Three-Legged Market Stool Out of Balance
Spring sunshine and warm temperatures have come early to the Front Range this year, and apparently so has the spring housing market. As expected, market activity has been robust – a gentler way of saying frenzied.
Major forces are at play in the market. Now is a good time to take a step back from the day-to-day market gyrations and review the fundamentals.
One can think of the real estate market as a three–legged stool. Each leg of the stool is a major determinant of the overall market. Collectively, the three legs of the stool overshadow all the other less impactful market factors.
The three legs of the stool are: interest rates, jobs, and listing inventory. And we are seeing shifts in each leg of the stool.
Jobs – there’s lot of them these days!
According to a Colorado Department of Labor report out last week, the unemployment rate in Colorado fell to 2.9%, a low not seen since 2001. Colorado is adding 5,000 plus jobs per month. In January, Colorado added 7,900 jobs. Jobs drive demand for housing, and at the moment, a hot job market is fueling a hot real estate market.
Interest rates – they’re on the rise.
After years of speculation that rates have nowhere to go but up, it’s no longer theory, it’s reality. Rates that hovered between 3.5% and 3.75% last Fall are up about a half a percent to around 4.25% today. For homebuyers who require financing to purchase, this increase of 0.5% has reduced their purchasing power by about 5%. In other words, a buyer looking at $500,000 homes last Fall is now looking at $475,000 homes if they don’t want a higher monthly payment.
Rising rates take buyers out of the market in the long run, thereby dampening demand. In the short run, however, it appears that rising rates are creating a sense of urgency among buyers who have concluded that waiting will increase their payment or shut them out of the market entirely.
Listing inventory – there are even fewer homes on the market than last year.
The lack of inventory is nothing new. What is new is that the shortage is getting even worse. Across the Front Range, the number of active listings on the market is down more than 10% compared to last February. For an even broader perspective, in 2010, there were over 37,000 properties for sale along the Front Range. Today there are less than 9,000.
So the inventory leg of our three-legged stool is short. It has basically been sawed down to one quarter of its typical length. As a result, our stool, and our market, is wildly out of balance.
A Refreshing Look at the Question “What is my House Worth?”
Spring is here, and there more and more homes hitting the market every day. The biggest question on everyone’s mind is how much will homes be going for this year.
You may have noticed neighbors’ homes going up for sale and wondering how much they are listed for. Let’s take a look at some of the stats for our area to get a better idea of what is going on.
In Arapahoe County for February 2017, the average sales price* was:
- $354,450 for Single Family Homes (up 10.8% from 1 year ago)
- $213,500 for Condos/Townhomes (up 13.6% from 1 year ago)
In Douglas County for February 2017, the average sales price* was:
- $442,000 for Single Family Homes (up 6.5% from 1 year ago)
$286,500 for Condos/Townhomes (up 10.2% from 1