2 reasons why market remains affordable for most homebuyers

Between July 2015 and July 2017, statistics tell us that average home sales prices across Northern Colorado increased by nearly 20 percent (more on that later). Still, financial analytics services such as WalletHub continue to report that housing markets in our region’s biggest cities are more affordable than most.

For example, in WalletHub’s latest report, the Greeley market is ranked No. 98 for affordability — placing it in the top third among 300 metro areas that WalletHub surveyed. Fort Collins-Loveland landed at No. 167, or roughly in the middle of the pack. Similarly, Longmont checks in at No. 145.

We know household incomes did not increase at 20 percent over the past two years. Not even close. So how can WalletHub contend that markets with some of the fastest price appreciation in the United States remain relatively affordable?

In fact, for first-time homebuyers — representing about 20 percent of all home purchases — affordability is indeed a challenge amidst this wave of strong appreciation. But for the rest of the home-buying audience, these conditions are not an obstacle or even beneficial for some.

Let’s take a closer look at two reasons why:

• First, consider the 60 percent of buyers who already own a home. Due to the type of price appreciation we’re talking about, this group is experiencing healthy gains in equity. In fact, positive appreciation combined with low interest rates means affordability has even improved for this segment of buyers.

• Another 20 percent of today’s buyers are investors. These are people who come to the table with cash. For this segment, affordability is not a factor. Their chief concern? Whether rents continue to remain high enough to support their investment.

Consequently, we can see that today’s market conditions are affordable for approximately 80 percent of the homebuying audience‚ which also means that talk of a market bubble — which naturally comes to the surface at a time of rapid price increases — shouldn’t be so frightening after all.

As we noted at outset, price appreciation is still stout across the local submarkets.  The average sale price for July 2017 in Northern Colorado is $364,759 — up 8.9 percent from last year, and 19.6 percent from July 2015.

One factor that could begin to ease the appreciation trend is the greater availability of homes on the market. After a long stretch of tightening inventory, we can report that supply increased 3.8 percent between July 2016 and July 2017.

Here are few other noteworthy statistics from July:

With inventory up slightly, it follows that total sales for the region are also up. Regionwide, year-to-date sales (6,193) were up about 1 percent through July compared with the same time last year. By comparison, sales through July 2016 fell by one-half percent compared with July 2015.

Inventory in the Greeley-Evans market was off 32.6 percent compared with July 2016, and down 42.4 percent from July 2015. It’s no coincidence that Greeley-Evans also experienced the greatest two-year growth in average prices — up by 25 percent to $274,953.

We’ve talked recently about the growth of new-home construction in Berthoud. That’s starting to bear out in the number of sales. By separating sales figures in Berthoud from the larger Loveland-Berthoud market, we count 307 sales through July in Berthoud — up by 140 percent over the same time last year.

Larry Kendall is co-founder of The Group Inc. Real Estate and is creator of Ninja Selling. Contact him at 970-229-0700 or via www.thegroupinc.com.

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