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

Colorado’s economy continues to grow with the addition of 45,900 new non-agricultural jobs over the past 12 months, which represents a growth rate of 1.7%. As I have stated in the last two Gardner Reports, we continue to see a modest slowdown in employment gains, but that is to be expected at this stage of the business cycle.

In May, the state unemployment rate was 3.2%, up from 3.1% a year ago. The increase in the rate is essentially due to labor force growth, which rose by over 55,700 people over the past year. On a seasonally adjusted basis, unemployment rates in all the markets contained in this report were lower than a year ago and are at full employment.

 

HOME SALES

  • In the second quarter of 2019, 17,853 homes sold. This is a drop of 1% compared to the second quarter of 2018 but a substantial 59.9% higher than the first quarter of this year. Pending sales — a sign of future closings — rose 5.8%, suggesting that closings in the third quarter are likely to show further improvement.
  • Half of the counties contained in this report saw sales growth, while the other half had fewer closings. Sales in the small Clear Creek County fell precipitously. However, it was only a drop of 20 sales.
  • The marginal drop in the number of sales compared to a year ago can be attributed to the ongoing increase in listing activity (+34.8%), which continues to give would-be home buyers more choice and less urgency.
  • Inventory levels continue to rise, but demand for housing appears to be ongoing. I am not concerned by the marginal year-over-year slowdown and anticipate that sales will rise again in the third quarter.

 

 

HOME PRICES

  • Home prices continue to trend higher, but the rate of growth has taken a pause, with the average home price in the region rising by just 2.3% year-over-year to $490,575.
  • The drop in interest rates this year has nudged more buyers off the fence and this can allow further price growth as we move through the year.
  • Appreciation was again strongest in Park County, where prices rose 6.1%. We also saw strong growth in Weld County, which rose by 6.1%. Home prices dropped in Clear Creek, Boulder, and Gilpin counties, but I do not see this as being indicative of a trend in these markets.
  • Affordability continues to be an issue in many Colorado markets and this may act as a modest headwind to ongoing price growth. However, some of the slowing may be offset by very favorable mortgage rates.

 

 

 

 

 

DAYS ON MARKET

  • The average number of days it took to sell a home in the markets contained in this report rose four days over the second quarter of 2018.
  • The amount of time it took to sell a home rose in all counties except Gilpin when compared to the second quarter of 2018.
  • It took an average of 29 days to sell a home in the region — a drop of 13 days compared to the first quarter of this year.
  • It is likely that the drop in time-on-market was a function of the emerging spring selling season as well as falling mortgage rates.

 

 

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 second quarter of 2019, I continue the trend I started last summer and have moved the needle a little more in favor of buyers. I continue to closely monitor listing activity to see if we get any major bumps above the traditional increase because that may further slow home price growth. However, the trend for 2019 will continue to be a move toward a more balanced market.

 

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.

Posted on August 2, 2019 at 8:00 am
Jon Holsten | Category: Buying, Fort Collins Real Estate, Home Maintenance, Housing Trends, Loveland Real Estate, Northern Colorado Real Estate, Selling, Timnath Real Estate, Wellington Real Estate, Windermere Real Estate, Windsor Real Estate | Tagged , , , , , ,

New Home News!

 

Nationally, sales of new homes are stronger than they have been in a long time. March was the best month since 2007 and April was the third-best month in that same time period.

 

This research comes from the National Association of Home Builders who show that we are on pace to sell 673,000 new homes this year across the Country.  5 years ago there were roughly 450,000 sales of new homes.

 

For the first four months of 2019, new home sales are 6.7% ahead of the sales pace of the initial four months of 2018.

 

What is interesting is that those gains have distinct regional clustering. Year-to-date sales are up 10.3% in the South, 6.7% in the West (concentrated in the Mountain states), and 1.3% in the Midwest, while recording a 17.6% decline in the Northeast.

Posted on June 10, 2019 at 8:00 am
Jon Holsten | Category: Buying, Northern Colorado Real Estate | Tagged , , , , , ,

Housing Supply is an Issue that Will Not Improve Any Time Soon and Here’s Why

There are two common concerns about the housing market that one hears from both consumers and real estate professionals alike. First, they question whether or not we are on the brink of another housing bubble, and second, they want to know why there aren’t more homes for sale.

