Three possible answers to the 2018 inventory question

With 2018 beginning to unfold, we feel the familiar influence of a lack of housing supply — not just in Northern Colorado, but nationwide. In fact, the National Association of Realtors reports that nationwide inventory in January was down 9.5 percent from the same time last year, leaving only 3.4 months of supply — the lowest since 1999.

Locally, our inventory in January was essentially flat — down from 1,246 to 1,244. And as we’ve learned so well along the Front Range, such limited availability coupled with high demand keeps putting upward pressure on prices. Northern Colorado’s average sale price in January was up 11.2 percent over January 2017.

Which begs the question — where will inventory come from in 2018 to meet the needs of our homebuyers? We see three possibilities:

New construction in smaller communities. After the pace of new home construction faltered in the wake of the Great Recession, we’re seeing a resurgence in towns such as Berthoud, Timnath, Windsor and Severance. For instance, January statistics show that the number of homes for sale in the Windsor-Severance submarket was up 29 percent over last year, and Timnath was up nearly 60 percent — mostly due to new construction. While Berthoud inventory growth was only 3.8 percent year over year, it’s worth noting that there are nearly 4,000 available lots for future housing development in Berthoud — making it a likely location to supply homes for months and years to come.

The move-up market. As home values have climbed in recent years, many existing homeowners in Northern Colorado find themselves sitting on substantial amounts of equity. With that newfound wealth, the opportunity to sell and move up to a dream home has rarely been better. And as more people seize that opportunity, it will provide inventory for others looking for entry-level or mid-range options. But a note of caution — with mortgage rates beginning to inch up, and the consequential impact on buying power that would follow — that window of opportunity for move-up buyers may well be starting to close.

Investors ready to sell. Investors who own houses as income properties have long been a force in the local market. But the time may be right for many of them to take advantage of the demand and strong prices to sell off portions of their holdings. Motives can include the desire to simplify their portfolios, use profits to invest in business opportunities, or to put their kids through college.

The common thread tying each of these possibilities together is the ongoing demand for housing. In the face of concerns that rising mortgage rates might dampen demand around the country, we’re unlikely to feel much impact in Northern Colorado. Why? First of all, even with the recent bump, rates remain historically low. Next, people continue to want to move here for lifestyle reasons. And most importantly, continuing job growth along the Front Range keeps providing people with the wherewithal to buy a home.

The chart  above compares statistics from January 2017 to January 2018 in each sub-market for the number of sales transactions and for average sales prices.

Brandon Wells is president of The Group Inc. Real Estate, employee-owned and founded in Fort Collins in 1976 with six locations in Northern Colorado.

See Brandon’s February 2018 column: Berthoud sits in the housing market’s sweet spot

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