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Month: January 2017

2017 Northern Colorado Real Estate Forecast

2017 Northern Colorado Real Estate Forecast

The year 2016 brought moderate home price appreciation as estimated (see the 2016 forecast).  This year will see much of the same with likely more conservative appreciation.  This will be in large part due to the cumulative effect of home values going up, raising affordability issues, and the mortgage interest rate increases that we’ve seen recently.  However, while home values won’t go up significantly they will rise moderately and the housing market in Northern Colorado will continue to be robust.  This is due to the relatively stable economy and the continued influx of people to Colorado.  Using the Leeds  School of Business’ Colorado Business Economic Outlook 2017 as a reference for data and forecasting estimates, this article will take a look at specific information regarding Northern Colorado’s economy and population and see how these variables inform the outlook for the housing market in 2017.

Colorado’s Economy:

Colorado has a stronger economy in comparison to national statistics.  The Gross Domestic Product (GDP), or the total value of goods and services produced in the state of Colorado, has grown 3.6% year over year as compared to 2.6% nationally.  Colorado has the 4th fastest growing GDP among the 50 states.

Further, for job growth we are ranked 8th in the nation.  Colorado attracts a significant amount of entrepreneurs to Northern Colorado with plenty of resources and networking opportunities in the metropolitan areas such as Denver and Boulder.  New businesses are an important part of a growing economy.  In fact, from 2010 to 2014, new businesses in Colorado created 47,000 jobs annually.  The first quarter of 2016 showed a 7.4% increase in new businesses over the first quarter of 2015.  The sectors with the most growth are professional, scientific and technology, accounting for 20% of new businesses.  Construction accounted for 9% of new business growth.   With the associated job creation related to these new businesses, the economy will continue to strengthen and the influx of people to Northern Colorado filling these jobs will remain steady.

Colorado’s Population Growth:

In recent years there has been a population growth of 100,000 per year in Colorado.  This is projected to continue into 2017 and beyond.  Colorado has the 2nd highest population growth in the country.  It is projected that between 2015 and 2020 that population growth will reach 500,000.  Of that, 86% or 420,000, will be along the Front Range of Northern Colorado.   To break it down further, of the population growth of 100,000 expected for 2017, 31,800 will be due to natural increase (resident births minus resident deaths) and 67,000 will be due to people moving to the state.   This impacts an important factor in the real estate market, demand.  With increased demand for homes, property values rise.   What has caused significant rise in home values in northern Colorado is the growing demand paired with what will be highlighted in the next segment, low inventory.

Housing Inventory:

One factor that has caused an imbalance in the housing market in Colorado is low inventory.  This is to be expected with the amount of population growth with a limited amount of residents leaving the state.  Low inventory has been a significant factor in the rising value of homes in Northern Colorado.  It’s old fashioned supply and demand.  So what is the solution to this dilemma?  New construction.  In recent years, builders have returned to Northern Colorado and are developing new communities to address the high demand for homes.  In 2015, builders brought 26,000 new units to the market.  However, household formation, or the amount of individuals or families that opt to buy their own home was estimated to be between 33,000 and 35,000 in the same year.  This deficit contributes to low inventory and thus rising home prices due to demand.  As new construction increases their numbers and the number of new units catches up with household formation, home prices will continue to level out and a more balanced market will be seen.  Indicators for new construction are positive going into 2017 as the National Association of Home Builders’ Housing Market Index indicated that builder confidence is at its highest level since July of 2005.  Further, 2016 saw a 9% increase in new businesses related to the construction industry.

An additional factor that would increase inventory is housing turnover.  That is, if more people chose to move, more houses would be available.  While this sounds a bit simplistic, it is essential to a healthy, balanced housing market.  As cited above, as new construction units continue to increase, more inventory will be available for those moving to Colorado and for current residents that want to upgrade or change location.

Mortgage Interest Rates:

As rates have gone up in recent months, this will impact the perceived affordability of homes for some buyers and perhaps price them out of the market altogether if the rates continue to rise.  For others it may change the price range of homes they are willing or able to buy.  Rates in 2016 hovered around 3.5% to 3.7% as an average for fixed rate 30 year mortgages for much of the year.  The beginning of 2017 sees rates at just above 4% on average for the same type of loan.  If they remain in this range, rates shouldn’t have too significant of an impact on home affordability for buyers.

Recent years have seen an imbalanced market extremely in favor of sellers, with multiple competitive offers on properties and offers significantly above the list price in many communities.  This has been great for sellers but an exercise in frustration for many buyers.  This has been due to low inventory and high demand and has resulted in dramatic increase in home values.  As inventory increases the market will become more balanced, putting buyers and sellers on more equal footing.  It is estimated that the market will become more balanced in the next couple of years.  In most market segments it is moving in that direction.  However, homes below $300,000 will continue to see a significant amount of attention from buyers, especially homes in this price range along the Front Range, particularly communities that are in close proximity to Interstate-25.

In summary, the housing market will continue to be strong in Northern Colorado though with more conservative gains in price appreciation than in recent years.  Things to keep an eye on will be mortgage rates and the amount of new construction.  As rates go up and new construction units increase, home prices will level out and we will move toward a more balanced market and an impending market correction.  Additionally, continued job and wage growth will also have an impact.  While Colorado already experiences healthy job growth, it remains to be seen how that will continue to improve with a new president and their respective policies.

What does all of this mean for buyers and sellers in the real estate market?  It is still a good time for buyers as they will experience price appreciation of their homes even after purchasing them.  Further, interest rates are still relatively low so buying power is strong.  Of course, it will continue to be a great market for sellers as high demand will bring willing buyers to the table.

References:

2017 Annual Colorado Business Economic Outlook.  Leeds School of Business, University of Colorado Boulder.

2016 Colorado Real Estate Forecast.  Sean Gilliam, Realtor®

New Construction: The Solution to Low Inventory.  Sean Gilliam, Realtor®

Home Builder Confidence End the Year at Highest Point Since 2005.  Kelsey Ramirez, HousingWire.


About the author: Sean Gilliam is a Realtor® with RE/MAX Alliance in Northern Colorado and is a Certified New Home Specialist™.  Sean can be reached at seangilliam@remax.net or by phone at 970-313-6706.  For additional articles see Sean’s blog or to search for properties see his web page.

Interested in buying a home or selling your current home?  I am committed to your success.  Give me a call at 970-313-6706 to get started.

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