2016 Boulder Valley forecast bright for home sellers

The real-estate market in 2015 was marked by tight inventory, low interest rates and price appreciation in nearly all housing segments. The final statistics are still being tallied for 2015, so let us take a look at what to expect for 2016:

Interest rates

As was widely predicted, the Federal Reserve Board did indeed raise interest rates by 0.25 percent. Somewhat surprisingly, this did not correlate into an immediate and commensurate rise in mortgage rates. Nevertheless, this move by the Fed signals its belief that the market is improving and the consensus among experts is that rates will continue to rise throughout the year.

So, what does this mean for Boulder Valley? Given the unique factors that comprise our market, rising rates will likely cut several ways. First, as rates go up, purchasing power goes down, and this will spur some home buyers to act more urgently to get into a home and lock in a mortgage before rates go up further. Second, the decreased purchasing power may cause some home buyers to look further east and north in Boulder and Broomfield counties, where home prices are comparatively more affordable. Finally, some home buyers will likely become discouraged or simply unable to qualify to purchase a home and will be forced to continue renting. The net effect of this will likely be increased competition at the more affordable end of the market, particularly in Longmont, Lafayette, Erie, and the northern part of Broomfield.

Resale market

The resale market in 2015 was one of the strongest seller’s markets we have seen this decade, with a meager 2.3 months of inventory of homes on the market at the close of November (a balanced market is five to seven months of inventory, with anything less being a seller’s market). A large contributing factor to this was the extremely low inventory of homes on the market in 2015. For example, in July 2006 in Boulder County, there were more than 2,700 single-family homes for sale; in July 2015, there were fewer than 1,000. This led to strong home price appreciation throughout almost all of Boulder and Broomfield counties and fierce competition among buyers. In the City of Boulder, from 2009 through September 2015, the average home rose from $642,606 to a staggering $956,807. In fact, the two least expensive single-family homes on the market in the city of Boulder are currently listed at $599,000 and $650,000, respectively.

For 2016, the inventory of resale homes on the market is predicted to be extremely low again, possibly even lower than 2015. There are myriad reasons for this lack of inventory, including the fact that people are staying in their homes longer on average and sellers are finding it difficult to sell and “move up” because of the robust home price appreciation our market has experienced. Even with interest rates rising, the overwhelming buyer demand is expected continue in Boulder Valley because of an increasing number of family formations, population increase and extremely strong job market, to name just a few.

A word on new homes

A rising market like this would normally be prime time for builders and mean a fresh supply of homes for hopeful buyers. While somewhat true in our area, housing starts lag behind demand, and it can take twice as long to deliver a new home than it did before the Great Recession. This is caused by several factors, including a lack of skilled tradespeople and inadequacy of lots available for builders to begin building on.

Conclusion

When these factors are combined, it becomes evident that 2016 will be a great year to list your home if you are ready to sell, but buyers will continue to be challenged by a lack of inventory, increasing mortgage rates and strong competition from other would-be buyers.

Jay Kalinski is broker-owner of

Re/Max of Boulder.