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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Where have all the buyers gone?

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? 

Economic Conditions?

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.

The takeaway

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.

Posted on July 2, 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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