and Larimer. The rest of the counties in this report saw days on market rise by only a couple of days or less.
  • In the third quarter of 2018, it took an average of 24 days to sell a home. It took less than a month to sell a home in all but one county.
  • Housing demand is still solid and, as long as homes are priced appropriately, they will continue to sell in less time than historic averages.

CONCLUSIONS

This speedometer reflects the state of the region’s real estate market using housing inventory, price gains, home sales, interest rates, and larger economic factors.

For the third quarter of 2018, I continue the trend that I started last quarter and have moved the needle a little more in favor of buyers. Listings are likely to continue their rising trend, but we should still see a seasonal drop off during the winter months. The market is clearly headed toward balance, which I am very pleased to see.

 

Matthew Gardner is the Chief Economist for Windermere Real Estate, specializing in residential market analysis, commercial/industrial market analysis, financial analysis, and land use and regional economics. He is the former Principal of Gardner Economics, and has more than 30 years of professional experience both in the U.S. and U.K.

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FUNdamentals

 

In times of change (like now), it’s valuable to look at the fundamentals of our market.

Let’s have some fun with fundamentals…

1.  Our economy is healthy – since 1990, the unemployment rate in Colorado has never been higher than the U.S. unemployment rate.  Ever.  Unemployment in Colorado sits at 2.7% today while the rate across the U.S. is 4.0%.

2.  People keep moving here – since 2005 our population has grown by just over a million people which is roughly 77,000 per year (about the size of Mile High Stadium).

3.  Our real estate outperforms other places – according the Federal Housing Finance Authority, Colorado is the #1 state for home price appreciation since 1990.

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What’s Starting?

Here are some interesting stats from our friends at Metro Study who study new home activity along the Front Range.

• New home starts are up 14% compared to last year – this is really good news and is helping to relieve the shortage of housing inventory

• Every product type saw an increase in starts compared to last year (single family, town-home and condominium)

• Condominiums saw the largest increase in starts by a long shot, up 112% over last year- this is excellent news for first time buyers and those looking for product in lower price ranges.

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5 Reasons Rising Interest Rates Won’t Wreck the Housing Market

Interest rates have been trending higher since the fall of 2017, and I fully expect they will continue in that direction – albeit relatively slowly – as we move through the balance of the year and into 2019. So what does this mean for the US housing market?

It might come as a surprise to learn that I really don’t think rising interest rates will have a major impact on the housing market. Here is my reasoning:

1. First Time Home Buyers 

As interest rates rise, I expect more buyers to get off the fence and into the market; specifically, first time buyers who, according to Freddie Mac, made up nearly half of new mortgages in the first quarter of this year. First-time buyers are critical to the overall health of the housing market because of the subsequent chain reaction of sales that result so this is actually a positive outcome of rising rates.

2. Easing Credit Standards

Rising interest rates may actually push some lenders to modestly ease credit standards. I know this statement will cause some people to think that easing credit will immediately send us back to the days of sub-prime lending and housing bubbles, but I don’t see this happening. Even a very modest easing of credit will allow for more than one million new home buyers to qualify for a mortgage.

3. Low Unemployment 

We stand today in a country with very low unemployment (currently 4.0% and likely to get close to 3.5% by year’s end). Low unemployment rates encourage employers to raise wages to keep existing talent, as well as to recruit new talent. Wage growth can, to a degree, offset increasing interest rates because, as wages rise, buyers can afford higher mortgage payments.

4. Supply

There is a clear relationship between housing supply, home prices, and interest rates. We’re already seeing a shift in inventory levels with more homes coming on the market, and I fully expect this trend to continue for the foreseeable future. This increase in supply is, in part, a result of homeowners looking to cash in on their home’s appreciation before interest rates rise too far. This, on its own, will help ease the growth of home prices and offset rising interest rates. Furthermore, if we start to see more new construction activity at the lower end of the market, this too will help.

National versus Local

Up until this point, I’ve looked at how rising interest rates might impact the housing market on a national level, but as we all know, real estate is local, and different markets react to shifts in different ways. For example, rising interest rates will be felt more in expensive housing markets, such as San Francisco, New York, Los Angeles, and Orange County, but I expect to see less impact in areas like Cleveland, Philadelphia, Pittsburg, and Detroit, where buyers spend a lower percentage of their incomes on housing. The exception to this would be if interest rates continue to rise for a prolonged period; in that case, we might see demand start to taper off, especially in the less expensive housing markets where buyers are more price sensitive.

For more than seven years, home buyers and real estate professionals alike have grown very accustomed to historically low interest rates. We always knew the time would come when they would begin to rise again, but that doesn’t mean the outlook for housing is doom and gloom. On the contrary, I believe rising interest rates will help bring us closer to a more balanced real estate market, something that is sorely needed in many markets across the country.

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The Cost of Waiting

It’s true, certain parts of our market are cooling off. We are seeing fewer multiple offers, fewer bidding wars, and fewer inspection concessions.
However, homes that are priced right and in great condition are selling, and in many cases, selling quickly.

