The primary driver of real estate markets is change.
Change is a constant in our world, and people experience change regardless of economic conditions. I have stated previously in this column that job change, family formation, births, divorce, death, relocation all are changes that create supply and demand in real estate markets. The psychology of consumers and the factors that influence also play a role in supply and demand.
Since the summer of 2020 — when we saw the influence that historically low interest rates were making on housing demand in an already-crisis level of housing supply — the writing was on the wall: We were not just operating with the normal change behavior that drives markets. Instead, we were experiencing an opportunity of leverage.
Consumers were leveraging cheaper borrowed money, and in most cases their existing home equity, to move up in the market. Many other consumers were using low rates as an opportunity to get in the market and obtain their dream of homeownership before the dream got further out of reach financially. The market conditions were akin to pouring gasoline on a fire.
Now, many people out there have concerns that the fire has completely gone out. But a closer look at recent sales data shows us that is simply not the case. In fact, it’s a healthy market in Northern Colorado.
This Under Contracts table gives us a look at changes in demand in the marketplace going forward, and gives us a historical comparison perspective of how that demand has changed over time. In July, all cities (with the exception of Berthoud) saw properties under contract decline year over year: The average decline in these cities/towns was 21%. The recent rapid increase in long-term interest rates has slowed demand across our region.
Traditionally, 25% of buyers in markets are first-time buyers. According to the National Association of Realtors, the average payment increase on the median priced home ($416,000) in the U.S. has gone up by $800 per month. It is safe to say the interest rate increases over the past several months have cut out roughly 20-25% of the demand due to the impact on affordability
|City||July 2021 Under Contracts||July 2022 Under Contracts||% Change YOY|
Now, let’s take a look at the supply side across Northern Colorado. In many markets we are not seeing a heavy influx of listings on the market; only three markets experienced a year-over-year increase in new listings in July. All other cities and towns saw reductions in new listings, from -9% in Wellington to -25% in Berthoud.
|City||July 2021 New Listings||July 2022 New Listings||% Change YOY|
In every city with the exception of Greeley we have yet to see inventory levels of homes reach pre-pandemic levels. In the next chart I have shown what the level of homes for sale in 2019 were for comparison. Listings are staying on the market longer as a result of buyer demand slowing. The supply challenges will continue to persist, helping to keep markets stable.
|City||July 2019 Homes for Sale||July 2021 Homes For Sale||July 2022 Homes For Sale||% Change YOY|
The market is a safer place as a result of these changes where buyers who need to purchase are able to do so with more safety today. The ability to compete and not having to waive inspections, appraisals, or the ability to come to the table with contingencies is becoming more commonplace again. You know what we call a market like we are experiencing today? Healthy!
Brandon Wells is president of The Group Inc. Real Estate. Reach him at firstname.lastname@example.org or 970-430-6463.