It’s clear my super-powers do not include the ability to drop 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 for the past 17 years. I was vehement in my now correct predictions of no “Bubble 2.0” and no “Foreclosure Tsunami” due to forbearance issues. 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 other 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 real estate environment. What’s normal? A six-month supply of active listings. Interest rates near 7%. 90 Days on Market. 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 now hover around 6%, the market will tap the breaks, 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.
Northern Colorado Real Estate Stats June 2022 (pdf)
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.
Ft Collins, despite having fewer single-family and fewer attached homes sales, is still showing excellent price appreciation. This will start to slow down and that will be a good thing. Ft. Collins is the most expensive market in Northern Colorado and buyers will start looking east of the highway or south to Loveland for more affordability even if it increases their drive time.
In fact, that migration to affordability is probably already happening in earnest. While the numbers are all over the place, you can see the single-family closings in Loveland and Greeley are still strong compared to last year. Until we see drastic changes in price appreciation and a big rise in days on market, I think we are in for a bumpy ride for the rest of the year. Buyers don’t like volatility.
One slight change I do see, but you have to look closely, sales are starting to slow in the attached home market throughout the region. Monthly sales of attached homes in Ft. Collins, Loveland and Greeley all declined this past June compared to last year. This makes sense because a large percentage of attached home buyers are looking to buy a more affordable home. As interest rates go up housing becomes more expensive, decreasing affordability and pricing those buyers out of the market.
The next couple of months will tell the story of how this market will move in the near term. For now, each of us has to play the hand we are dealt. Our advice is to think about the things you did that made you successful when you first got into the business and if it’s applicable to today, start doing that. It can’t hurt.
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.