Home demand to remain high as supply shrinks

Residential real estate demand is expected to remain high through 2014, but the region’s supply of homes is 13 percent lower than a year ago and challenges faced by builders to bring new homes to the market are mounting.

Year-end data from Information and Real Estate Services show that there were 3,346 fewer homes on the market at the end of 2013 than at the end of 2012 in the three largest metropolitan areas in Northern Colorado: Fort Collins, Loveland-Berthoud and Greeley-Evans.
New construction in those three cities falls far short of making up for those 3,346 homes, according to municipal data. In October and November 2013, building permits were issued for 149 new homes in those three cities combined, only 20 more than in the same months in 2012, when 129 new home building permits were issued.

Building new homes is only going to get more expensive in most of Northern Colorado, as developed lot prices continue to rise, especially in Fort Collins. According to data from the Everitt Real Estate Center, in 2010, Fort Collins had a 10-year supply of vacant developed lots, but that supply has dwindled to only two years today.

While developers have been able to pick up these lots for low prices, often out of foreclosure, prices are increasing as supply falls and demand increases. Lots eventually could reach as much as $75,000, which will drive up home prices.

In Greeley, the developed lot picture is different, with a larger supply there than in other parts of the region. That won’t last forever, as developers take note of the lot prices there and the demand stemming from oil and gas workers in the area.

“Greeley still has some lots that builders are quickly absorbing,” said Chalice Springfield, chief executive of Sears Real Estate in Greeley. “As new developments come online, lot prices will certainly increase which will affect the new construction prices and may make resale more competitive in the realm of price.”

New-home pricing in Greeley is at an historic low level because land prices are still comparatively cheap, making new home values on par with existing homes, Springfield said. The median home price in Greeley is $170,000, significantly below Fort Collins, for instance, where the median home price is $261,000.

“Purchasing a new construction today may be one of the last times in the next few years that you will be able to do so at prices similar to a resale property,” she said.

Low prices in the Greeley area probably will keep demand high through 2014, Springfield said, especially when coupled with job growth in Weld County and Northern Colorado as a whole.

In Larimer County, demand also should remain the same or even increase in the coming year, according to Angie Spangler, broker with Re/Max Advanced in Fort Collins.

But because most of the affordably priced lots in Fort Collins already have been purchased, more construction will spill into surrounding areas such as Wellington and Timnath, Spangler said.

Building in these more cost-effective areas will keep home prices lower because lots there have not yet reached the prices of more expensive areas such as Fort Collins.

Even if the market slows, Spangler said, it has recovered to the point that prices still may rise through 2014, although not as quickly or as much as they did in 2013.

Even factors such as rising interest rates are unlikely to slow the demand much, Spangler said. Interest rates have been creeping up for a year, and are expected to continue to do so this year, but their position in the mid-4 percent range means many people will still want to purchase homes, she said.

Homes at the $350,000 price point are likely to remain the “hottest market,” Spangler said.
“I had a listing at $295,000 and got five offers on it in four days – and some of them were more than asking price,” Spangler said. Multiple offers on properties returned in 2013, and the trend  is expected to continue in 2014.

In Fort Collins and Loveland especially, rental rates that just won’t go down also are likely to result in more home-buying. In many cases, people can buy a home with a mortgage payment that is lower than monthly rent, Spangler said.

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Molly Armbrister covers real estate, banking and health care for the Northern Colorado Business Report. She can be reached at 970-232-3139, marmbrister@ncbr.com or twitter.com/MArmbristerNCBR
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