Though the year isn’t quite over, the residential real estate market in the Boulder Valley largely played out as predicted in 2016. Inventory was at or near its lowest levels ever, competition among buyers was fierce, particularly in the first half of 2016, and homes appreciated at the fastest rates in the country. The only real surprise was that interest rates did not increase as much as predicted.
Though always somewhat risky, here are three predictions for 2017 and how they will likely affect buyers and sellers.
Prediction: Interest rates will likely increase in 2017. Over the last several years, many experts have predicted interest-rate hikes that largely did not materialize, with 30-year conventional loan rates staying mostly at or below 4 percent. There are reasons to believe, however, that rates will increase — at least somewhat — in 2017. Lawrence Yun, chief economist for the National Association of Realtors, predicts that the Fed will increase rates, possibly as soon as this month. And speaking at the 2016 Boulder Valley Fall Real Estate Conference & Forecast, Dr. Thomas Thibodeau, Academic Director and Global Real Estate Capital Markets Professor at the University of Colorado Real Estate Center, said rates would likely increase if some or all of President-elect Trump’s proposals are enacted.
What it means: If rates do increase, it will prevent some buyers from qualifying to purchase a home in Boulder County. This will have the largest effect in places with the least-expensive homes, namely Longmont and Erie. However, given our area’s population growth, low unemployment rate and quality job base, the effects will be much smaller than in other areas of the country.
Prediction: Inventory in the home resale market will be even lower next year. Each year for the last several years has been marked by decreasing inventory to the lowest levels recorded, and it appears that this trend will continue. Many sellers are aware that home prices have been increasing, so they have an incentive to hold onto their homes as long as possible before selling to capture as much appreciation as possible. Compounding this is the fact that, according to John Covert of Metrostudy, not enough new homes are being built in the Boulder Valley to keep pace with demand.
What it means: Low inventory will continue to push home appreciation upward and create another year of extreme competition for buyers. For sellers, 2017 will be another great year to sell.
Prediction: Home prices will continue to appreciate quickly, especially in the first two quarters of 2017 (expect around 10 percent appreciation next year). Inventory likely will remain very low, and with interest rates predicted to increase next year, buyers likely will feel increased pressure to buy early in the year before they lose buying power. Moreover, there are more than 60,000 people who commute into Boulder County each day for work, tens of thousands more people moving into the area each year and unemployment rates below 3 percent, all of which bolster the number of buyers in the market.
What it means: The likely steep increase in appreciation in the first half of next year will increase the urgency of buyers to buy early, which will increase competition and mean that it will be an ideal time for willing sellers to list their homes. For buyers, those looking early in 2017 will face stiff competition, and those who wait until the fall will find significantly higher prices.
The Bottom Line. In the main, the 2017 housing market in the Boulder Valley will look a lot like 2016, with quickly increasing prices in the first half of the year, fierce competition among buyers and mostly happy sellers. The biggest unknowns will be how much will interest rates increase and how big an impact will it have on buyers’ ability to purchase our relatively expensive home stock.
Jay Kalinski is broker/owner of Re/Max of Boulder.