Colorado homeowners started 2021 with record home value appreciation.
STARTING OFF STRONG
The most surprising data point right now is the big jump in the number of showings year to date – 44% more than last year. This increase in showings doesn’t just tell us how many buyers are currently looking. It is a great indicator of demand for real estate that is not yet reflected in increased prices or volume of sales.
WHAT ELSE IS HAPPENING IN THE COLORADO REAL ESTATE MARKET?
Right now, metro Denver homes are averaging 13 showings per week. Historically, homes average closer to 5.5 showings per week this time of year. And, the number of days it takes to sell a home has plummeted to almost half the time on the market compared to the last 4 years.
Unsurprisingly, we’re continuing to see the average sale price of a single-family home increase. The average sale price for a single-family home in January 2021 was $642,886 – a 23.4% increase over January of 2020 at $520,948.
We’ve seen an uptick in the number of homes on the market and the number of homes under contract compared to the last 4 years. However, new listings and homes under contract have kept pace with each other so far this year, resulting in only a modest rise in inventory available.
HERE ARE SOME OF THE KEY FACTORS DRIVING THE MARKET RIGHT NOW.
- Colorado’s growing population continues to outpace new housing. This is an ongoing factor in the Colorado housing market. As long as we are struggling to build enough new homes to meet the needs of our growing population, inventory will remain low and prices driven higher.
- Interest rates are at historic lows and are likely to stay that way or rise only modestly in the short-term. Low rates have encouraged more buyers onto the market and will continue to drive home value appreciation. As we see additional federal stimulus and optimism in the stock market, rates are likely to rise modestly over the course of 2021.
- A changing world means changes at home. COVID-19 has made everything different. Many people’s real estate preferences have changed, too. It could be anything from more space to work from home, a bigger backyard, or that dream location that used to be too far from the office.
- The economy and jobs market are slowly on the mend and public health fears are easing. Nationally, unemployment and GDP recovery across the county stalled in November and December of 2020. But, with declining COVID-19 rates in Colorado and expected vaccine roll-outs, many are growing more optimistic about the long-term.
HEATING UP LONG-TERM
As we mentioned in our annual review, Colorado is expected to grow in population by 40% over the next 25 years. That’s another 2.2 million people that need places to live. More than 1.8 million of those residents are expected to settle along the Front Range between Pueblo and Fort Collins.
Regardless of interest rate changes, this population increase will put continued pressure on demand and home prices. Colorado real estate may be one of the best long-term investments in the country.
However, a long-term inflationary economy that drives interest rates higher could temper prices and possibly cause a pull-back in-home values. For 20 years, the U.S. has had sub-6% interest rates. And right now, we are close to 2.5%. This incredibly low cost of capital has had a huge impact on buyer behavior.
If we see interest rates rise near the 6% range, purchase ability will be impacted. This will cause inventory to stabilize over time and create a more balanced buyer and seller market, which would in turn cause appreciation to return to historic (more modest) figures.
DON’T WAIT FOR THE POT TO BOIL OVER
What’s the bottom line? If you are going to invest in a home, now is the time with such low interest rates. The market is hard right now, but the math doesn’t lie.
At a 2.5% 30-year fixed interest rate, your principal and interest payment on a $750,000 purchase with 20% down would be $2,370/month. Total payments over the life of the loan would equal $853,461.
When interest rates move back to 5%, your payment becomes $3,220 and you would pay $1,159,534 over the life of the loan – $300,000 more that you wouldn’t have to pay at a lower rate.
There are a lot of arguments to capitalize now on market conditions. And when you buy or sell a home, data is your friend. But, having a partner to navigate the market, someone who knows you inside and out, well, that can make all the difference.