I don’t plan on addressing the concern regarding a housing bubble in this article except to say that we are not currently in “bubble” territory, although affordability does concern me immensely. Today I would like to concentrate on the second question about the lack of homes for sale.

According to the National Association of REALTORS®, there were 1.96 million homes for sale in the United States in May 2017. When adjusted for seasonality, this falls to just below 1.9 million which is essentially the same level we saw back in 2000.

Now consider that the country has added over 21 million new households during that same time period, and you can see why this is so troubling. It is worth noting that many of these new households did move into rental properties, but this still leaves the U.S. with a substantial housing shortfall, which explains why demand for homes is so high.

With the shortage of homes for sale, you would normally expect builders to meet this pent-up demand with new construction housing but, unfortunately, this has not been the case. In fact, new single-family housing starts are running at about 800,000 (annualized), and I believe we need starts to come in at over 1 million to satisfy demand – especially as older Millennials start to create households of their own and begin thinking about buying instead of renting.

We therefore have a quandary. Trust in the housing market has clearly returned, but there are not enough homes to meet the demand of buyers, and when a buyer does find a home, they are met with very stiff competition, which is driving prices increasingly higher.

So why are we in this position and how do we get out of it?

In reality, there is no single reason for the situation we are in today. Rather it is a number of factors that, when combined, suggest to me that the market will not return to equilibrium any time soon.

The first reason for the shortfall is purely demographic. As “Boomers” age, they are not following the trends of previous generations. Many are staying in the workforce far longer than their predecessors, and, as they are postponing retirement, they do not feel compelled to downsize. In fact, almost two-thirds of Boomers plan to age in place and not move even after retirement. Without this anticipated supply of homes from downsizing Boomers, there aren’t enough homes for move-up buyers, which in turn limits the supply of homes for first-time buyers.

Secondly, as a nation we just aren’t moving as often as we used to. When I analyze mobility, it is clear that people no longer have to relocate as frequently to find a job that matches their skill set. There has been a tangible drop in geographic specificity of occupations. Where we used to move to find work, this is no longer as prevalent, which means we are moving with less frequency.

Thirdly, as mentioned earlier, builders aren’t building as many homes as they could. This is essentially due to three factors: land supply/regulation, labor, and materials. The costs related to building a home have risen rapidly since the Great Recession, and this is holding many builders back from building to their potential. Furthermore, in order to justify the additional costs, many of the homes that are being built are larger and more expensive, and this is no help for the first-time buyer who simply can’t afford a new construction price tag.

Fourthly, while the general consensus is that home prices have recovered from the major correction that was seen following the recession, this is actually not the case in some markets. In fact, there are 32 U.S. metro areas where home prices are still more than 15 percent below the pre-recession peak. As equity levels remain low, or non-existent, in these markets, many would-be sellers are waiting until they have sufficient equity in their homes before putting them on the market.

And there is still one more issue that is certain to become a major factor over the next few years: interest rates.

Imagine, if you will, the country a few years from now when interest rates have normalized to levels somewhere around 6 percent. Now consider potential home sellers who are happily locked in at a mortgage rate of about 4 percent who are considering their options. Will they sell and lose the historically low rate that they currently have? Remember that for every 1 percent increase in rates, buyers can afford 10 percent less house. If they don’t HAVE to sell, their thoughts may lead to remodeling rather than moving. I think that this is a very reasonable hypothesis which could lead us to see low inventory levels for a lot longer than many think.

With little assistance from the new home market, I believe we will suffer from low inventory levels until well into 2018.

Our best hope for a more balanced market lies with builders, so hopefully they’ll be allowed to do what they do best – build more homes.

Posted on February 12, 2019 at 7:55 pm
Jon Holsten | Category: Fort Collins Real Estate, Homes for Sale, Housing Trends, Windermere Real Estate | Tagged , , , , , , , , , , , , ,

2019 Economic and Housing Forecast

What a year it has been for both the U.S. economy and the national housing market. After several years of above-average economic and home price growth, 2018 marked the start of a slowdown in the residential real estate market. As the year comes to a close, it’s time for me to dust off my crystal ball to see what we can expect in 2019.

