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Health Crisis not Housing Crisis
Here is the latest video from our Chief Economist Matthew Gardner.
It’s full of great nuggets about what is happening in the economy and the real estate market today. Just Click the image below to play the video.
Leading Indicator
We are watching close to see where the real estate market is headed. Anecdotally we can tell you that the vast majority of transactions that are under contract are still closing. We have seen very few transactions cancel because of employment issues or the wild swings of the stock market.
An interesting leading indicator was announced this week that sheds some light as to where the market is headed. Each week the Mortgage Bankers Association releases their index which tracks new mortgage applications.
They track both purchase applications and refinance applications. To no one’s surprise, the index was down this week but not as much as you may have guessed.
New purchase applications were down 11% compared to the same week this last year. Refinance activity fell more sharply, down 34%.
This is a statistic we will watch closely as time goes on.
Each week our Chief Economist produces a video with the latest on the national economy and the housing market. Reach out to us if you would like to see that video.
Economist’s Perspective
Our Chief Economist made a video for all of our clients where he shares his perspective on COVID-19’s impact on
housing. You can watch it by clicking the image below:
Headwind Vs. Tailwind
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.
A History Lesson
| 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. |
Bubble Burst
Every so often we will hear a concern that another housing bubble is forming.
To help answer that question it’s valuable to look at the reasons that caused the last one.
There were three main drivers of the bubble that burst in 2008:
1. Easy Credit – loans were very easy to attain
2. Over-Leverage – people were using their homes at ATM’s
3. Over-Supply – too many new homes were being built
Now, let’s compare that to today:
1. Stricter Credit – the average home buyer today has a FICO score of 755
2. High Equity – collectively, U.S. homeowners have $19 Trillion of equity in their homes and collective mortgage debt has not increased for 13 years
3. Under-Supply – today we are building only two-thirds of the new homes being built in 2004 yet the population is much higher
Given this healthy information, we don’t see another housing bubble forming today.
Supply and Demand
Northern Colorado gave us a real-life economics lesson in January 2020.
Compared to one year ago…
- Inventory was down 10% (Supply)
- Homes under contract went up 31% (Demand)
- Prices were up 5% (Result)
New Home News
Nationally, sales of new homes are stronger than they have been in a long time. March was the best month since 2007 and April was the third-best month in that same time period.
This research comes from the National Association of Home Builders who show that we are on pace to sell 673,000 new homes this year across the Country. 5 years ago there were roughly 450,000 sales of new homes.
For the first four months of 2019, new home sales are 6.7% ahead of the sales pace of the initial four months of 2018.
What is interesting is that those gains have distinct regional clustering. Year-to-date sales are up 10.3% in the South, 6.7% in the West (concentrated in the Mountain states), and 1.3% in the Midwest, while recording a 17.6% decline in the Northeast.
Friday Fun Facts!
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Friday Fun Facts! A History Lesson
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