Don’t let the headlines fool you: local real estate still looking up

Recent history tells a glowing story about residential real estate in Northern Colorado. Since the end of the Great Recession in 2009, the local housing market has clicked along at a remarkable rate of velocity, marked by strong demand and steady price appreciation. But perhaps 10 years of nearly friction-free prosperity has given rise to the belief that this is how our market should roll, and that any obstacles in the path might be a sign of trouble ahead.

If you read some of the headlines across the country, you might be persuaded that there’s a catastrophic real estate meltdown in the works. But the more we read, the more we disagree with that notion and find ourselves focusing on the underlying fundamentals that make our region a continued bright spot in the national housing market. More on this later.

There’s no denying some of the headwinds blowing in the face of the real estate market these days. An undersupply in housing puts further upward pressure on prices, which harms affordability, a fact that is exacerbated by recent increases in interest rates. Add the fact that homebuilders — the sector we count on for more housing supply — are hindered by rising construction costs, due to tariffs on materials and a tight labor market. Add in the noise around the recent midterm election, along with volatility in the stock market, and we get where we are today — a slower pace of home sales in the third quarter and a negative perception of the real estate market.

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But we see much that’s positive about real estate, especially here in Northern Colorado. Let’s start with how homebuilders are responding to the needs of homebuyers. Increasingly, builders are focusing on more high-density and affordable housing options. Because of the lag between the start of development and the actual completion of homes, we’re waiting on some of these projects to come online. When they do, these new developments will offer housing opportunity and help us re-balance the market.

Another positive indicator is the continuing economic prosperity of the area, coupled with the ongoing desire of people to live here. These factors are manifested in the recent competition for the second Amazon headquarters — which eventually got divided between New York City and Northern Virginia. Just the fact that Colorado was a finalist reinforces the attraction we know this area holds for business and job creators. As long as that’s the case, the real estate market here remains on solid footing.

Still, there is one thing real estate is not. It is not immune to fluctuations. Our recent 10-year upswing notwithstanding, real estate has been, and always will be, a seasonal and cyclical business. Consider this fact: Since it started keeping track at the beginning of 1991, the FHFA Home Price Index shows that Colorado’s average sale prices have increased 360.3 percent, second only to Washington, D.C., during that time frame. But within that stretch, there have been multiple periods when prices dipped or at least went flat. Combine this long-term track record of strength in the Front Range housing market along with the positive indictors just mentioned, and it all adds up to a solid source of confidence for the long haul.

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