As buyers feel the market cool a bit, it may cause them to want to wait. They sometimes feel like it’s a better choice to ‘wait and see what happens.’

The reality is, there is a real cost to waiting given two specific facts.

1. Interest rates will continue to rise
2. Prices will continue to rise

Interest rates are a little more than 0.5% higher than a year ago and experts predict them to be another 0.5% higher by this time next year.

Prices have been appreciating at roughly 10% per year for the last four years. Based on the numbers, we see that appreciation could be 5% per year for the next two years.

So, let’s look at a house priced at $450,000 today. If prices go up “only” 5% for the next 12 months, that home will cost $22,500 more in a year.

And, if rates go up another half percent, the monthly payment will be $206 higher. That’s an 11% increase!

In an environment of rising prices and rising rates, there is a real cost to “wait and see.”

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Colorado Real Estate Market Update

This analysis of the Metro Denver and Northern Colorado real estate markets is provided by Windermere Real Estate Chief Economist Matthew Gardner. We hope that this information may assist you with making better-informed real estate decisions. For further information about the housing market in your area, please don’t hesitate to contact us.

ECONOMIC OVERVIEW

Colorado added 45,300 non-agricultural jobs over the past 12 months, a growth rate of 1.7%. Although that is a respectable number, employment growth has been trending lower in 2017 as the state reaches full employment. Within the metropolitan market areas included in this report, there was annual employment growth in all areas other than Grand Junction, where employment was modestly lower. There was solid growth in Greeley and Fort Collins, where annual job growth was measured at 4% and 2.7%, respectively.

In November, the unemployment rate in the state was a remarkably low 2.9%, down from 3% a year ago. The lowest reported unemployment rates were seen in Fort Collins and Boulder, where only 2.5% of the labor force was actively looking for work. The highest unemployment rate (3.7%) was in Grand Junction.

The state economy has been performing very well, which is why the wage growth over the past year has averaged a very solid 3.3%. I expect the labor market to remain tight and this will lead to wages rising at above-average rates through 2018.

HOME SALES ACTIVITY

  • In the fourth quarter of 2017, there were 14,534 home sales—a drop of 2.0% compared to a year ago.
  • Sales again rose the fastest in Boulder County, which saw sales grow 17.9% versus the third quarter of 2016. There were also reasonable increases in Weld and Larimer Counties. Sales fell in all other counties contained within this report because there is such a shortage of available homes for sale.
  • As I discussed in my third quarter report, sales slowed due to the lack of homes for sale. The average number of homes for sale in the markets in this report is down by 8.2% from the fourth quarter of 2016.
  • The takeaway is that sales growth has moderated due to the lack of homes for sale.

HOME PRICES

  • With continued competition for the limited number of available homes, prices continued their upward trend. Average prices were up 9.8% year-over-year to a regional average of $431,403, which was slightly higher than the third quarter of 2017.
  • There was slower appreciation in home values in Boulder County, but the trend is still positive.
  • Appreciation was strongest in Weld County, which saw prices rise 14.3%. There were also solid gains in almost all other counties considered in this report.
  • The ongoing imbalance between supply and demand persists, which means we can expect home prices to continue appreciating at above-average rates for the foreseeable future.

 

DAYS ON MARKET

  • The average number of days it took to sell a home rose by two days when compared to the fourth quarter of 2016.
  • Homes in all but three counties contained in this report took less than a month to sell. Adams County continues to stand out, where it took an average of just 21 days for homes to sell.
  • It took an average of 29 days to sell a home last quarter. This is up nine days over the third quarter of 2017.
  • Housing demand remains strong in Colorado and this will continue with well-positioned, well-priced homes continuing to sell very quickly.

CONCLUSIONS

This speedometer reflects the state of the region’s housing market using housing inventory, price gains, home sales, interest rates, and larger economic factors.

For the fourth quarter of 2017, I have chosen to leave the needle where it was in the previous quarter. Listings remain scarce, but this did not deter buyers who are still active in the market. As much as I want to see more balance between supply and demand, I believe the market will remain supply-constrained as we move toward the spring, which will continue to heavily favor sellers.

Matthew Gardner is the Chief Economist for Windermere Real Estate, specializing in residential market analysis, commercial/industrial market analysis, financial analysis, and land use and regional economics. He is the former Principal of Gardner Economics, and has more than 30 years of professional experience both in the U.S. and U.K.

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Should We Be Concerned About Another Housing Bubble?

Over the last several years, many of the circumstances that triggered the previous housing bubble have changed. Windermere’s Chief Economist, Matthew Gardner, breaks down how tax policy, bank regulations, interest rates, lending standards, and home equity have improved our ability to avoid another bubble.

The post Should We Be Concerned About Another Housing Bubble? appeared first on Best Real Estate Agents in Northern Colorado.

How are inventory shortages impacting the housing market?

The shortage of homes for sale has been a major concern for buyers and real estate agents over the last few years. Windermere Chief Economist, Matthew Gardner, explains the impact these shortages are having on the housing market.

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