As we are starting out the new year, we can reflect on the progress and stability of Northern Colorado. There has been continued progress and growth in the real estate market, the economy, and the population, even more so than anticipated (see 2018 Forecast). For instance, the median home price in Northern Colorado has appreciated by about 6 % in the last year, according to data from IRES MLS®. Many are predicting that the real estate market is starting to move toward a more balanced market with homes taking longer to sell, more inventory on the market and slowing home price appreciation. Some are wondering if the market is taking a deep breath before it takes another jump up in home values while still some are concerned that we are in a bubble and it is likely to burst soon.
Looking at the data below, the strong fundamentals in our economy rule out the bursting bubble scenario. That leaves the former two options. While no one can say for sure, let’s take a look at the numbers to get a better idea of how things will likely turn out for 2019. Some of the research compiled in this report, put out annually by the Leeds School of Business at University of Colorado in Boulder, shows that there are many contributing factors to our current real estate market. Below are a few of the highlights from their research.
Employment – Colorado saw an increase in job growth in 2018. According to the 2019 Colorado Business Economic Outlook, the state saw 65,000 new jobs in 2018, higher than the forecasted number of 47,100. For 2019 it is forecasted that there will be 53,200 new jobs in Colorado.
The unemployment rate is estimated at 3 % for 2018, versus 2.8% in 2017. The modest gain in unemployment is representative of a growing labor force and participation rate rather than a declining employment environment. It is believed that 2019 will see an overall 3.1% unemployment rate. The Labor Force Participation Rate is at 69%, the third highest in the nation.
Gross Domestic Product – The real gross domestic product (GDP) or the monetary value of all goods produced in Colorado, has grown by 2.9% in 2018 versus 2.2% in 2017. It is estimated that 2019 will see around 2.7% GDP. It is believed that while we have a robust economy, especially compared to the rest of the nation, it is slowing to a more sustainable rate.
Colorado’s Population Growth:
Colorado has seen continued growth year after year, peaking in 2015 with a net migration of 69,100. Net migration is the number of people moving to Colorado minus the number of people leaving Colorado. Population growth is increasing but has slowed since 2016, dropping to 47,600 net migration in 2017. However, 2018 has seen an increase of 53,000 in the population. It is forecasted that 2019 will see an increase of 50,000 new residents moving in to Colorado. When you consider natural increase, or the difference between births and deaths of Colorado residents, we’re looking at a projected increase in population of 76,200 in 2019. The majority of the population growth will continue to be along the Front Range, particularly the North Front Range.
Colorado’s Real Estate Market:
Home appreciation has been fairly steady in Northern Colorado. We saw a 6% median appreciation in home values and it is anticipated that a similar rate will continue for 2019. As usual, the Spring market saw multiple offers and/or homes being sold at or above list price. However, we saw a bit of a slowdown in the fall market with properties staying on the market longer and prices being reduced. There were also fewer new homes on the market in November, a decrease of .4%, compared to December of 2017. In the same time period, there was a decrease of 3% in closed sales. Months’ supply of inventory has gone up 5.3%, from 1.9 months to 2. This is still low as a more balanced market would be indicated by 3-6 months supply of inventory.
So what will 2019 look like? I think we will still see modest price appreciation throughout the year. We can expect a strong Spring market as inventory is still low and there is high demand for homes due to the ever-increasing population in Northern Colorado. While we had a market slowdown in the fall, some speculate it may have been due to the volatile mid-term elections. We’ll see how 2019 pans out to see if this was the case or if we’re moving toward a more balanced market. Nonetheless, the driving forces of supply and demand will continue to shape how the market moves in 2019. We have a strong economy that continues to make the real estate market sustainable. However, those shopping in the lower price range (below $300,000) will struggle with affordability issues, especially if mortgage rates go higher.
Things to look for in 2019:
- Trade tensions with China. Will these be resolved? How will it impact investor’s confidence, cost of materials for building, etc.?
- Stock Market volatility. So far it has been helpful as investors are retreating to the bond market. This has increased demand for bonds which typically cause the mortgage interest rates to go down.
- Affordability. Many people cannot afford a home above $300,000. Unfortunately, most new construction is geared toward higher income buyers. Residential resale properties in this price range often have multiple buyers, many with cash, that makes it difficult for buyers with limited cash reserves to compete. The solution will come as the market balances due to greater inventory and months supply (around 3-6 months is ideal). Further, if builders target lower income buyers this will help many get into a home. The other option is to buy a home where they are affordable and accept a longer commute.
- New Construction. Not much has changed here. Homes are being built but not enough to keep up with demand. Labor shortage and higher cost of materials are making it difficult to price homes affordably for many. See New Construction: The Solution to Low Inventory
IRES MLS® Information and Real Estate Services LLC
2019 Colorado Business Economic Outlook. Leeds School of Business, University of Colorado Boulder.
New Construction: The Solution to Low Inventory. Sean Gilliam, Realtor®
2018 Northern Colorado Real Estate Forecast. Sean Gilliam, Realtor®
About the author: Sean Gilliam is a Realtor® with RE/MAX Alliance in Northern Colorado. Sean can be reached at firstname.lastname@example.org or by phone at 970-313-6706. For additional articles see Sean’s blog or to search for properties see his web page.
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