A well-functioning market consists of two sides: suppliers who offer a particular good for sale and consumers who purchase those goods. In the Boulder Valley residential real estate market since 2012, there have been more consumers looking to buy homes than there were sellers offering homes for sale, which has led to a long appreciation period for homes. Now, however, it appears that the number of buyers is dropping as is their willingness to pay ever-increasing prices.
Spotting the trend
First, how do we know that there are fewer buyers in the market? The most direct measure of buyer activity that my company tracks (courtesy of Broker Associate Mike Malec) is the number of showings per available listing. From examining the data, it is fairly easy to see that this year’s showing activity is markedly below the recent boom years, but is still above the levels present during the recession.
Second, to further substantiate this decline in buyer activity, we can look at more indirect measures, such as average sales prices, available inventory of homes on the market, and average time a home will be on the market before sale. Each of these markers indicates a decline in buyer activity. Through May of this year, the average price of a single-family home in Boulder has fallen 0.6 percent, while the average attached unit has fallen 4 percent, compared to the same timeframe last year. This indicates that there are fewer buyers competing for available homes to the point where home appreciation rates have stalled. At the same time, the amount of homes available on the market has increased nearly 20 percent for single-family homes and almost 50 percent for attached ones, while the average time on the market for single family homes has gone up 5 percent and nearly 20 percent for attached ones. These statistics indicate that those buyers in the market are becoming choosier and are able to take their time making decisions.
Based on the above discussion, it seems that there are fewer buyers in the market and that those who are in the market are more cautious, but why?
It does not appear that our local economic conditions explain the drop in buyer activity. According to the State Demographer’s office, people are continuing to move into Boulder and Broomfield counties, albeit at a slower rate than previous years (though the city of Boulder has seen its population declining in the last two years). And local unemployment levels continue to be historically low.
Economic conditions at the national level are softening, to the point where the Fed is discussing interest rate cuts, so these conditions may play some role. But, interest rates are actually about half a percent lower than they were at this time last year, which would appear to weaken that argument.
Could it be the weather?
Another possible explanation I’ve heard is that our unusually cold and snow winter could have suppressed buyer demand as people were less willing to trudge through the snow to go see houses. While this is plausible, all else being equal, we would have expected to see that pent up demand being released as the weather improves, but we just have not seen that play out in the data yet.
Whatever the cause of the decline in buyer activity may be, local real estate legend Larry Kendall of the Group Inc. Real Estate in Fort Collins always says that buyers are the smartest people in the market, so they may be acting as the proverbial canary in a coal mine, meaning that they could be a leading indicator that our market is shifting from a seller’s market to either a balanced or buyer’s market. If you are a seller, be wary of pricing above the market in these shifting conditions.
Originally posted by Jay Kalinski is broker/owner of Re/Max of Boulder.
Home sales for Boulder-area real estate got off to a slow start in 2019 despite fairly mild January weather, resulting in decreased sales compared with a year ago.
Single-family homes posted 184 sales, a decrease of 20.3 percent compared with 231 homes sold in the same month last year. Sales of condominiums and townhomes dropped 23.0 percent for the same period with 71 units sold vs. 92.
“The market saw a pretty significant slowdown that started mid-November and continued through January,” says Ken Hotard, senior vice president of public affairs for the Boulder Area Realtor® Association. “The fundamentals are still solid—inventory improved and interest rates aren’t going up quickly,” he says, noting that interest rates are historically low and affordable at around five percent or below for a 30-year fixed mortgage.
Month-over-month single-family home sales dropped 39 percent in January with 184 homes sold compared to 302 in December. Townhome/condo sales were a bit stronger, nearly matching December sales with a .013 percent decrease – 71 units sold vs. 72.
Inventory jumped 15.7 percent for single-family homes with 722 homes for sale in January compared with 624 in December. Attached dwellings showed even greater improvement, rising 18.1 percent—241 units vs. 204.
Hotard explains that for now the statistics represent a series of events. “Once we get enough data, we’ll start to see trends,” he says.
“There seems to be uncertainty in the market and buyers are thinking I can stay where I am and look for a better opportunity in the future,” says Hotard. “It’s a story that’s repeating itself in a number of markets across the country.”
Yet Boulder-area prices continue to rise or hold steady, job growth and the employment rate remain strong, and Boulder County is still a desirable place to live.
“Our strong fundamentals should attract buyers as we move through February.”
Originally posted by Tom Kalinski Founder RE/MAX of Boulder on Tuesday, March 14th, 2019.