The U.S. Economy

Despite the turbulence that the ongoing trade wars with China are causing, I still expect the U.S. economy to have one more year of relatively solid growth before we likely enter a recession in 2020. Yes, it’s the dreaded “R” word, but before you panic, there are some things to bear in mind.

Firstly, any cyclical downturn will not be driven by housing.  Although it is almost impossible to predict exactly what will be the “straw that breaks the camel’s back”, I believe it will likely be caused by one of the following three things: an ongoing trade war, the Federal Reserve raising interest rates too quickly, or excessive corporate debt levels. That said, we still have another year of solid growth ahead of us, so I think it’s more important to focus on 2019 for now.

The U.S. Housing Market

Existing Home Sales

This paper is being written well before the year-end numbers come out, but I expect 2018 home sales will be about 3.5% lower than the prior year. Sales started to slow last spring as we breached affordability limits and more homes came on the market.  In 2019, I anticipate that home sales will rebound modestly and rise by 1.9% to a little over 5.4 million units.

Existing Home Prices

We will likely end 2018 with a median home price of about $260,000 – up 5.4% from 2017.  In 2019 I expect prices to continue rising, but at a slower rate as we move toward a more balanced housing market. I’m forecasting the median home price to increase by 4.4% as rising mortgage rates continue to act as a headwind to home price growth.

New Home Sales

In a somewhat similar manner to existing home sales, new home sales started to slow in the spring of 2018, but the overall trend has been positive since 2011. I expect that to continue in 2019 with sales increasing by 6.9% to 695,000 units – the highest level seen since 2007.

That being said, the level of new construction remains well below the long-term average. Builders continue to struggle with land, labor, and material costs, and this is an issue that is not likely to be solved in 2019. Furthermore, these constraints are forcing developers to primarily build higher-priced homes, which does little to meet the substantial demand by first-time buyers.

Mortgage Rates

In last year’s forecast, I suggested that 5% interest rates would be a 2019 story, not a 2018 story. This prediction has proven accurate with the average 30-year conforming rates measured at 4.87% in November, and highly unlikely to breach the 5% barrier before the end of the year.

In 2019, I expect interest rates to continue trending higher, but we may see periods of modest contraction or levelling.  We will likely end the year with the 30-year fixed rate at around 5.7%, which means that 6% interest rates are more apt to be a 2020 story.

I also believe that non-conforming (or jumbo) rates will remain remarkably competitive. Banks appear to be comfortable with the risk and ultimately, the return, that this product offers, so expect jumbo loan yields to track conforming loans quite closely.

Conclusions

There are still voices out there that seem to suggest the housing market is headed for calamity and that another housing bubble is forming, or in some cases, is already deflating.  In all the data that I review, I just don’t see this happening. Credit quality for new mortgage holders remains very high and the median down payment (as a percentage of home price) is at its highest level since 2004.

That is not to say that there aren’t several markets around the country that are overpriced, but just because a market is overvalued, does not mean that a bubble is in place. It simply means that forward price growth in these markets will be lower to allow income levels to rise sufficiently.

Finally, if there is a big story for 2019, I believe it will be the ongoing resurgence of first-time buyers. While these buyers face challenges regarding student debt and the ability to save for a down payment, they are definitely on the comeback and likely to purchase more homes next year than any other buyer demographic.

Originally published on Inman News.

 

What Our Expert Thinks

Here’s what our Chief Economist, Matthew Gardner, thinks about the 2019 U.S. Housing Market. He is regarded as one of the Country’s experts on real estate and is frequently quoted by leading industry publications.

 

• Existing Home Sales up 1.9% to 5.4 million units
• Home Prices up 4.4%
• New Home Sales up 6.9% to 695,000 (the highest since 2007)

 

If you want to see all of Matthew’s predictions including where interest rates are headed, get signed up for our annual Forecast. Click the link below!

Posted on January 31, 2019 at 7:59 pm
Jon Holsten | Category: Fort Collins Real Estate, Housing Trends, Northern Colorado Real Estate | Tagged , , , , , , , ,