Friday, July 22, 2016

Real Estate Market Update

Real Estate Market Update

Mid-Year Market Review

Looking back at the first half of 2016, the real estate market has performed much as expected. In a year that has already seen a series of tumultuous events unfold on the world stage and at home, real estate has remained surprisingly insulated and stable. 

The market has been driven by internal fundamentals rather than outside forces. Specifically, the imbalance between low supply and high demand remains the primary driver. This month, we will compare actual year-to-date market performance with our 2016 predictions and look ahead to what we can expect in the second half of the year. But first, a quick review of last month’s market data. 

The volume of real estate sold across all Front Range markets in June decreased 0.2% compared to June of last year and was up 12.9% over May. The supply of inventory ticked up slightly to 1.6 months. Many markets saw a significant increase in new listings in June.  

In Douglas and Arapahoe Counties, the volume of real estate sold in June fell 5.9% and 7.1% respectively on a year-over-year basis. The supply of available homes in Douglas County remained below the 2 month mark at 1.7 months and 1.0 months in Arapahoe County.

Now let’s compare the actual year-to-date numbers with the predictions we made at the outset of 2016.

#1. Sellers Keep the Advantage

Inventory levels will remain well below the six-month benchmark that divides a sellers market from a buyers market.

Mid-Year Update: This prediction has proven accurate. Even though many home owners have realized now is a great time to sell, not enough of them have listed their homes to satisfy the demand of first-time buyers, move-up buyers and relocators entering the market. 

Looking ahead to the second half of 2016, expect to see a more balanced market with more inventory. June saw a flurry of new listings come on the market. Many of these listings were immediately snapped up, but if this trend continues, inventory shortages may ease a bit in the second half of the year. Rather than the 1 - 2 months of supply that has been the norm, inventory levels could edge up to the 3 - 5 month range. This will give buyers not only more listings from which to choose, but a bit more negotiating power as multiple offers become less prevalent. 

#2. Tight Inventory and Higher Rates Won’t Stop Buyers

Job growth and relatively low interest rates will give buyers the confidence to enter the market. Buyers will have to compete for a limited supply of inventory, thwarting many from actually completing a purchase. Enough will find a way to closing, resulting in an increase of 5% to 10% in the volume of real estate sold in 2016 compared to 2015.”

Mid-Year Update: This prediction has only proven partially accurate. There is no question that low interest rates, which dropped even lower just after Brexit, are fueling a high level of buyer demand. 
What has proven less accurate is the volume increase prediction. Through the first half of 2016, the volume of real estate sold across all Front Range markets is up just 2.0%. Because the number of transactions is lower this year, this gain is solely the result of higher prices. 

In the second half of 2016, it looks likely that monthly volume will remain flat year-over-year or be down slightly. An increase in available listings will help free up the market and allow more buyers to close. At the same time, uncertainty due to large scale events, including the Presidential elections, may cause some buyers to put their home search on pause.   

#3. Home Values Up 6% to 8% 

We expect to see appreciation rates exceed 10% through the first half of the year before settling back down to the 6% to 8% range by the end of 2016.” 

Mid-Year Update: Home values are performing just as predicted or better! According to the most recent Federal Housing Finance Agency data, of the 20 cities in the entire US with the highest annual appreciation rates, four are located in Colorado: Denver metro, Fort Collins, Greeley, and Boulder. All have seen one-year appreciation in excess of 10%. Overall, Colorado has a one-year appreciation rate of 8.9%.

However, we’re already seeing signs of these appreciation rates moderating a bit in the second half and settling back down to a 6% to 8% range. Mind you, a moderation in appreciation rates does not mean prices will start falling; they just won’t be rising at such a torrid pace. This is a healthy market adjustment and will begin to alleviate growing concerns that a lack of affordability could weaken the overall market. 

Overall, it looks like we will move toward a more balanced market in the second half of the year.