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Most Surprising News
The most surprising piece of news for our friends and clients is that prices are essentially flat compared to last year. People find that surprising given what interest rates have done over the last 18 months. They wonder, how could prices not fall significantly after interest rates jumped considerably?
The answer is the fundamental economic lesson of supply and demand.
There is enough demand in the market for the current supply to keep prices stable even in an environment of higher rates.
Now that rates are (finally) trending down, it gives us even more confidence about the continued growth of real estate prices along the Front Range.
Here is a look at how home prices compare to one year ago:
Larimer County = Down 0.8%
Weld County = Up 3.4%
Metro Denver = Up 0.8%
Who Would Have Guessed?
Pretend it is 2013. The real estate market is clearly recovering from the Great Recession. The Broncos are having a great year and will eventually make it to the Super Bowl.
Now, imagine someone makes a prediction that 10 years in the future mortgage interest rates would double over the course of 12 months.
If you were to guess what sort of impact on house prices that would cause, what would you say?
It would be reasonable to guess that prices would decline if mortgage rates doubled.
Here’s what really happened. Prices kept going up.
Some thought prices would crash. Many thought prices would go down.
They keep going up. Not as fast as they were, but they are still up.
Compared to one year ago, prices are up the following amounts:
Larimer County = 2.6%
Weld County = 2.2%
Metro Denver = 1.1%
Why? Supply and demand.
Supply is low and there is still demand in the market.
107 Straight
According to research from the National Association of Realtors, home prices have appreciated for 107 straight months.
The median price in the U.S. is now $309,000.
The U.S. region with the highest median price is the West at $461,800. The lowest is in the South at $263,300.
All regions showed double-digit price appreciation from one year ago.
While prices are going up all across the U.S., inventory is going down. The number of properties for sale has declined for 20 straight months.
Low inventory and high demand are causing properties to sell quickly. It now takes an average of 21 days for a property to go under contract compared to 43 days one year ago.
So, the dynamics we notice locally are also occurring nationally.
Double Lumber
The price of lumber has doubled in three months.
Lumber is just one of several examples of skyrocketing materials costs which are impacting both home builders and home buyers.
The cost of lumber is now at a record-level $1000 per 1000 board feet.
These rising costs not only add to the sales price of a home but also add to the inventory shortage issue. Some large, publicly-traded home building companies are slowing production in hopes of building costs dropping over the next few months.
Many people expected lumber prices to drop, or at least level off, when the tariff on Canadian lumber changed in December.
However, because demand has been so high from both building and remodeling, lumber costs continue to climb.
Job Bounce
“How could the real estate market be so strong in the middle of a pandemic?”
That is a fair question and one we hear frequently from our clients.
There are several reasons for this but two stand out.
- Interest rates
- Jobs
Employment has bounced back much quicker than most people expected. When COVID first showed up, the expectation was that many industries would be hit hard for a prolonged period of time.
The reality is that only a few industries were severely impacted by COVID and the rest were able to get back to a near-normal level of business relatively fast.
Additionally, what we find along the Front Range is that our ‘job bounce’ is even better than the national average.
Here are the numbers…
The COVID-peak unemployment rate for the Front Range looked like this:
- Larimer County = 11.1%
- Weld County = 10.1%
- Metro Denver = 12.3%
Today it looks like this:
- Larimer County = 5.2%
- Weld County = 5.2%
- Metro Denver = 6.4%
Nationally, unemployment peaked at 14.8% and now stands at 6.7%.
So, a main reason why demand is high now is because jobs have bounced back, and the bounce is even higher than the average across the country.
Prices Still Up
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Supply and Demand
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