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2018 Northern Colorado Real Estate Forecast

2018 Northern Colorado Real Estate Forecast

The 2018 real estate market forecast is much the same as in recent years.  That is, Colorado still has a growing economy, there continues to be a large amount of people moving to the Front Range, home values are still increasing and overall things are looking good for the long term.  The main difference is that while these positive factors are consistent, they will improve at an increasingly slower pace.

The real estate market in 2017 had continued growth as predicted (see 2017 Northern Colorado Real Estate Forecast).  For Northern Colorado, the median home price rose 10.8%, year over year as of November 2017, according to data from IRES MLS®.  Looking ahead to 2018 will read much the same way as it has in the last couple of years.  That is, since 2015, while property values are increasing, they are doing so at a steadily slower rate.  For 2018 it is predicted that home values will appreciate at a rate of 3%-5% for the greater Denver area, according to the 2018 Colorado Business Economic Outlook.  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.

Colorado’s Economy: 

Colorado is one of the top 10 producing states in the country.  Our state ranked 3rd in Gross Domestic Product (GDP) for 2017, up from 4th place in 2016.  As of September 2017, Colorado’s labor force increased 3.7%, year over year.  This is the fastest labor force increase in the country.  It is projected that job growth will continue at a slower rate in 2018 with a total of 47,100 new jobs vs. 56,300 jobs created in 2017.  Most of the job growth for 2018 is expected to be in Education and Health Services; Professional and Business Services; and Trade, Transportation and Utilities.  However, growth is expected in all sectors.

Additionally, Colorado’s unemployment rate is at 2.5%, the second lowest rate nationally.  This is a great improvement since 2010 when the unemployment rate was 8.7%.  This speaks to a strong and growing economy.

Colorado’s Population Growth:

Colorado continues to have a significant amount of people moving to the area.  The most recent data in 2016 shows a net migration (in-migration minus out-migration) of 60,000, ranking Colorado with the sixth highest rate in the country.  It is projected that the net migration for 2018 will be roughly the same.  When paired with natural increase (births minus deaths), there is projected to be an additional 30,000 added to the population for a total of roughly 90,000 new Coloradans.  The rate is slowing from the nearly 100,000 increase in population in 2015, yet Colorado is still growing at a rapid pace compared to the rest of the nation as a whole, nearly double.

How does the growing economy and population impact the real estate market?  It makes Colorado a more desirable place to live versus other areas of the country.  The influx of people that need a place to live has created a significant lack of housing inventory.  The high demand for housing has caused the skyrocketing property values we have seen in recent years.  On one hand this is good in that it creates significant equity for homeowners.  The flipside of this is that many people, especially those with low wage occupations, find it difficult to afford a home, especially one that is close to their place of work.

The solution?  More new construction.  The good news is that builders have been creating new neighborhoods at a pace not seen since 2006, just prior to the housing crisis.  The not so good news is that most residential new construction along the front range is priced too high for low wage earners.  Hopefully, builders will consider this in future development.

What to watch for this year:

  1. Amazon. Will Amazon set up their 2nd headquarters in the Denver area?  Colorado is still in the top ten states for consideration.  The amount of jobs this could bring as well as high wage earners would have an impact on the local economy, especially the housing market.
  2. New Construction. Will new construction continue to close the gap on our low inventory problem?  This will help to balance our market and further slow property value appreciation.  Further, builders are struggling with a labor shortage.  This will need to be resolved to help developments move forward smoothly.
  3. Affordable Housing. 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 6 months is ideal).  Further, if builders target lower income buyers this will help many get into a home.
  4. New Tax Laws. With new tax laws that benefit corporations, will we see increases in hiring and wages for local employees?  Will we see more startup companies that will provide good wage-earning jobs?  Paired with tax cuts for the middle class, these changes could prove favorable for many who want to buy a home.
  5. Mortgage Rates. Rates have been hovering around 4% this year overall.  If it stays at this level the impact to purchasing power for homeowners is minimal.  However, if rates increase significantly it will have a negative impact on what borrowers can afford in a home at all levels.

 

References:

2018 Annual Colorado Business Economic Outlook.  Leeds School of Business, University of Colorado Boulder.

2017 Colorado Real Estate Forecast.  Sean Gilliam, Realtor®

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

IRES MLS® Information and Real Estate Services LLC


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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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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Impact of Fed Rate Hike on the Housing Market

Mortgage rates have already been rising in recent weeks, averaging above 4%.  While it was expected that the Federal Reserve would raise the federal funds rate at their meeting on Wednesday, December 14th, it’s been indicated that they plan to raise it three more times in 2017.  This will allow lenders to continue to raise their prime lending rate, which most did after yesterday’s decision, putting the average rate for 30 year fixed mortgages between 4.25 and 4.375%.

Economists believe that the rates will hover close to where they are at for now.  However, with the Fed predicting several more rate hikes in 2017, there is concern that mortgage rates will continue to rise throughout 2017.

So how will this impact the housing market?  It will impact first-time home buyers as they consider what they can afford.  A rise in mortgage rates will impact how much home they can invest in.  With home costs on the rise, this may price some buyers out of the market.  However, there is still a short window of time.  Jonathan Smoke, Chief Economist with Realtor.com, was quoted in a Housingwire article stating, “Rates will likely stay the same until about March, so buyers considering a purchase in 2017 may want to consider getting into the market now.”

A long term impact of rising rates is that housing price appreciation will slow.  As rates rise, some buyers will be forced to look at lower priced homes or turn away from buying altogether.  This will result in fewer buyers, less competition and homes will stay on the market longer.  Ultimately, this may result in home price appreciation slowing or even stabilizing.  This will be good for some markets where home prices have been increasing by double digit percentages, making it an unbalanced seller’s market.  In these areas the market will become more balanced, increasingly favoring buyers.

