Home appreciation over 10-year intervals.

Availability, interest, taxes, affordability drive the housing market

LOVELAND — Housing availability, rising interest rates, tax reform and housing affordability will all drive changes to the Northern Colorado residential market.

Speakers at this morning’s Northern Colorado Real Estate Summit laid out each of those drivers in a session titled “Market Movers (Residential).”

Inventory

Eric Thompson, president of Windermere real estate, said the stories that you hear about the market are true. Sellers can expect multiple offers. Sixty-six percent of all properties are selling at or above their asking prices.

Because inventories are low, prices will continue to rise, but that’s also not new. Over 40 years, prices have increased more often than they declined, he said, and the years when they went down it was fairly insignificant in relation to how much they increased in other years. The increases more than made up for the decreases. The rapid rate of growth we’re seeing right now, he said, is making up for the declines that occurred during the recession.

The current inventory of available-for-sale housing stock is about one-third of what it was in 2010, he said.

While some fear a housing bubble because of the construction that’s occurring, the number of new starts is not keeping up with demand, so there’s little chance of a bubble, he said.

“We’re predicting 16,000 more people per year coming to Northern Colorado, which will lead to a population of 1 million by 2040. We’ll need 6,400 additional housing units each year in order to accommodate the people moving here,” Thompson said.

Rising interest rates

Michael Calcote, chief financial officer of Elevations Credit Union, laid out what mortgage lenders look at when approving loans and how that will be affected by the rising interest rates driving by the Federal Reserve.

Calcote said the industry is expecting a 70 basis point increase in interest rates in the next year and a 1 percent increase over the next 18 months. This will impact the market demand, although not as much as some expect. He said only 6 percent of the market, based on a survey, are pulling out of the market as a result of the interest rates.

But interest rates coupled with rising housing prices and low wage growth will force some buyers out of the market because they’ll no longer qualify for loans.

Calcote said that those factors, projected over the next two years, will put pressure on the ratios that lenders use to see if borrowers will qualify.

As some fail to qualify for loans, demand will decline, which will moderate home price appreciation, which may bring the market back into balance, he said.

Tax reform

Ryan Sanger, tax accountant with Anton Collins Mitchell accounting and audit firm, reviewed the changes that the recent federal tax law has brought to consumers.

For buyers new to the market, the doubling of the standard deduction will dampen the mortgage interest deduction benefit because they might not need to itemize deductions in order to get the maximum tax benefit from the new law.

He said it’s still unclear whether the 20 percent of income deduction for pass-through income earners will apply to Realtors and to landlords. Tax accountants are currently exploring that aspect of the new law.

“Homes are still a good place to invest money despite the changes,” he said in summary.

Affordability

Stephan Weiler, director of regional economic development for Colorado State University, reviewed the trends in the region driving affordability of housing.

The upper Front Range is where growth is occurring at the highest rates in the state and will continue, based on projections, to grow.

The region is home to many, small, start-up companies that depend upon migration in order to staff their operations. Job growth drives migration — and the movement of young people in particular, Weiler said.

“We are seeing trends that some of the growth is spreading out in the state,” he said. “And I think that housing costs are driving some of that.”

In Weiler’s opinion, the indirect effects of the newly passed tax law will have a greater impact on housing prices and availability than the direct effects. He said the injection of a trillion dollars into the economy as a result of tax cuts is the primary reason that the Federal Reserve is increasing interest rates in order to cool down inflationary pressures.

“Housing affordability will curtail bright young people who are helping companies with their growth. So migration could slow. If we lose small, young firms, that’s a danger sign,” Weiler said.

 

LOVELAND — Housing availability, rising interest rates, tax reform and housing affordability will all drive changes to the Northern Colorado residential market.

Speakers at this morning’s Northern Colorado Real Estate Summit laid out each of those drivers in a session titled “Market Movers (Residential).”

Inventory

Eric Thompson, president of Windermere real estate, said the stories that you hear about the market are true. Sellers can expect multiple offers. Sixty-six percent of all properties are selling at or above their asking prices.

Because inventories are low, prices will continue to rise, but that’s also not new. Over 40 years, prices have increased more often than they declined, he said, and the years when they went down it was fairly insignificant in relation to how much they increased in other years. The increases more than made up for the decreases. The rapid rate of growth we’re seeing right now, he said, is making up for the declines that occurred during the recession.

The current inventory of available-for-sale housing stock is about one-third of what it was in 2010, he said.

While some fear a housing bubble because of the construction that’s occurring, the number of new starts is not keeping up with demand, so there’s little chance of a bubble, he said.

“We’re predicting 16,000 more people per year coming to Northern Colorado, which will lead to a population of 1 million by 2040. We’ll need 6,400 additional housing units each year in order to accommodate the people moving here,” Thompson said.

Rising interest rates

Michael Calcote, chief financial officer…