Pretend it is 2013. The real estate market is clearly recovering from the Great Recession. The Broncos are having a great year and will eventually make it to the Super Bowl.
Now, imagine someone makes a prediction that 10 years in the future mortgage interest rates would double over the course of 12 months.
If you were to guess what sort of impact on house prices that would cause, what would you say?
It would be reasonable to guess that prices would decline if mortgage rates doubled.
Here’s what really happened. Prices kept going up.
Some thought prices would crash. Many thought prices would go down.
They keep going up. Not as fast as they were, but they are still up.
Compared to one year ago, prices are up the following amounts:
Larimer County = 2.6%
Weld County = 2.2%
Metro Denver = 1.1%
Why? Supply and demand.
Supply is low and there is still demand in the market.
Despite higher interest rates, prices did not decrease like many people thought. They certainly have not crashed like many thought.
Average prices along the Front Range have seen only a slight decrease versus last year.
The average price in May this year has decreased versus May of last year by:
2.5% in Larimer County
3.2% in Weld County
2.8% in Metro Denver
When we take a closer look, what is apparent is that average prices have decreased based on the type of properties that are selling versus last year.
Specifically, there were more $1,000,000 – plus homes selling a year ago versus today. Those higher-end transactions in 2022 increased the average price.
In May of 2023, $1,000,000- plus transactions decreased versus May of 2022 by:
33% in Larimer County
29% in Weld County
35% in Metro Denver
So, we don’t see that prices have gone down. We see that average price has slightly decreased because they aren’t as many luxury sales pulling up the average.
A positive outcome of the cooling housing market is lower lumber prices.
Lumber is now priced at $605 per thousand board feet. This is a new low for 2022.
Prices for lumber are now down 47% for the year and are well below the 2021 peak of $1,733 per thousand board feet.
What’s causing this? Higher mortgage rates have slowed the pace of new home sales and remodeling projects.
Most experts believe that lumber prices will fall even further during the remainder of the year.
30-year mortgage rates just exceeded 4% for the first time in three years according to Freddie Mac.
We have new advice for anyone considering a home purchase in the next couple of years.
Buy before 5. This means buy before rates go to 5%.
Even though rates have been ticking up over the last several weeks, we believe that in a few years we will look back on this time and realize what a tremendous opportunity it was to have a mortgage under 5%.
So, don’t be discouraged by recent uptick in rates. Instead, feel great that you were able to buy before rates hit 5%.
Our clients are curious to know what the conflict in the Ukraine will mean for mortgage rates.
The short answer is down in the near term and up in the long term.
Generally speaking, economic and political uncertainty drive people to invest in bonds rather than stocks, which puts downward pressure on interest rates.
So, in the near term, the conflict in the Ukraine will push rates down slightly. We have already seen this happen as 30-year rates have dipped in the last few days.
The conflict is likely to push oil prices up which means higher gasoline prices. This will cause upward pressure on inflation, which ultimately causes upward pressure on interest rates.
So, the longer the war lasts in Europe, the more likely it is to push interest rates even higher.
On Wednesday Zillow announced the shut down of its iBuying program because of mounting financial losses and increasing complexity in the real estate market.
The goal of this program was to buy properties directly from Sellers and then re-sell them for a profit.
Before looking at the interesting facts and numbers associated with this news, we want to acknowledge the people who are affected by this.
Zillow’s workforce will be reduced by 25%. Many people will be laid off and our heart goes out to them. We certainly wish them only the best.
Within our company we are not surprised by Zillow’s announcement. We observed many cases where they over-paid for a property, re-listed it for an unrealistic price, dropped the price over time to meet the market, and then sold at an amount much less than what they paid.
It actually became difficult to find specific scenarios where they sold the home for more than their acquisition cost. It was not uncommon to see losses of $50,000 per home or more.
Here is a quote from their CEO: “Our observed error rate has been far more volatile than we thought possible. Fundamentally, we have been unable to predict future pricing of homes to a level of accuracy that makes this a safe business to be in.“
In the third quarter of 2021 alone, their iBuying division lost $328 million.
Bottom line, their valuations were off.
It is a reminder that pricing requires a hyper-local scientific approach versus a generic algorithm
Homes are not commodities. Each home is highly unique. Each has its own highly unique location, features, amenities, condition and timing.
Homes can’t be priced like a book or a plane ticket. Every unique feature must be taken into account.
Nationally, Zillow has about 7,000 homes in backlog which it hopes to sell over the next several months.
Other players remain in the iBuying game and I am more than happy to help you understand those options if you are curious.
As you’ve probably heard, prices have gone up quite a bit along the Front Range.
Low interest rates, strong demand, lower supply, and a healthy local economy are all contributing to increased prices.
It may interest you to see exactly how much prices have increased since one year ago in the markets where we have the most activity.
Over the last year, Weld County has increased roughly $100,000, Metro Denver $90,000 and Larimer County $60,000.
Specifically, here are the average prices one year ago vs. today:
Here’s the latest from one of our favorite data sources – the Federal Housing Finance Authority (FHFA).
They track home prices across the Country and produce a quarterly Home Price Index report.
It is not uncommon to find Colorado near the top of the list for year over year price growth.
The latest report has us ranked 13th with only a 13% year over year increase (said with sarcasm).
Idaho is first with a whopping 24% increase. Utah is second at 19%.
Here is our interpretation of these numbers…
Colorado has a history of strong, steady price growth instead of booms and busts.
Our market does not take the big, wild swings in prices that other markets sometimes do.
The fact that Colorado is not at the very top of the list right now is actually good news to us.
We know that our clients appreciate a market that is more steady instead of one that can feel like a rollercoaster.
The price of lumber has doubled in three months.
Lumber is just one of several examples of skyrocketing materials costs which are impacting both home builders and home buyers.
The cost of lumber is now at a record-level $1000 per 1000 board feet.
These rising costs not only add to the sales price of a home but also add to the inventory shortage issue. Some large, publicly-traded home building companies are slowing production in hopes of building costs dropping over the next few months.
Many people expected lumber prices to drop, or at least level off, when the tariff on Canadian lumber changed in December.
However, because demand has been so high from both building and remodeling, lumber costs continue to climb.
We just completed a review of the September numbers in our market.
Here is the one number that is standing out to us – average price.
Prices are way up over last year. Here are the specific average price increases in each of our markets compared to September 2019:
This change in prices has of course generated questions from our clients.
To help our clients answer questions about prices and other real estate topics, we have set up a private online event with our Chief Economist Matthew Gardner.
The event is set for Tuesday from 9:00 to 10:00.
Simply reach out to me to receive your registration link.
Matthew will be addressing these questions as well as many others:
This online event is for the clients and friends of Windermere. If you would like to register, please contact me.
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