Published in BizWest on December 6, 2017.
The Boulder Valley real estate market has undergone a shift in 2017. While we began the year in a fairly strong seller’s market, it soon became apparent that the indicators we track were pointing to a shift toward a more balanced market.
Making predictions is always a risky business, but here are my top three predictions for 2018 and what they will likely mean for people in the market.
1. Appreciation will continue (but at a slower pace).
While the Boulder area continues to top the country in total appreciation since 1991 (a whopping 371 percent), we have fallen out of the top 10 — to number 19 — nationally in terms of one-year appreciation (10.84 percent according to FHFA). Nevertheless, many structural factors point to increased upward pressure on home values (including low unemployment, strong net migration, and lack of lots to build upon).
For single family homes, Boulder County experienced 5 percent appreciation through the first three quarters of 2017. While this is solid, it pales when compared to the over 15 percent appreciation during the same period of 2016.
In 2018, I predict we will see about 5 percent overall appreciation in Boulder County, with individual cities varying substantially. I predict that the highest appreciation rates will be in Longmont and Erie, and the slowest appreciation will be in the City of Boulder.
For attached homes (townhouses and condos), Boulder County experienced a meager 1.7 percent improvement through the third quarter of 2017. This number is somewhat misleading, as most areas were up by a higher percentage while the City of Boulder was actually down 3.7 percent.
For 2018, I predict that attached homes will appreciate by about 5 percent, with appreciation being higher in every locale except the City of Boulder. In Boulder, it is possible that we will see a continued decline in prices, especially if investment property owners who have not brought their units up to Smartregs compliance decide to sell rather than spend the money to them into compliance.
What this means: For buyers, now is a great time to buy, especially if you are in the market for a condo in the City of Boulder. Waiting will cost you, but not as much as in previous years. For homeowners, if you are considering selling, you have ridden a strong wave of appreciation over the last several years, and you will not likely see the same rate of appreciation by continuing to hold.
2. Inventory will increase in 2018.
Since 2011, the inventory of available homes on the market has generally gone down when compared to the preceding year. That trend finally broke in 2017, with available inventory of both single family and attached homes rising above 2016 numbers. Without getting too deeply into the weeds, a number of indicators that we use to track the market point to a continuation of this trend in 2018. Some of the more telling indicators are (1) a falling sales price to list price ratio, (2) an increase in months of inventory, and (3) more expired listings (homes that did not sell on the market).
In the City of Boulder, on the single family side, I predict that inventory will see the biggest increase in the $1 million+ market as a gap has started to open between sellers’ opinions of their homes’ values and what buyers are willing to pay for them. On the attached side, we will likely see an increase as well, partly due to an influx of non-Smartreg-compliant units as well as condos at the Peloton being converted from apartments.
What this means: For buyers, you will finally have more homes to choose from in your search. For sellers, you will have to be much more careful when pricing your home to avoid being rejected by the market.
3. Interest rates will rise modestly.
For the past several years, numerous experts have predicted mortgage interest rate increases. And for as many years, the rate increases have been non-existent or far more modest than predicted, even after the Fed increased its Fed Funds Rate. Speaking of which, the Fed is expected to raise rates again this month as the economy shows continued signs of recovery. However, the number and size of interest rate increases in 2018 is far from certain because of a change in leadership of the Fed.
Lawrence Yun, the chief economist for the National Association of Realtors, predicts that rates will increase to 4.5 percent by the end of 2018, which is about 0.5 percent higher than current rates. This figure could be affected by tax reform, the country’s economic performance, and other political factors. Nevertheless, for planning purposes, an increase to 4.5 percent in 2018 is likely to be in the ballpark.
What this means: While appreciation rates and inventory are starting to move into buyers’ favor, there will be a cost to waiting to enter the market in terms of affordability. That is, the longer you wait, the more you will likely pay for a home and the more interest you will likely pay for it.
Conclusion: Sellers have been the primary beneficiaries of the real estate market since the recovery of the Great Recession, but 2018 will finally see buyers in a stronger position.
If you’re planning to sell your home this year, timing can make a big difference in your home’s final selling price.
Even though statistics show Boulder County’s real estate market remains among the hottest in the country, Realtor.com reports that your “window of opportunity may be rapidly narrowing.”
“We’ve seen two or three years of what could be considered unsustainable levels of price appreciation,” says Javier Vivas, director of economic research for realtor.com®.
The key word there is “unsustainable.” Changes on the near horizon suggest you should get going and be among the first to sell your home in 2018. Here are the top five reasons:
1. Interest rates remain historically low
While interest rates have already increased from the recent lows, today’s 30-year mortgage rates at just above 4 percent still draw buyers into the market.
But experts predict rates will rise to a less enticing five percent before the end of the year. With rate hikes expected to continue, you should list your home earlier in the year. You will not only sell your home more quickly, if you’re buying another home, you’ll benefit from the lower rates.
2. Inventory is tight and demand high
In the red-hot housing market of Boulder County, buyers far outnumber available homes for sale. Tight inventory is a trend that extends across the nation. And the housing shortage will likely get worse before it gets better: Realtor.com predicts inventory will see a decline of 4 percent year-over-year by March.
Inventory shortages result in quick sales, bidding wars, and pro-seller terms. This can be especially true in areas like Boulder County, where a prolonged shortage has persisted for years.
Cash buyers are also a factor, making up 22 percent of all home sales nationwide in November 2017, according to the National Association of Realtors®.
3. Home prices are still increasing
While home price increases in the Boulder area have moderated recently, prices are still rising. But with interest rates increasing, slowing price appreciation is expected to continue. By listing your home sooner rather than later, you’ll avoid the cooling trend.
4. Buyers are better off financially
“Incomes are growing and people are finding better and more stable jobs,” Vivas says. High consumer confidence, low unemployment, and stock market surges make buyers feel good about their financial outlook.
In fact, the Fed projects an unemployment rate of below 4 percent for the first time since the 1960s, reports Realtor.com.
All of this fuels home sales, which grew 5.6 percent nationally in November 2017, reaching its strongest pace in nearly 11 years.
5. Millennials want to buy
More and more millennials are entering their 30s, a time in which taking the homeownership plunge becomes increasingly desirable. Realtor.com data suggest that this demographic group could account for 43 percent of home buyers taking out a mortgage in 2018, equating a 3 percent year-over-year increase.
In a complex real estate market, local real estate knowledge helps you time the sale of your home to your best advantage. So, if you’re considering selling, consult with a Realtor soon.
You can read more at https://www.realtor.com/advice/sell/reasons-to-sell-your-home-in-2018/