Wells: This is the market buyers have been waiting for
For a multitude of reasons, would-be homebuyers have been idling on the sidelines of the housing market, waiting for conditions such as interest rates or inventory to shift in their favor. Let me set out some points to substantiate why I think the market is now advantageous for buyers.
First, I am very aware and understand that current affordability, based on home price and interest rates, is challenging for many first-time homebuyers, who make up approximately 25% of the home-buying market. Thankfully, I can share five reasons why buyers should be encouraged:
Slower than historic appreciation
On average, annual home price appreciation in the Fort Collins-Loveland Metropolitan Statistical Area has been 5.7% between 1978 and 2023. For the Greeley MSA, the annual average is 5% between 1984 and 2023.
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Notably, appreciation slowed in 2023 to 1.2% for both Fort Collins-Loveland and Greeley. For 2024, the rate of appreciation in the first quarter was 2.1% for Fort Collins-Loveland and 1.1% for Greeley..
These statistics show that price growth is slowing, offering an opportunity for buyers to seize upon price stability and not feel they are being priced out of homes or neighborhoods they desire.
Improved interest rate environment
In August of 2023, interest rates reached a two-decade high of 7.2%. As of August of 2024, rates have decreased to around 6.46% for a 30-year fixed-rate mortgage. Consequently, the payment outlook and overall affordability for buyers have improved.
The interesting trend we have witnessed over the last 12-24 months is that a decline in rates has not instantly caused buyers to jump in, but actually the opposite. And when rates have shown signs of increasing, we have seen increased buyer activity. Why? I feel that when rates dip, buyers hold out for improved rates; but when there are signs the market might be going the other way, they act.
Increasing inventory
Even well before the 2020 COVID-19 pandemic, there has been a common complaint about lack of available housing inventory. Buyers have faced more challenges in finding the home they desired. And when they did find the right home, they often confronted stiff competition from other buyers. Fortunately, this predicament has continued to ease over the past 12 months, with inventory of single-family homes increasing 34% year over year in Fort Collins, 24% in Loveland, and 13 percent in Greeley.
Less competition
Cash purchases certainly reigned supreme in the post-pandemic years. According to the ATTOM Data Solutions 2023 Year End Home Sales Report, 38% of home sales were cash deals in the typical MSA in the United States. As a result, many buyers found themselves unable to compete for the home they desired. Losing out to all-cash purchases became commonplace and a great source of frustration for buyers.
While we still see a high percentage of cash purchases, we also see that the number of listings to receive multiple offers has decreased substantially. Don’t be fooled – there is still competition for properties in great condition in highly sought after locations. But the opportunities for buyers to make offers without competition are improving.
More concessions and negotiating power
As a result of the market shifts we have seen, sellers are more willing to offer concessions to buyers on home improvements, repairs, and even financing incentives (such as interest rate buydowns). These factors all represent improvements from the days of 2021 and 2022 when buyers had to accept properties as is – while waiving important steps such as inspections and appraisals – just to be competitive.
As we finish out 2024, I think it’s important for potential buyers to look at the much-improved landscape, and recognize we are trending away from the frustrations of years prior. But I worry that with an improving interest rate outlook for the coming years, many of these buyer-positive market conditions could slowly erode, causing a window of opportunity to close. The psychology of real estate has always been one of not trying to predict the future but focusing on the opportunities of today.
Brandon Wells is president of The Group Inc. He can be reached at [email protected] or 970-430-6463