Sellers in the Front Range housing market enjoyed a blistering spring season. Everything seemed to be breaking in favor of sellers — brisk appreciation, multiple offers, favorable terms, and generally quick sales. However, several trends are emerging that could derail (or at least diminish) a seller’s summer home sale plans. Here are three of the biggest trends likely to affect our summer market:
1. Rising Interest Rates. For the past several years, economists have been predicting that interest rates will rise from their historic lows (in the 3.5 percent range for a 30-year conventional fixed mortgage). It turns out that the eggheads finally got it right. Compared to this time two years ago, interest rates are at least a percent higher — and with the Fed raising their Funds Rate again at their last meeting (and with more raises on the horizon), it seems that even higher rates are coming. It seems now is an appropriate time to refer back to my article discussing the 1 percent Equals 10 Percent Rule, which is a rule of thumb that for each 1 percent increase in mortgage rates, your buying power decreases about 10 percent. When you consider this with the fact that average home prices in Boulder County have risen about 21 percent in the past two years, it means that the same buyers from two years ago can now afford 31 percent less than they could have back then.
If you’re thinking, “but I’m a seller, it doesn’t affect me.” Think of it in these terms: that pool of buyers who would have bought your 2,000 square-foot, three-bedroom house two years ago? They can now only afford a 1,380 square-foot, two-bedroom condo. That is, the pool of buyers for your home is significantly smaller today.
2. The market hates uncertainty. To say this has been the least conventional presidency of the modern era is an understatement. Setting aside the human side of the geopolitical uncertainty caused by the Trump administration (alienating the G7, backing out of the UN Human Rights Council, separating families at the border, etc.), the president has decided to wage trade wars on multiple fronts. And while these acts might be appeasing his base, they are starting to have a negative effect on the economy. As of mid-June, the stock market has given back all of the gains it made in 2018, due in large part to the trade wars started with China and other countries. Speaking of China, its investments in the United States have dropped 92 percent this year, and less foreign cash means less money to invest in the housing market.
The effect of this is straightforward — when people feel uncertain and less wealthy (i.e., watching their world turn topsy-turvy and stock portfolios drop), they are less willing to take risks and make changes. And while home ownership might be the best investment you’ll make, it still represents a risk, especially if you’re a first time home buyer. Thus, the uncertainties in the economy will produce fewer buyers than a steadily rising market.
3. What the frac? The fracking industry in Colorado has flourished since a Colorado Supreme Court ruling in 2016 held that state laws trumped local bans and regulations limiting fracking. In Weld County alone, there are approximately 23,000 fracking wells, and fights are currently raging over applications to drill near highly populated parts of Boulder and Broomfield counties. Wells are being placed within 1,000 feet of schools, and this encroaching boom has generated growing health and safety related concerns, from a Colorado School of Public Health study reporting that living near fracking wells may increase the risk of cancer, to a home in Firestone that literally exploded from a leaky underground pipeline.
As the concerns grow, so will buyers’ reservations about buying homes near fracking, which could slow demand in these areas. Longmont took the extraordinary step of paying two oil and gas companies $3 million to leave town and prevent future drilling. To be sure, there are competing property rights at issue, but if compromises are not reached that make people feel safe, then homeowners could see their home values fall.
In sum, our market has been red hot this spring, but there are issues on the horizon that could dampen summer sales prospects. Some of these are likely beyond our direct control, but I encourage you to make your voice heard where you feel you can make a difference. Your home’s equity (and your conscience) will thank you.
Jay Kalinski is broker/owner of Re/Max of Boulder.
Spring selling season in Boulder County continues to soar with April’s residential sales keeping pace with last month’s rocketing sales as well as outperforming April last year.
“Demand remains strong and inventory tight, keeping upward pressure on pricing,” says Ken Hotard, senior vice president of public affairs for Boulder Area Realtor® Association.
The 345 single-family homes that sold in April 2018 topped March’s rising sales by one unit or .3 percent; and the 126 condominiums and townhomes sold in April represented an additional 4 sold or 3.3 percent over last month.
Year-over-year Boulder-area single-family home sales climbed 5.4 percent through April 2018 – 1,198 homes sold vs. 1,137 – and condo/townhomes sales increased 5.9 percent with 447 units sold compared to 422.
Inventory also grew, which has proven to be a key factor in maintaining sales.
“While inventory showed solid increases in both single-family and condo/townhomes, we could use three-to-four times that amount to meet demand,” says Hotard.
Countywide single-family inventory increased 18.2 percent in April over March with 770 homes for sale vs. 651. Condo/townhome inventory improved 16.4 percent over the same period – 163 units vs. 140.
Hotard says evidence shows prices may have not yet reached a peak. “This is the first time I recall median prices over $1 million. It’s clear that with the city of Boulder built out on single-family housing stock, it’s putting pressure on prices.”
He notes that many dynamics shape the market. “Clearly affordability is a big issue – it influences who can live here, whether purchasing or renting. As more people can’t afford to live here, it’s a big loss because we are losing high quality people and the marketplace is becoming more exclusionary.”
Noting that buyers are coming from many places including California, Chicago, Texas and Nebraska, Hotard says people look to Colorado because of the entrepreneurial spirit and low unemployment.
Hotard summarizes, “As Boulder is to Colorado, Colorado is to the rest of the country.”