Headwind vs. Tailwind
So far the tailwind of historically-low mortgage rates are prevailing over Wall Street and COVID-19 concerns.
Buyers are still active. Properties are still closing. Moving trucks are still showing up at people’s homes.
Open house traffic has declined, but we notice plenty of buyers looking for property. (one of our open houses last weekend had over 40 visitors)
For many, the interest rates are just too good to pass up.
We even see instances of multiple-offer situations for properties priced right in high-demand locations.
Rates today, compared to 4%, equate to not only a monthly savings for those refinancing but also equates to tens of thousands in additional purchase power.
For the average price of a home on the Front Range, the savings is $171 per month and the increased purchase power is $35,811.
Here’s what we expect to happen over the coming months. Listing inventory and transaction volume will both decline. We will no doubt see lower activity compared to a year ago.
But thoughts of the market “coming to a screeching halt” can’t be validated because of the historical performance of our market and because of the inherent fundamentals in place.
We will continue to track the numbers and communicate the facts so that you remain well-informed.
|With the stock market on a wild ride and the Dow Jones dropping nearly 1,000 points yesterday, it makes some people wonder if the local real estate market might also crash or at least “correct.”
A little history lesson is in order.
Over the last 40 years, the real estate market along the Front Range has averaged 5.5% appreciation per year.
The highest appreciation in one year was 15.9% in 1994.
The lowest ever was -4.0% in 1982.
The last time Wall Street was in turmoil and the stock market was plummeting was 2008. This was, for many reasons, the worst economy of our lifetime.
That year real estate along the Front Range dropped 2.2%.
Meanwhile that year the Dow Jones fell 33.8%.
Bottom line, our market has no history of crashing or even experiencing a major correction.
Why is that?
The answer is fundamentals.
Our local economy has inherent fundamentals that insulate it from big downturns.
We have an incredibly diverse economy which is not reliant upon a single industry. We have all the way from health care, to technology, agriculture, oil and gas, major universities, and financial services (just to name a few).
We are a global destination with a major international airport.
Oh, and the quality of life here isn’t too shabby.
Prices of real estate, just like prices of anything, come down to basic economic principles of supply and demand.
Because of our diverse economy and desirable quality of life, there has been strong, consistent demand for housing along the Front Range.
While there may be little bumps along the way, over the long term our market has proven that it performs.
We have our pulse on the high-end luxury market.
The activity in price ranges over $1,000,000 is an effective indicator of the health of the overall market.
If buyers for luxury properties are active, it tells us that “smart money” is confident about real estate in Metro Denver.
So far this year, 1671 luxury properties have sold. This is 75 more than had sold at this same time last year and 440 more than 2017.
It seems “smart money” is confident.
With interest rates so low, one could argue that money is essentially on sale.
It’s actually half off.
30-year mortgage rates hit 3.75% which is exactly half of their long term average.
Rates have averaged 7.5% over the last 40 years so today buyers are getting half of that rate.
The “sale” on mortgage rates creates a significant savings in monthly payment because of the 1%/10% rule.
For every 1% change in interest rate, the monthly payment will change roughly 10%.
So when rates go up to 4.75%, a buyer’s payment will be 10% higher.
For example, the principal and interest payment on a $400,000 home with a 20% down payment at today’s rates is $1,482.
If rates were 1% higher, the payments jump up to $1,669.
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.
Colorado’s economy continues to grow with the addition of 44,800 new non-agricultural jobs over the past 12 months. This represents a reasonable growth rate of 1.7%. As stated in last quarter’s Gardner Report, we continue to see a modest slowdown in employment gains, but that’s to be expected at this stage of the business cycle. I predict that employment growth in Colorado will pick back up as we move through the year, adding a total of 70,000 new jobs in 2019, which represents a growth rate of 2.6%.
In February, the state unemployment rate was 3.7%, up from 2.9% a year ago. The increase is essentially due to labor force growth, which rose by more than 84,000 people over the past year. On a seasonally adjusted basis, unemployment rates in all the markets contained in this report haven’t moved much in the past year, but Boulder saw a modest drop (2.7%), and the balance of the state either remained at the same level as a year ago or rose very modestly.
- In the first quarter of 2019, 11,164 homes sold — a drop of 3% compared to the first quarter of 2018 and down 13.5% from the fourth quarter of last year. Pending sales in the quarter were a mixed bag. Five counties saw an increase, but five showed signs of slowing.
- The only market that had sales growth was Adams, which rose 4.9%. The rest of the counties contained in this report saw sales decline, with a significant drop in the small Park County area.
- I believe the drop in the number of home sales is partially due to the significant increase in listings (+45.6%), which has given would-be home buyers more choice and less need to act quickly.
- As mentioned above, inventory growth in the quarter was significant, but I continue to believe that the market will see sales rise. I expect the second half of the year to perform better than the first.
- Home prices continue to trend higher, but the rate of growth is tapering. The average home price in the region rose just 2.1% year-over-year to $456,243. Home prices were .3% higher than in the fourth quarter of 2018.
- I anticipate that the drop in interest rates early in the year will likely get more buyers off the fence and this will allow prices to rise.
- Appreciation was again strongest in Park County, where prices rose 21.9%. We still attribute this rapid increase to it being a small market. Only Clear Creek County experienced a drop in average home price. Similar to Park County, this is due to it being a very small market, making it more prone to significant swings.
- Affordability remains an issue in many Colorado markets but that may be offset by the drop in interest rates.
DAYS ON MARKET
- The average number of days it took to sell a home in Colorado rose five days compared to the first quarter of 2018.
- The amount of time it took to sell a home dropped in two counties — Gilpin and Park — compared to the first quarter of 2018. The rest of the counties in this report saw days-on-market rise modestly with the exception of the small Clear Creek market, which rose by 26 days.
- In the first quarter of 2019, it took an average of 42 days to sell a home in the region, an increase of four days compared to the final quarter of 2018.
- Job growth drives housing demand, but buyers are faced with more choice and are far less frantic than they were over the past few years. That said, I anticipate the late spring will bring more activity and sales.
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 first quarter of 2019, I have moved the needle a little more in favor of buyers. I am watching listing activity closely 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 towards a more balanced market.
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.
|It’s Tax Time
You probably don’t need a reminder that this is tax season.
Not only because tax returns are due in two weeks but also because you will soon receive your property tax notification in the mail.
Every two years your County re-assesses the value of your property and then sends that new value to you.
When this happens, many of my clients:
Good news! I have a webinar that will help you. On the webinar we will show you:
You can listen to the webinar live or get the recording. In any case, you can sign up at www.WindermereWorkshop.com
The webinar is April 17th at 10:00. If you can’t join live, go ahead and register so you can automatically receive the recording.
This is a complimentary online workshop for all of my clients. I hope you can join!
Check out the latest Gardner Report from Windermere’s Economist Matthew Gardner by clicking the picture below!
A valuable statistic with a funny title.
The Misery Index simply measures inflation plus unemployment.
It’s an effective way to look at our Nation’s economy.
Today’s Index sits just below 6%. Back in October 2011, it was close to 13%.
The lowest it has been in the last 7 years is October 2015 when it was near 5%.
If you would like a copy of the entire Forecast presentation, go ahead and reach out to me.
I would be happy to put it in your hands.