The end may be here (but don’t panic)

At this time last year, our market was experiencing all-time highs for average home prices and all-time lows for housing inventory.  Many of the market indicators we track were pointing to continued strong demand and price appreciation, especially with the continued influx of people into Boulder and Broomfield counties.  And yet, with home price appreciation outstripping wage gains for the better part of a decade, in the back of everyone’s minds was the question: “How long can this go on?”  We may now be starting to get our answer.

The big picture

In 2018 last summer, the Federal Housing Finance Agency measured the average appreciation nationally at 6.89 percent which slowed this year to 5.05 percent.  Then, FHFA ranked Colorado as having the fourth-highest one-year appreciation in the country, at 10.63 percent.  Boulder County ranked 68th among metropolitan areas in the country with 8.25 percent appreciation.  This year, Colorado has dropped to 28th, with 4.78 percent appreciation, while Boulder fell to number 91 with 6.14 percent appreciation  So, Colorado and Boulder County are cooling compared to the rest of the country, but, as a bright spot, Boulder County’s appreciation since 1991 still leads the entire nation at 417.28 percent.

There are 10 statistics we track to gauge the state of the residential real estate market, and studying the movement of these indicators can give you a good sense of the direction of the market.  For most of this decade, those indicators have generally pointed toward a rising market, marked by tight inventory, brisk appreciation, quick sales, and low months of inventory (the time it would take to sell all existing homes if no new homes entered the market).  At the close of the second quarter of 2019, we are seeing a strong shift for both the single-family homes and attached dwellings (see charts).

As you can see, nearly every indicator we track is pointing to a softening, shifting market, aside from interest rates.  And while Months of Inventory still indicates a seller’s market, the trajectory is moving toward a balanced market (between five and seven months of inventory).

And now for the good news

If you are an aspiring buyer in Boulder County, your timing is excellent: inventory is up, so you have more homes to choose from; prices are flat or falling, so you may be able to get a (relative) bargain; and interest rates have dropped once again, so you can get more house for the money.

If you are a homeowner or thinking of selling, the news is not all bad: you’ve rode an impressive wave of appreciation for the better part of a decade; and even when Boulder’s market stalls, it typically does not lose much value (even in the great recession, home prices only dropped about 5 percent).

Remember, don’t panic.  Boulder is still the best place in the country to invest in real estate.

Originally posted by Jay Kalinski is broker/owner of Re/Max of Boulder.

Posted on August 1, 2019 at 1:00 pm
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City housing proposal may be Faustian bargain

There is a serious shortage of homes in Boulder, as is evidenced by the roughly 65,000 people who commute in and out of Boulder on a daily basis.  About half of these people would live in Boulder if they could, but are forced to “drive until they qualify” for a home, which increases their carbon footprint, commute times, and overall stress level.  It is clear that creative solutions are needed to address this crucial issue.

The Boulder City Council’s proposed pilot program to “help” middle income families purchase market rate homes is, while creative, a Faustian bargain, in my opinion.  In the current iteration supported by members of the city council, the city would use a “loan-loss reserve fund” to guaranty second mortgages that would allow people to purchase more home than they would qualify for by themselves.  (An earlier version from a 2016 white paper would have had the city use its bonding power to raise money to buy a percentage of a purchaser’s home, which the city would get back at closing, plus some amount of appreciation).

 

If the program stopped there, I would applaud the city’s effort for trying to get more families into homes that would be owner occupied.  But here is where the Faustian bargain sets in.  In exchange for the city’s assistance, the buyer would have to “voluntarily” agree to deed restrict the home they just purchased to be permanently affordable.

Let us consider the consequences of this for the individual or family who purchases a home under this program:

  1. All of the burdens. The buyers now have all of the burdens of homeownership.  For example, if the furnace breaks or the roof wears out, the burden falls on the homeowner to replace them.  If the home loses value, it is ostensibly the homeowner who bears the loss when they look to resell.  And remember, in this fantasy, a lender is going to agree to loan buyers more money than the lender thinks they can reasonably afford because the city is going to guaranty a portion of the loan, which means the buyers will likely have more financial strain and be at a higher risk of default.  Whether the city can sufficiently incentivize a bank to overlook that they would likely be overextending buyers financially remains to be seen.
  2. Limited rewards.  While the homeowner is saddled with the burdens and risks of ownership, they do not reap the full reward of their home’s appreciation — the city sees to this through its deed restriction.  Suppose homeowners do an outstanding job of upgrading and maintaining their home, and the market rises over the 10 years they own their home, the owners will not receive the fruits of their labor and good fortune of an appreciating market.  Instead, the city will cap their appreciation at some percentage likely well below the market. 

