A statistic we keep our eye on is the percentage of homes which sell for at least list price.
In a robust, healthy, market with lower inventory, we will frequently see homes selling for their asking price or even higher.
Here are the number of sales that occur for list price or higher in each of our major markets:
• Fort Collins = 60%
• Loveland = 60%
• Greeley = 71%
• Windsor = 56%
There are a couple of things we notice about these numbers. First, well over half of all sales are for at least list price. This means that a buyer needs to be prepared to make a full price offer (or higher) in most cases. This also means that if a seller is priced right and marketed effectively, they should achieve their asking price.
We also notice that these percentages are lower than one year ago. In 2018 these numbers were 5% to 10% higher in each market. This is good news for buyers of course because the bidding wars are not as intense as last year.
A high-level look at the Northern Colorado region shows that the number of residential sales is down 5.4% in Larimer County and up 4.7% in Weld County. This is simply comparing the number of closings from June 2018 to June 2019 versus June 2017 to June 2018.
The high-level look doesn’t tell the whole story. It get’s more interesting when we look at individual Northern Colorado cities and towns:
• Fort Collins = -8.8%
• Loveland = -5.7%
• Greeley = +11.7%
• Windsor = +16%
• Wellington = -16.9%
• Timnath = +44.1%
• Severance = +20.4%
• Johnstown = -18.7%
• Berthoud = +18.1%
• Evans = -14.7%
So, what can we learn from this? The areas with increased sales are where there is an abundance of new construction (Timnath and Severance for example).
The areas with decreased sales don’t have an abundance of new construction (Fort Collins for example).
The exceptions to this would be Wellington and Johnstown. It appears that there is price sensitivity to the new construction product now being built in these areas. Given rising costs, builders are challenged to deliver a product under $350,000 in these places.
For instance, in Wellington, between June 2017 and June 2018 there were 137 sales of new homes priced under $350,000. Today there are only 6 new homes on the market at that price point.
Just a few months ago most people thought mortgage rates were heading to 5% and now they are back to where they were a year ago.
You probably saw this week’s news from the Federal Reserve declaring that they would not raise their Federal Funds rate for the rest of 2019
(just three months after saying they would raise rates at least twice this year).
While this is big news, even bigger news for mortgage rates is that the 10-year Treasury yield just hit its lowest point since January 2018. One thing we’ve learned from our Chief Economist Matthew Gardner is that mortgage rates follow the 10-year treasury (not necessarily the Fed Funds rate).
Last Spring it looked like mortgage rates had bottomed out and they steadily climbed through the Summer and Fall of 2018. It looked certain that they would hit 5% around January.
Instead they started dropping. Now with the 10-year Treasury at a 15-month low, they just dropped a little more and they are back to where they were a year ago.
Great news for buyers! Party like it’s 2018!
What a year it has been for both the U.S. economy and the national housing market. After several years of above-average economic and home price growth, 2018 marked the start of a slowdown in the residential real estate market. As the year comes to a close, it’s time for me to dust off my crystal ball to see what we can expect in 2019.
The U.S. Economy
Despite the turbulence that the ongoing trade wars with China are causing, I still expect the U.S. economy to have one more year of relatively solid growth before we likely enter a recession in 2020. Yes, it’s the dreaded “R” word, but before you panic, there are some things to bear in mind.
Firstly, any cyclical downturn will not be driven by housing. Although it is almost impossible to predict exactly what will be the “straw that breaks the camel’s back”, I believe it will likely be caused by one of the following three things: an ongoing trade war, the Federal Reserve raising interest rates too quickly, or excessive corporate debt levels. That said, we still have another year of solid growth ahead of us, so I think it’s more important to focus on 2019 for now.
The U.S. Housing Market
Existing Home Sales
This paper is being written well before the year-end numbers come out, but I expect 2018 home sales will be about 3.5% lower than the prior year. Sales started to slow last spring as we breached affordability limits and more homes came on the market. In 2019, I anticipate that home sales will rebound modestly and rise by 1.9% to a little over 5.4 million units.
Existing Home Prices
We will likely end 2018 with a median home price of about $260,000 – up 5.4% from 2017. In 2019 I expect prices to continue rising, but at a slower rate as we move toward a more balanced housing market. I’m forecasting the median home price to increase by 4.4% as rising mortgage rates continue to act as a headwind to home price growth.
New Home Sales
In a somewhat similar manner to existing home sales, new home sales started to slow in the spring of 2018, but the overall trend has been positive since 2011. I expect that to continue in 2019 with sales increasing by 6.9% to 695,000 units – the highest level seen since 2007.
That being said, the level of new construction remains well below the long-term average. Builders continue to struggle with land, labor, and material costs, and this is an issue that is not likely to be solved in 2019. Furthermore, these constraints are forcing developers to primarily build higher-priced homes, which does little to meet the substantial demand by first-time buyers.
In last year’s forecast, I suggested that 5% interest rates would be a 2019 story, not a 2018 story. This prediction has proven accurate with the average 30-year conforming rates measured at 4.87% in November, and highly unlikely to breach the 5% barrier before the end of the year.
In 2019, I expect interest rates to continue trending higher, but we may see periods of modest contraction or levelling. We will likely end the year with the 30-year fixed rate at around 5.7%, which means that 6% interest rates are more apt to be a 2020 story.
I also believe that non-conforming (or jumbo) rates will remain remarkably competitive. Banks appear to be comfortable with the risk and ultimately, the return, that this product offers, so expect jumbo loan yields to track conforming loans quite closely.
There are still voices out there that seem to suggest the housing market is headed for calamity and that another housing bubble is forming, or in some cases, is already deflating. In all the data that I review, I just don’t see this happening. Credit quality for new mortgage holders remains very high and the median down payment (as a percentage of home price) is at its highest level since 2004.
That is not to say that there aren’t several markets around the country that are overpriced, but just because a market is overvalued, does not mean that a bubble is in place. It simply means that forward price growth in these markets will be lower to allow income levels to rise sufficiently.
Finally, if there is a big story for 2019, I believe it will be the ongoing resurgence of first-time buyers. While these buyers face challenges regarding student debt and the ability to save for a down payment, they are definitely on the comeback and likely to purchase more homes next year than any other buyer demographic.
Originally published on Inman News.