Windermere Principal Economist Jeff Tucker analyzes the National Association of REALTORS’ September U.S. home sales report, what the findings say about the current housing market, and why mortgage rates have been rising in recent weeks.
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This week, take a listen to Matthew Gardner, Windermere’s Chief Economist as he discusses the current state of the housing market.
He takes a deep dive into interest rates, price appreciation and where the market is headed.
You can watch his video HERE
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The recent increase in mortgage rates has started some home buyers to look at programs that have fixed rates for 7 years or 10 years instead of 30 years.
If a buyer believes it is likely they will move or even refinance within this timeframe, these types of programs can be a good option.
The obvious benefit is a lower monthly payment compared to a 30-year program.
Another benefit, which most people underestimate, is the savings in interest.
Today, for example, a buyer would have these options:
Over the first five years of the loan, the buyer would pay the following amounts in interest for each loan program for a $400,000 loan:
So the savings in interest over the first five years compared to the 30-year program is:
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One of the reasons we are so confident about the long-term health of the market is because of the equity that exists in peoples’ homes today.
Because there is so much equity, there are very few homeowners who are ‘underwater’ with a loan that is more than the actual value of the property.
According to the latest ‘Homeowner Equity Insights’ report from CoreLogic, only 2.3% of all homes are ‘underwater’ with negative equity.
To put that in perspective, in the fourth quarter of 2009, 26% of all mortgaged properties had negative equity.
Nationally, homeowner equity has increased by $2.9 Trillion during the last 12 months (that’s Trillion with a ‘T’)!
Locally, only 1.4% of Colorado mortgage holders have negative equity, which is one of the lowest rates in the Country.
What this all means is very, very few distressed sales and overall health in the real estate market.
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“All markets are local” is a commonly used phrase in real estate.
This adage is proving to be true as we notice slight changes recently in the market.
Bottom line, the market, in some locations, is not behaving exactly like it did even 30 days ago. Properties that perhaps would have received 10 or more offers last month, are now receiving only one.
It is as important as ever to examine not only the general market area, but also hyper-local markets in order to understand the nuances that exist in specific locations.
A common activity we perform with our clients is to research the months of supply in their own neighborhood. We will frequently find that this stat varies considerably from the market as a whole.
To illustrate how ‘all markets are local,’ take a look at the days of inventory statistic for the following markets:
Larimer County = 18 days
Fort Collins = 15 days
80521 Zip Code = 24 days
80525 Zip Code = 9 days
While data on the overall market clarifies overall trends, it is the hyper-local research that is incredibly valuable when pricing property.
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A common phrase that is being used right now to describe the market is ‘no inventory.’
‘There’s no inventory’ is said frequently among those inside and outside of the real estate industry.
The problem with this phrase is that it is untrue.
There is inventory. Meaning, there are a significant number of new listings hitting the market.
However, there is low standing inventory. Meaning, the listings that do hit the market don’t stick around for very long before they are purchased.
Standing inventory, which is the number of active properties on the market, is down roughly 70% along the Front Range.
However, the number of new listings coming on the market is essentially:
So, there is inventory available, it just sells quickly because demand is historically high right now.
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The economic research blog called “Calculated Risk” just completed a fascinating study on home prices.
Specifically, they looked at the correlation between home price growth and inventory.
They used price data from the Case-Shiller Home Price Index and inventory data from the National Association of Realtors.
No surprise, they found that the lower the inventory the higher the home price growth. Also no surprise, as inventory goes up, price growth slows down.
This all correlates with simple economic rules of supply and demand.
The interesting part of their research is this: at a certain level of inventory, prices have the potential to go down.
That level, according to their research, is six months of inventory.
That means, prices don’t have a chance of decreasing in a market until there is at least 6 months of inventory available for sale.
To put that in perspective, today there is two weeks of inventory on the market along the Front Range.
So, there would need to be 12 times the amount of homes for sale on the market for prices to even have a chance to go down.
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The following analysis of the Metro Denver & Northern Colorado real estate market 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
What a difference a quarter makes! Following the massive job losses Colorado experienced starting in February—the state shed over 342,000 positions between February and April—the turnaround has been palpable. Through August, Colorado has recovered 178,000 of the jobs lost due to COVID-19, adding 107,500 jobs over the past three months, an increase of 4.2%. All regions saw a significant number of jobs returning. The most prominent was in the Denver metropolitan service area (MSA), where 78,800 jobs returned in the quarter.
Although employment in all markets is recovering, there is still a way to go to get back to pre-pandemic employment levels. The recovery in jobs has naturally led the unemployment rate to drop: the state is now at a respectable 6.7%, down from a peak of 12.2%. Regionally, all areas continue to see their unemployment rates contract. I would note that the Fort Collins and Boulder MSA unemployment rates are now below 6%. Cases of COVID-19 continue to rise, which is troubling, but rising rates have only slowed—not stopped—the economic recovery. Moreover, it has had no noticeable impact on the state’s housing market.
HOME SALES
HOME PRICES
-year to an average of $523,193. Prices were up 7.4% compared to the second quarter of this year.
DAYS ON MARKET
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.
Demand for housing is significant, and sales activity is only limited by the lack of available homes to buy. Prices are rising on the back of very competitive mortgage rates and a job market in recovery. I suggested in my second-quarter report that the area would experience a “brisk summer housing market” and my forecast was accurate. As such, I have moved the needle a little more in favor of home sellers.
ABOUT MATTHEW GARDNER
As Chief Economist for Windermere Real Estate, Matthew Gardner is responsible for analyzing and interpreting economic data and its impact on the real estate market on both a local and national level. Matthew has over 30 years of professional experience both in the U.S. and U.K.
In addition to his day-to-day responsibilities, Matthew sits on the Washington State Governors Council of Economic Advisors; chairs the Board of Trustees at the Washington Center for Real Estate Research at the University of Washington; and is an Advisory Board Member at the Runstad Center for Real Estate Studies at the University of Washington where he also lectures in real estate economics.
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We just completed a review of the September numbers in our market.
Here is the one number that is standing out to us – average price.
Prices are way up over last year. Here are the specific average price increases in each of our markets compared to September 2019:
This change in prices has of course generated questions from our clients.
To help our clients answer questions about prices and other real estate topics, we have set up a private online event with our Chief Economist Matthew Gardner.
The event is set for Tuesday from 9:00 to 10:00.
Simply reach out to any Windermere broker to receive your registration link.
Matthew will be addressing these questions as well as many others:
This online event is for the clients and friends of Windermere. If you would like to register, please connect with your Windermere broker.
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This week we hosted our clients and friends for a special online event with our Chief Economist Matthew Gardner.
Matthew talked about a variety of topics that are on people’s mind right now including home values.
Matthew sees no evidence that home values will crash and actually sees signs that they may rise this year nationally.
Here’s why he says this:
If you would like to receive a recording of the webinar we would be happy to send it to you. Feel free to reach out and ask for the link.
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