For the majority of Americans, their home is their biggest asset and primary source of wealth creation.  The effect of the city’s program, then, is to make families who avail themselves of this program poorer over time relative to those who purchased homes on the open market.

It is, in my opinion, this asymmetry of unlimited risk and handicapped reward underlying the program that makes it so insidious.

If this wasn’t bad enough, let us now consider the consequences of this for the housing market in Boulder in general.  The more unfortunate souls the city “helps” via this program, the fewer homes will be available on the open market.  If the supply of homes is further restricted via this program, and demand for housing remains strong (remember the 30,000 commuters who would like to live in Boulder?), then the result will be home prices rising even faster.  So, in an effort to create a number of “permanently affordable” homes, the city will make the rest of Boulder much more expensive. 

Originally posted on BizWest.  Jay Kalinski is broker/owner of Re/Max of Boulder.

Posted on March 5, 2019 at 3:00 pm
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Be mindful of warning signs in housing market

2018 was another strong year for residential real estate in Colorado in general and Boulder Valley in particular, but what’s in store for 2019?

First, a look back at 2018.  Nationally, Colorado jumped from 10th to fifth among all states for one-year appreciation, with a 9.16 percent increase in home values.  Boulder County improved from 57th in 2017 to 41st in 2018, with over 9.5 percent price appreciation.  Below are the 10 “Vital Statistics” for Boulder Valley we track to gauge the health of the real estate market from year to year.

As you can see, most of the indicators point toward an appreciating market, though increasing interest rates and a drop in the percentage of homes under contract indicate potential signs of weakness emerging. 

In the city of Boulder, the average price of a single-family home topped $1,215,000, which was up 11 percent from 2017.  However, Boulder also saw almost 50 fewer home sales than last year, which highlights our continued shortage of inventory.  The most affordable city in Boulder County continues to be Longmont, but even there, the average price of a single-family home is now over $460,000 and may reach $500,000 if its appreciation trend continues.

One statistic that gets very little attention is that we often see home prices dip slightly in the second half of the year as compared to the first.  As the chart below shows, we generally see appreciation through June or July, and then values trail off slightly.  What this chart means is that, if you’re a seller your best bet is to sell in the spring, and if you’re a buyer, try to buy in the fall when home prices are stagnant or dropping.

2018 was quite strong — will 2019 be similar?

Locally, conditions in our area generally support continued appreciation in residential real estate.  The total number of active listings available is still less than half of what it was before the Great Recession, which is likely to keep home prices growing, especially as our economy remains strong (very low unemployment) and we continue to see net migration into our area.

There are, however, several trends that could derail continued growth in our market.  First, interest rates are almost a full point higher than they were in 2017, and I’ve discussed before how a one point increase in interest rates can reduce purchasing power by 10 percent.  The Fed had indicated its intent to continue to raise rates in 2019, however, the news from the Fed’s most recent meeting in January suggested that they may hold off until at least June.

Second, the potential for a recession in the next year or two could begin dragging on home sales.  One indicator is that the yield curve (which compares rates for short-term vs. long-term Treasury notes) has been getting flatter.  When the yield curve inverts (that’s when rates for 10-year notes dip below rates for 2-year notes), it is very often followed by a recession.

Finally, local no-growth and anti-growth policies, regulations, and mindsets are making it increasingly difficult to add inventory to our region.  The dearth of homes to sell could negatively impact our market — and it is the only factor here that we as citizens have a measure of control over.

2019 has the potential to be another great year for residential real estate in Boulder Valley, but we need to be mindful of the potential derailers mentioned above.

 

Originally posted on BizWest.  Jay Kalinski is broker/owner of Re/Max of Boulder.

Posted on February 6, 2019 at 3:00 pm
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4 Key Home Buying Trends to Watch in 2019

As we look ahead to coming trends in 2019 real estate, home buyers and sellers nationwide will face changes in the marketplace, according to the economic research team at realtor.com. From housing inventory to generational shifts, here are four top trends to look for in 2019.

1. Inventory will grow, especially for luxury homes

Inventory has been tight nationwide, hitting its lowest level in recorded history in the winter of 2017, says realtor.com. Supply finally began catching up with demand in 2018. That inventory growth will continue in 2019, but at rate of less than 7 percent. While sellers will have more competition, it will still be a good market.

“More inventory for sellers means it’s not going to be as easy as it has been in past years—it means they will have to think about the competition,” says Danielle Hale, realtor.com chief economist.

