Is it the End of Bidding Wars? Maybe. Maybe Not
It’s clear my super-powers do not include the ability to reduce interest rates, increase inventory or reduce real estate prices. Not sure if it’s a super-power, but I’ve been good at calling my shots in the local real estate market over the past 17 years. I was vehement in my now correct predictions of no “Bubble 2.0” and no foreclosure tsunami due to forbearance. The crystal ball was a little fuzzy when I made the wrong call on home price appreciation leveling off a few years ago. As they say, you can’t win ‘em all.
The appreciation call was wrong because of two very specific influences I didn’t fully appreciate. The missed market influences are the buying strength and size of the millennial generation; and not knowing that an outsized portion of our low inventory problem is actually a lack of supply. I always knew millennials see things differently than previous generations and I believed a lot of our inventory problems were from people aging in place and also others who were “rate locked” in their home. How do demand from the largest generation of home buyers, lack of home supply, and the new fun of 6% interest rates affect the market today?
It means demand will normalize. This is a foreign concept to many agents because they never worked in a normal business. What’s normal? A six-month supply of active listings. Interest rates near 7%. Days on market of 90 days. Buyers and sellers negotiate. Buyers don’t pay over list price. Think about it, bidding wars have NEVER happened before. What we have been living in for the past 4 years is NOT normal.
As interest rates hover around 6%, the market will tap the breaks of the market, millennials will slow their roll a little and price appreciation will drop from 16-20% to 5% (finally!). We can find a lot to complain about in this market, but what do you think prices would be doing right now if we still had 2.75% interest rates? That’s right… skyrocketing. This market cool down will help to rebalance the scale between buyers and sellers, which has been tilted heavily in favor of the seller since 2018.
Total sales volume will end the year pretty much the same as we see in this month’s graph. Overall, first-half closings in Longmont, while seemingly low, and at their lowest point since 2012, are only 10% below their 11-year average. Closings so far this year in Boulder aren’t as low as lockdown plagued 2020, but their closing total looks bad compared to 2021, which was its highest ever; and it’s only 14% below its 11-year average of 371. Ft Collins is in the same boat as the rest at 12% behind their 11-year average. Loveland, Greeley, Erie, and the Johnstown/Milliken areas are bucking the trend mostly due to sufficient new construction.
Despite all the doom and gloom available to read about the current status of the real estate market, it doesn’t seem to be affecting the Boulder area much. Sure, sales are down a bit, but prices are still climbing. Boulder’s strength is evident in its 19% average and median price growth. Additionally, who would’ve thought days on market would decrease as average price hovers around $1.7 million and interest rates climb to 6%? Nobody.
If that isn’t an impressive show of market strength, then look no further than the attached home sales from June 2022. The 85.2% increase in days on market isn’t real. If you take the 9 closing from Odonata (between Canyon and Pearl on 3rd) out of the mix, days on market (32) and average price ($639,891) normalize. Wow is all I can say. Those 9 townhomes closed with an average sales price of $3,221,286 (and 610 DOM)!!
The casual observer might mistake the June 2022 drop in single-family median and average prices in Superior as the first crack in the local real estate market. I’m here to let you know that there is no crack. I’m not saying there won’t be, but I am saying not this month. In 2021 Superior saw 16 sales with 8 of them over $1 million and in 2022 there were just 10 and 3 over $1M. When a data set is small it can vary substantially, and this is a perfect example. If we look at the full first half of this year and compare it to last, we see median price is up 13.5% to $981,500, average price is up 14.5% to $1,032,718, and days on market fell to 32 from 39 last year.
Our guest market this month is Lyons. I had a request to cover this market monthly when we started this project, but it’s just too small for that to make sense. For example, just seeing the monthly sales total increase an eye-popping 42.9% is crazy when it only rose from 7 to 10 sales. It’s the same basic problem as we talked about above with Superior. Nonetheless it’s important to many of us. In addition to the monthly numbers in the report, the average price in Lyons increased 19.4% from $773,619 in 2021 to $923,502 in 2022, which is totally in line with most areas in the region. Also, there are some hidden gems in the hills around Lyons. Go check out views from the $2.825M home that sold back in March. This is just one of 12, $1M+ homes that have sold in Lyons so far this year.
If you haven’t already, get out and enjoy the summer. Take a bike ride, go for a hike, take in a ballgame, or just sit and watch the sunset. I love Colorado.