Real estate values. Will they hold? Should I buy, sell or invest in this real market?
May 17, 2023 | Market Trends
May 17, 2023 | Market Trends
Many have been waiting for a crash. Some have been saying, “I’ll buy when prices and interest rates come down.” Well, rates may come down some over the next couple of months, but prices are most likely to continue their rise.
And, if interest rates do come down, prices will further accelerate beyond the current trend.
Nationally, it was a reasonable assumption that with interest rates much higher than one year ago, high inflation, a questionable economy, growing household debt, and an uncertain Federal Reserve policy (along with other social, political, geopolitical, and geo-economic considerations) that real estate prices might decline.
But those assumptions missed one key factor. Supply and Demand. And this factor is not likely to change, particularly in Colorado.
In the United States, 90% of all homeowners have an interest rate below 5% on their homes. 70% of all homeowners have an interest rate below 4%. And given the number of purchases that occurred between 2017 and early 2022, most homeowners also have a small(ish) mortgage balance and lots of equity in their home.
In short, homeowners love their current payment on their low-rate, low-balance loan. This means a major life event (Good or Bad) or compelling desire for lifestyle change, is required to move someone away from their current home and low payment.
While demand definitely declined with the rise of interest rates a year ago, buyers have emotionally adjusted to higher rates and have re-engaged in the real estate market. With sellers slower to the market, the supply/demand ratio has driven prices exactly where we expected, higher.
2023 started slow, with prices weak through the middle of February, and they actually declined below 2022 levels. This was a hangover from the slowest market conditions we’ve seen in a very long time at the end of December 2022. Since then, prices have climbed consistently, ending mid-May at $691,247 for all property types and $776,586 for single-family homes.
We see an almost identical price trend in the Colorado Springs market, where there is likely to be even more upward pressure on prices due to long-term population growth.
The average price in the Denver metropolitan area has only been higher than right now for two months in history. The same is true of the Springs market.
With a diversified economy, suppressed seller incentive, and significant population growth anticipated along the I-25 corridor from North Pueblo to Fort Collins driving demand, Colorado real estate prices are likely only to go up.
We expected this year to be remarkably similar to the 2018/2019 market. Slightly higher inventory, elevated days on the market, lower buyer activity than 2020-2022, and more modest appreciation.
We were right in many cases, but the speed of appreciation and the number of multiple offer bids over the asking price has surprised even us. As a result of the increased speed of the market, only 21.4% of properties are experiencing a price reduction versus 54.8% in December of 2022.
The average property marketing time, or “Days on Market” (DOM), has dropped from 54 days in January of this year to 21 days as of mid-May, 2023.
While markedly higher than 2021 and 2022’s insanely low 9 and 7 days on the market, the current pace is more consistent with the stable and strong markets of 2015 through 2019.
And now, 43.6% of properties are selling above the final asking price. This is slightly below the 4-year average of 2015 through 2018 and slightly above 2019, which hit a high of just 33.4% in May of that year.
Supply is likely to remain suppressed for years to come. Demand, through a combination of life events and continued population increase due to Colorado’s attractive lifestyle and a strong economy, is anticipated to not only stay high but increase.
There will be short-term ups and downs of home values in Colorado, but there is no other conclusion reasonable than long-term residential real estate value appreciation.
As always, we recommend clients treat a home purchase with the caution any major investment should dictate. We want clients to be secure in their job, have ample money in reserve, and be committed to making a purchase as a long-term investment primarily driven by wanting to love the place where they get to live their life.
If these conditions are true for you and you want to move homes, Colorado real estate has all the ingredients for long-term strength.
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