“It’s still going to be a very good market for sellers, but if they’ve had their expectations set by listening to stories of how quickly their neighbor’s home sold in 2017 or in 2018, they may have to adjust their expectations,” she adds.

In markets with strong economies and high-paying jobs, most of the expected inventory growth will come from listings of luxury homes.

2. Affording a home will be challenging

Interest rates and home prices are expected to continue to increase. Hale says homebuyers will continue to feel a “pinch” from affordability, as costs will still be a pain point. She predicts mortgage rates will reach around 5.5 percent by the end of 2019, which translates into the typical mortgage payment increasing by about 8 percent. Incomes are growing about 3 percent on average. These factors are hardest on first-time home buyers, who tend to borrow most heavily.

3. Millennials will dominate

Millennials are now the biggest generation of home buyers. Some are first-time home buyers, while others are moving up from starter homes. The millennial group accounts for 45 percent of mortgages compared with baby boomers and Gen Xers at 17 and 37 percent respectively, reports realtor.com. And many millennials still have student debt, which adds to the challenge of affording a home.

4. The new tax law’s effect is still unknown

For many tax filers, the effect of the new tax law won’t be known until their April tax filing results in a bigger tax bill or a bigger refund.

Renters are likely to have lower tax bills, but the new increased standard deduction reduces the appeal of the homeowner’s mortgage-interest deduction. The new tax law may dissuade people from taking out large mortgages which will affect higher cost homes. Add these factors to the challenge of affording a home and homeownership for some may be harder to achieve or less appealing.

The net effect of the coming 2019 trends is that even with these challenges, sellers are in a good position and homeowners will continue to enjoy positive financial gains from their home.

For more information, read the full report at https://www.realtor.com/news/trends/real-estate-trends-expect-2019/

 

Originally posted here by Tom Kalinski Founder RE/MAX of Boulder on Thursday, January 10th, 2019 at 10:05am.

Posted on January 10, 2019 at 11:51 pm
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Colorado’s Top Cities for First-Time Home Buyers

Nine Colorado cities rank in the top 50 best cities for first-time home buyers, according to recent analysis by WalletHub, a personal finance website. Four of those made the top 20 – Centennial, Thornton, Arvada and Greeley, coming in at Nos. 3, 6, 17, and 20, respectively.

With home prices rising in Colorado and across the nation, buying a first home is challenging. Potential buyers need to develop a realistic perspective on market prices, their financing options, and neighborhoods that have a good reputation and appeal to their lifestyle.

To help potential buyers target possible locations, WalletHub compared 300 cities of varying sizes across 27 key indicators of market attractiveness, affordability, and quality of life. Data includes important factors like cost of living, real-estate taxes, and property-crime rate.

Here are the rankings of the Colorado cities reported:

3. Centennial

6. Thornton

17. Arvada

20. Greeley

23. Longmont

25. Fort Collins

27. Colorado Springs

28. Westminster

39. Pueblo

51. Denver

67. Aurora

137. Boulder

 

Among those cities, Colorado Springs has the fourth-lowest real estate tax rate in the nation.

First-time home buyers are often in the millennial generation. As it turns out, Colorado is the ninth-best state for millennials, according to a separate WalletHub report.

Millennials – those born between 1981 and 1997 – make up over 35% of the workforce. While often thought of as “kids,” the oldest are 37 years old.

In addition to a total score of 9, Colorado ranks high for quality of life (7), economic health (3) and civic engagement (10).  No. 1 ranked District of Columbia also ranked first in the nation for quality of life and civic engagement.

Colorado was evaluated along with all 50 states and the District of Columbia across 30 key metrics, ranging from share of millennials to millennial unemployment rate to millennial voter-turnout rate.

Here’s a look at the top 10 states for millennials:

For more information, see the full reports at https://wallethub.com/edu/best-and-worst-cities-for-first-time-home-buyers/5564/#methodology and https://wallethub.com/edu/best-states-for-millennials/33371/ .

 

 

Posted by Tom Kalinski Founder RE/MAX of Boulder on Friday, August 24th, 2018 at 10:36am.

Posted on August 25, 2018 at 7:19 am
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Boulder’s average single-family home price surpasses $1.2M

This 4,987-square-foot home on Boulder Creek was featured in Bizwest’s Distinctive Homes of the Boulder Valley in April 2016. According to Zillow.com it sold in May 2017 for $3,495,000.

 

At the close of 2017, many were speculating that Boulder had finally reached a price ceiling at the limits of people’s purchasing power. The speculation continued that prices in Boulder would level off for some significant period of time as the city waited for buyers to accumulate more savings, wages to rise, etc. After all, approximately 40 percent of the homes sold in Boulder were over $1 million last year, so surely the pool of buyers able to buy a million dollar home must be depleted, right? The first quarter of 2018 has largely disproven that theory.

