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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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Common Objections to Entering the Real Estate Market

Common Objections to Entering the Real Estate Market

We have an interesting real estate market in Northern Colorado. There are a significant amount of people moving to the area (90,000 estimated) while few are leaving. Demand for homes is great while supply is low. Builders and developers are coming to the area but it will be some time before new construction inventory catches up with demand. Regardless of the market conditions, there will always be those that will be active participants in the real estate market whether they are looking to buy a home, sell their existing home or both. It’s the reality of their situation whether they have to move or have decided it is time to do so. However, there are those that are sitting on the fence. They “want” to move but they hear rumors about the market and just don’t want to dive in. Here are the most common objections to entering today’s market:

“Low inventory = too much competition.”

Due to low inventory and an increasing number of people moving to Colorado, there is often a bidding war that occurs when a house hits the market. Some buyers are weary of this as they have been frustrated at losing repeatedly in this scenario. While this is a challenge it is not impossible. Solutions?

1. Buy new construction. There are no bidding wars and you typically get to choose your own finishes, paint colors, etc. Plus new homes come with a warranty and you’ll be the first residents in the home to make it all your own. Typically, new construction holds its market value better than residential resales.
2. If you plan to buy an existing home, be patient. You will find the home you’re looking for. Have all your ducks in a row such as getting pre-approved for a mortgage. Put together a list of must-haves, would like to haves and don’t want to haves; be prepared to tweak it a little as you go looking at properties. Look at homes as soon as they hit the market! If you sit and ponder you may miss an opportunity. So get yourself financially, mentally and emotionally set so you are ready to submit the winning offer when you find that home you’ve been looking for!
3. If timing is not important, shop for homes during the winter when less people are out shopping for a home. Home sales drop off around October and don’t pick up significantly again until February/March. While you may still have multiple bidders, there won’t likely be as many.
4. Finally, as a Realtor® there are strategies that can be employed in helping buyers secure a home. For example, searching for sale by owner and distressed properties (short sales, foreclosures) to make every option available to buyers. With the multiple bidder scenario, there are ways to write offers that will strengthen your chance of getting your bid accepted. Also, setting up prospective buyers on an auto-search so that when properties hit the market that meet the buyer’s criteria, the buyer and Realtor® are ready to go after it.

Some sellers have similar concerns in this market as they want to sell but they don’t think they will have a place to go. It is true that it can be more difficult to buy depending on your price point and where you want to move to. For example, the closer you want to move to higher demand areas like Boulder, the more you’re likely going to be in a multiple offer scenario, even at higher price points. However, the good news for sellers is that you will most likely enjoy a significant amount of equity in your current home. This can be used toward a down payment on your next home and perhaps give you some money left over for savings, avoid mortgage insurance, etc. Again, to offset the low inventory, I would encourage sellers to consider new construction as well as the other suggestions listed above.

“Prices have appreciated so much, I don’t want to buy at the top of the market.”

The real estate market is cyclical and currently we are in an upswing with high demand resulting in price increases. It is likely going to stay this course for the next couple of years, at least moderately. See the market forecast for 2016 for more details. At most it is estimated that home values will level off though this isn’t likely in the near future as supply is significantly lacking. Further, the key thing at this time is the mortgage rates, still significantly low (averaging below 4%), buyers are in a position to get more for their money than ever before.

Bear in mind that trying to time the market is impossible at best. Even if the market goes down shortly after you buy a home, it will return. All the while you will be building equity with each mortgage payment over time and will see a return on your investment. Further, if you are currently a homeowner but don’t want to sell for fear that you’ll have to buy at the “top of the market”, keep in mind that when prices on homes start going down, so will the value of your home. Your equity will continue to decrease until you sell, and then you will have less purchasing power when it comes time to buy a home. Typically, when investing, it’s best to buy on the upswing than when prices are going down.

“What about the housing crash of 2007 and how some are predicting it will happen again?”

What started in 2007 was a conglomeration of issues that all came to a head, causing a domino effect in various market sectors. Circumstances that brought that about are not the same variables in play today. For instance, there was confirmed fraud in the mortgage industry to which frequent judgments recently made against banks and mortgage companies are testimony to. Today, there are more strict lending regulations in place to prevent this from happening to that degree in the future. We are more likely to see small market corrections though nothing like 2007. While the economy is still far from stellar, it is relatively stable here in Northern Colorado compared to other areas of the country.

“I don’t have enough money for a down payment and I’m not sure about my credit.”

There are loans that don’t require a down payment such as VA, USDA and some portfolio loans. Other loans may only require a small down payment such as 3.5% for an FHA loan and similar rates for a conventional loan. You can also get a grant for a down payment (which you don’t have to pay back) with a CHFA loan. As far as credit, if you have a low credit rating it doesn’t mean you can’t get a home. Many banks offer portfolio loans that only require a minimum of 620 for a credit rating and often don’t require mortgage insurance. Because the bank is carrying the loan themselves they tend to lend at a higher interest rate to cover their risk, typically about 4.5% in today’s market.

So if you find yourself in this category, talk to a local lender that will meet with you in person. They will be able to assess your credit rating and your financial situation and give you good guidance as to your current status. Further, if you do have issues with debt, they can advise you what to do moving forward to put yourself in a good position to buy a home.

Real estate is still one of the safest investments out there. While it can seem stressful, let a good Realtor® and a good local lender help advise and guide you successfully through the process.

No Money Down Home Loans

About the author: Sean Gilliam is a Realtor® 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 serving you in attaining your goals.

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