Strong economy keeping home prices on the rise

There has been a lot of publicity given to the residential real estate market recently, headlined by rising prices, which in the Denver metro area are at the top of the list nationwide. Case Shiller says year-over-year prices are up 10 percent, REColorado reports 11.3 percent and CoreLogic comes in at 9.8 percent. We thought we would take a look at the price gains in the BizWest four-county area (Boulder, Broomfield, Larimer and Weld counties) by way of comparison.

For single-family detached homes, the median price the first six months of this year is $315,500, compared with $277,500 for the same period last year. This is an increase of 13.7 percent, which puts this area ahead of the metro Denver figures and perhaps at the top of the charts nationwide.

This type of increase in selling prices is unprecedented, as shown in the 10-year graph.

Going back to 2006, the median price was $243,000 – and by 2011 it actually dropped to $232,000. The biggest increase during this period was 4.5 percent from 2009 to 2010 and the largest drop was 5.9 percent from 2007 to 2008. Beginning in 2012, it has been a different story, with annual increases from 2012 to 2014 averaging 6.9 percent.

And then this year happened. As mentioned, the year to date figure is up 13.7 percent, and we are on a pace to hit $322,000 for the full year, which would be a 13.8 percent increase – in one year. From the low of $232,000 in 2011, this would be a record-breaking 38.8 percent increase in just four years.

The demand for homes is also off the charts, with a projected 46 percent increase in annual sales from 2011 to 2015.

So the big question is, where to from here? Obviously the strong economy and low interest rates are fueling home ownership, helped by very high rental rates, which makes owning a home more attractive. Mortgage interest rates are forecast to increase later this year, which will take some people out of the market, but bigger paychecks will help to offset this.

At this point, we don’t think there is a danger of a housing bubble (oversupply) leading to a drastic drop or correction in selling prices. New construction still is lagging behind the demand, and the only surplus might be in new apartment construction which will help to slow down the sharp increase in rental rates. The economy shows every sign of continuing to grow, with the only negative being an inflationary trend.

We do believe the demand will slow, which will help to modify price increases, but if you are a prospective home buyer, sooner rather than later would be our call.

Dave Pettigrew is a real estate broker at Ascent Real Estate Professionals, 2700 S. College Ave., Fort Collins. Contact him at FCRealtor@msn.com or 970-282-9305.

on Facebook on LinkedIn