10/31/2023
Market Update šš” š
The real estate market continues to adjust to the new normal of painfully high rates. The 30 year rate is now just under 8%.
I remember a year ago I was dumbfounded to learn that rates had eclipsed the 7% mark. That number felt impossible at the time. I remember thinking it must be a fluke. Surely rates will moderate downward over the next year.
But here we are a year later and 7% seems like a bargain. The cost for a $500,000 mortgage which is a typical loan amount in our area, has gone from $2,500 to $4,000 in two years time.
The last time interest rates were at 8% was 23 years ago in August of 2000. Back then our median price was about $200,000. It is now about $600,000.
The only thing more surprising than the sharp increase in rates is how stubborn the market has been to give up the massive price gains that occurred during the pandemic.
Some people say the lack of price correction is due to low inventory caused by the golden handcuffs, the phenomenon where people wonāt list their homes because they donāt want to lose their low interest rate. But that is misleading.
While the golden handcuffs are keeping the number of sales that occur about 20% below normal, the number of homes that buyers have to choose from is back up to pre-pandemic levels.
These levels have been relatively consistent over the last decade. And coupled with low interest rates, they have been producing an average annual price growth rate of 9.2% per year through 2022.
Obviously that kind of appreciation wonāt be sustained with current borrowing costs. And now that weāve seen a full year of rates in the 6.5% to 8% range, we have a better feel for how the market will perform in this environment.
Overall it appears that we will end the year with prices about 2% higher in Larimer County and 1% higher in Weld County.
The simple fact is that there are many people who can still afford this market.
The buying power of the dual income household should not be underestimated. Particularly when they are sitting on $250,000 in equity should they sell their current home.
The average homeowner in the US has $275k in equity and 25% of homes are owned free and clear.
When people need or want to move and the new house payment will not dramatically impact their day to day life, they will usually make the move.
Buyers are also enjoying the lack of bidding wars, they are able to shop more leisurely, take their time making decisions, negotiate concessions and usually buy at or below list price. This is making their high payment a little easier to swallow.
The economy continues to show remarkable resilience in the face of the rate hikes. Low unemployment and robust consumer spending are keeping the fed from feeling good about the softening inflation.
Expect rates to stay higher for longer than people expect. But also be wary of anyone, including me, projecting where interest rates will be in the next few years. Many analysts expected rates to be back in the 5ās by now, but here we are near 8%.
When rates do come down into the 6% range again, expect a lot of pent up buyer demand to be unleashed into the market. This should bring more inventory online but will also increase the number of buyers, so the market is unlikely to soften with this new inventory.
When this happens, expect any price corrections that occurred during the rate surge to be quickly erased.
Someone asked me the other day, āWho are the people buying and selling right now?ā
In the last month we have sold homes for people leaving town due to job transfers, people coming to town to be close to their kids, people selling investment property, people buying investment property with cash, people buying vacation property with loans, people buying a larger home and turning their current home into a rental, and even some first time home buyers.
Itās a similar mix of people as we have seen in years past, but thereās fewer of them.
We have been sharing these market reports for over a decade now and each time we do it is with some sadness as we see affordability in Northern Colorado continue to erode away. I am ever mindful of our sister city Boulder, its similarities to Fort Collins, and its median price of $1.2M.
If you plan on living in NoCo over the long term please plan accordingly.
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