Wells: 2020 will be a year of opportunity

It seems that even in the best of economies, we hear hollering from the sidelines about what might go wrong in real estate. Despite the noise, there’s much to say about what has been going right, and why that bodes well for real estate in Northern Colorado in 2020.

First and foremost, let’s look at the state of mortgage interest rates. Last year we saw rates drop well below 4 percent for 30-year loans, ending 2019 at 3.74 percent. And most leading experts tell us that rates will stay below 4 percent through 2020.

It’s difficult to overstate the significance of these low rates, which makes it possible for more would-be homeowners to qualify for housing loans. We felt that impact last year, when total homeownership rates in Colorado increased by 2 percent. Low rates brought about greater affordability (more on that later) which translates to better opportunities for homebuyers.

These interest rates matter even more when we account for local job growth. Last year alone saw nearly 18,000 additional jobs for residents of Larimer, Weld, and Boulder counties combined. And many of these people are potential homebuyers in the coming 12-18 months. With their incomes, they are poised to take advantage of low-cost loans.

Combine these two significant market forces, and that’s why we have ample reason to expect total home sales to grow again — albeit slightly — across Northern Colorado in 2020. And home price appreciation should grow in the range of 4-5 percent.

As I mentioned earlier, there’s more to say about affordability. While rising home prices are daunting for some, it’s apparent that many potential homebuyers are missing an opportunity because they are misinformed about what it takes to qualify for a mortgage.

According to a recent EllieMae survey, almost 50 percent (48.6) of renters believe they need a down payment of 20 percent or more in order to purchase a home. At the same time, nearly 83 percent (82.7) of renters believe their FICO credit score must exceed 700 to qualify for a mortgage loan.

First, let’s address the down payment question. Depending on individual circumstances, programs are in place that shrink down payments to less than 5 percent. Secondly, FICO scores are commonly below 700 for many borrowers in Northern Colorado.

Just looking at purchase loans arranged last year for borrowers in Larimer and Weld counties by Group Mortgage LLC and Cornerstone Home Lending Inc., more than a third (37.4 percent) required down payments of 10 percent or less. At the same time, 17.4 percent of loans were to borrowers with FICO scores less than 700.

Borrowers should also consider that the Federal Housing Administration says it can make loans to homebuyers with a credit score of 560 or higher, and at a down payment as little as 3.5 percent of the loan value. And for military veterans, Veterans Administration loans can also ease the demands for a down payment.

The bottom line: as long you can prove a stable source of income, there may be options for homeownership that haven’t occurred to you.

And there’s evidence to show that however you land a home loan, it’s well worth the effort. A 2017 Federal Reserve Survey of Consumer Finances reports that median net worth for homeowners is 44.5 times that of renters.

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