The average single family home price in Boulder reached $1,207,403 by the end of March, which represents a whopping 21 percent increase over the same period last year. Anecdotally in my real estate sales practice this year, I have seen multiple homes listed over $1.3 million ultimately sell for at least $200,000 over asking price. On the seller side, it is a cause for celebration, as the next chapter of their lives will be unexpectedly more comfortable. On the buyer side, it can be incredibly frustrating and demoralizing to save for a major purchase, believe you are well-positioned to make your dream come true, only to have the finish line moved forward on you. When you include the fact that about one quarter of the city’s recent home purchases have been cash transactions — and mortgage interest rates are a full point higher than last year — you begin to understand the size of the challenge facing buyers.

Looking back to 2008, you can see that home prices have almost doubled in the last 10 years (see City of Boulder chart).

Looking back even further to 1978 (see Appreciation chart), one can see that this appreciation trend is not an anomaly in Boulder. In fact, according to the Federal Housing Finance Agency, Boulder County has appreciated more than anywhere else in the country going back to 1991.

I have used earlier versions of the chart [to the right] in previous articles to try to assess when our current appreciation cycle would level off. Back then, I noted that the pattern going back to 1978 would have predicted that our appreciation cycle would have ended in mid-2017. I further stated, however, that there were factors present today that were not issues previously, the most prominent of which being that Boulder has almost reached full build-out under current zoning regulations.  That is, we are much closer to running out of land now, which will continue to put upward pressure on existing homes.

 

What does all of this mean?

Crossing the $1.2 million threshold means that Boulder is becoming disconnected from the surrounding cities. Some call it becoming a “resort market” like Aspen, others compare it to Silicon Valley (Nerdwallet published a study in support of this assertion, wherein in Boulder was listed in the top five least affordable housing markets, along with San Francisco, Silicon Valley, Honolulu and San Diego). However you characterize the situation, it is becoming clear that this is not an aberration and the challenges facing buyers will likely continue to mount as summer approaches.

 

Jay Kalinski is broker/owner of Re/Max of Boulder.

Originally posted by BizWest on Wednesday, May 2nd, 2018. Original found here.

Posted on May 3, 2018 at 3:52 pm
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Boulder-area market holding steady, proving strong demand eclipses low inventory

It’s beginning to look a lot like this year’s Boulder County real estate sales performance will outperform last year’s robust close. Year-over-year sales data for 2017 shows slight improvements compared to 2016, even with inventory at persistently low levels.

“It just proves that demand is strong and consistent,” says Ken Hotard, senior vice president of public affairs for the Boulder Area Realtor® Association.

Single-family home sales in the Boulder area improved 2.1 percent year-to-date through November 2017 compared to the prior year – 4,224 homes sold vs. 4,138.

And the sale of 1,377 condominiums and townhomes through November represented a 5.5 percent gain compared to the prior year’s 1,305 units sold.

“We saw year-over-year sales improvements, but the pull-back in November compared to October was more than average,” says Hotard.

He’s referring to the 7.9 percent drop in single-family home sales in November compared to October — 359 vs.  390 homes sold. Attached dwellings sold decreased 2.4 percent month-over-month with 123 units sold vs. 126.

Since the weather was excellent for house hunting, the pullback is likely indicative of more than the typical seasonal slowdown.

“Inventory is probably the culprit in the November pullback this year, which resulted in not only fewer sales, but also a softening of prices,” he says. When it comes to low inventory, there is “no end is in sight for the foreseeable future.”

Hotard believes price-softening is confined to higher end homes where inventories are larger and homes take twice as many days on the market before selling. “Lower priced homes are not affected,” he adds.

While buyer demand is strong, low inventory can’t supply that demand. November’s inventory is telling: Single-family homes for sale in the Boulder-area dropped 22.8 percent in November compared to October with 777 homes for sale vs. 1,006. Condos and townhomes felt the pinch slightly harder with a 24.7 percent drop for the month of November – 146 units vs. 194.

Mortgage interest deductions may diminish in importance as a result of the doubling of the standard deduction as part of recent tax reform legislation. The National Association of Realtors predicts only a small percent of homeowners will take advantage of the mortgage interest deduction in years to come because of that change.

 

*Photo courtesy of Edwin Andrade on Unsplash.com

Originally posted here by Tom Kalinski Founder RE/MAX of Boulder on Friday, January 5th, 2018 at 10:15am.

Posted on January 16, 2018 at 5:38 pm
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