With mortgage rates rising, now is a great time to sell and/or buy real estate to avoid the potential for even higher rates in the Spring of 2017, potentially edging you out of opportunities.


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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Do Mortgage Rates Go Up Because the Feds Raise Interest Rates?

With the Federal Reserve raising  interest rates (aka Federal Funds Rate) as it did on December 16th, 2015, you may hear that this means mortgage rates will increase automatically.  However, the two are not directly related.  In fact, since the Feds raised the funds rate, mortgage rates have actually dropped significantly.   For instance, prior to the Feds raising the rates, mortgage rates were hovering around 4%.  Now they are around 3.66% as of mid-February.

So if you are a prospective home buyer and see headlines that say the Federal Reserve may raise the rates at their next meeting, no need to panic.  This is because mortgage rates are influenced by the bond market, not the funds rate (See below for further explanation).  If you are just interested in knowing the current mortgage rates, you can monitor them directly at sites like Mortgage News Daily or Freddie Mac that give data on daily rate averages.

For more detailed information on what influences mortgage rates, read on:

Mortgage rates are primarily impacted by the bond market, not the Federal Funds Rate.  Here’s a brief explanation of how the bond market drives mortgage rates.  Specifically, for fixed rate mortgages (Conventional, FHA and VA loans) the mortgage rates are most strongly influenced by the trading of U.S. Treasury bonds/notes.  These bonds/notes are used by the government as a means of paying off U.S. debt.  They are sold at auction by the Treasury Department and are called bonds when issued for 30 year terms and are called notes when issued for 2, 3, 5 and 10 year terms.  However, most people refer to them as bonds regardless of the length of the term they are issued for.

In a nutshell, when investors buy more of these bonds, increasing demand, mortgage rates go down.  Likewise, if demand for buying these bonds decreases, mortgage rates go up.  So while the Federal Reserve raised the rate by .25 of a point, it doesn’t mean mortgage rates will automatically jump up as well.  It could take some time, depending on how the demand for bonds goes in the coming weeks and months.

So what market factors are necessary for mortgage rates to go down?  Typically, when the economy is struggling.  Specifically, when the stock market is unstable and thus is a higher risk for investors, these investors will invest in bonds.  This is because there is lower risk and the federal government guarantees their investment for Treasury bonds.  As more investors move to bond purchasing to avoid the risk of an unstable stock market, the demand for these bonds goes up, which in turn causes mortgage rates to decrease.  Currently, the stock market is a risky endeavor as you may have noticed some fluctuation in your investment accounts.  In these market conditions, investors are moving toward purchasing bonds which in turn keeps mortgage rates lower.  As of the writing of this article on 2/13/16, the average mortgage rate was 3.66%.  So if you have been contemplating as to whether or not you should buy a home this year, these low interest rates put you at an advantage as you can get more home for your money.  Your best bet is to talk to a lender as they can educate you as to the best loan for your situation, some of these loans come with even lower interest rates than the average.

 

See my Blog for additional articles

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Good News for Real Estate, Mortgage Rates Remain Unchanged!

Last Thursday the Federal Reserve held a committee meeting to discuss, among other things, whether or not they should raise interest rates to assist in stabilizing the US economy.  The Federal Open Market Committee (FOMC) consists of 10 members and 4 alternates.  In Thursday’s meeting,  9 members voted against raising the rates while one voted in favor of.  The primary reason for voting against raising the rates cited by members was the lack of stability in foreign economies, namely China.

So what does this mean for the real estate market?  It means buyers will continue to enjoy low interest rates on new loans.  It means you can still afford the homes you have been pre-approved to shop for.   Also, if you have been sitting on the fence, now is a good time to jump in if you are looking to buy in the near future.

For sellers there is good news as well.  With rates remaining the same, you will still have a strong number of buyers shopping the market.  Had the rates gone up the number of buyers looking at your home would have decreased as the higher rates would have lowered said buyers pre-approved loan amount.  Further, if you sell now, you can capitalize on the low rates when buying your next home.

Bear in mind, the FOMC has two more meetings this year to be conducted on October 27th-28th and the other on December 15th-16th.  There is talk that a rate increase is more plausible later this year, with this most likely occurring during the December meeting.   So keep this in mind if you are planning on buying or selling your home soon.  Timing is of the essence.

 

Get in touch if you want further information or if you need assistance with buying or selling.  Talk to you soon!

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Mortgage Rates are Relatively Stable, For Now…

Mortgage rates have been hovering in the 3 percent range for a 30 year fixed rate mortgage, with a slight rise into the low 4’s during the month of May and into June.  There is ongoing talk that the Federal Reserve will raise the rates at some point this year though they won’t say when.  For the time being the rates are remaining relatively stable.  As of the writing of this post, the rate for a 30 year fixed rate mortgage was 4.14%.

Ways to take advantage of these still historically low rates is to refinance your home or purchase that house you’ve always wanted.  Refinancing will allow you to decrease your monthly payments, sometimes to the tune of more than a hundred dollars.  You can also buy that house that may be just out of reach once the mortgage rates are increased.  Always check with your lender to see what rates they offer and for which loans you qualify.  There can be variations between lenders, the type of loan and on which day you inquire.  Please contact me if you need the name of a few good lenders in the area.

As real estate will likely be the biggest  financial investment we make in life, it is wise to consider how to take advantage of the currently low rates.  Refinancing or buying a home could be beneficial to you as a short or long term  investment.  While no one knows exactly when the Federal Reserve will raise the  mortgage rates, it will likely happen this year.

 

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