Northern Colorado Market Update - August 2024

Price Corrections in Fort Collins and Windsor while Greeley and Loveland post gains

The late summer real estate slumber is upon us as the back to school scurry has kept many buyers occupied with things other than real estate. Buyers are also sitting on the sidelines hoping for further interest rate cuts and to see how the election pans out. 

Prices continue to be fairly stable when you look at the market as a whole—Larimer County lost 3% of its single family median price compared with this time last year while Weld County is up 3%.

Fort Collins is another story, it could not sustain the incredible appreciation that occurred in the summer of 2023. FOCO posted its largest year over year price correction ever losing nearly 8% of its median price. That number is now $637k compared to $692k this time last year.  

Fort Collins’ detached home prices surged last summer and were up 10% over the prior year while the rest of the market remained flat or depreciated. This 2023 price spike was remarkable because mortgage rates were at 7% while those gains occurred. Now that we’re in our second year of high rates and inventory has had more time to increase, those gains simply could not be sustained.

The Windsor market was also down, losing 2% of its median price. But more affordable markets posted gains—Loveland is up 1.2%, Longmont is up 1.6%, and Greeley led the NoCo market in appreciation posting a gain of 6.6% compared to this time last year.

Interest Rates are Finally Increasing Inventory

We have always had an inventory problem in Northern Colorado and the pandemic housing boom brought our already low supply of listings to the lowest level in history. But now that interest rates have been high for 2 years, we are finally seeing a meaningful increase in supply. The number of homes for sale is up 25% compared with 2023 and is 65% higher than in 2022.  

Inventory is now back to pre-pandemic levels and is almost at levels we saw in 2014 when we were still climbing out of the 2008 financial crisis.

Another metric to consider is the absorption rate, which is the amount of time it takes for the market to sell off its inventory. It currently sits at 3.5 months, this is the slowest absorption rate in over 10 years. For perspective, in the height of the Covid real estate boom in 2021, the market could sell all its inventory in 12 days! 

Right now the average home is on the market for 45 days before receiving an offer, and receives 98% of list price. During the pandemic boom, the average home sold in 12 days and the list-to-sale price ratio was as high as 105%.

Starter Home Market Suffering

Another notable story is that the starter home market under $500k has been particularly affected by the high interest rates. It’s not hard to understand why. Investors can’t cash flow these properties with a 20% down payment and young home buyers struggle to afford them. 

The number of homes for sale under $500k is up a whopping 126% in Fort Collins. These homes are typically fought over tooth and nail but at the moment, buyers have a surprising number of properties to choose from. Another factor is that renting is far cheaper than buying. A $500k home with 10% down will run you about $3,200/month to purchase, you can rent that same home for about $2,500. 

Luxury Home Market Cools

Luxury home sales have also cooled. This market was red hot in 2023 but is now feeling the uncertainty of the economy and the election cycle. For homes over $1,000,000, closed sales are down 20% and the number of homes for sale is up 35%. That being said, our luxury buyers still don’t have tons of options, and even though the market has cooled, the right property can still fetch a lot of interest and sell almost immediately. 

Will Rate Cuts Finally Materialize?

Mortgage rates are currently at 6.5% for a 30 year and the FED has just signaled that a rate cut is due in September. The spread between the 10 year treasury bond and the 30 year mortgage rate has been about 1% higher than historical norms. This means that mortgage rates should be about 5.5%. But because of uncertainty and volatility in the market, mortgage rates have been priced much higher than the 10 year treasury.

Now that the FED is signaling cuts, and inflation rates are cooling, even if the 10 year treasury doesn’t drop dramatically, we could still see mortgage rates fall meaningfully. But, be wary of interest rate projections, mine or anyone else’s. Continued hot inflation data is still possible and could keep rates elevated. 

NAR Commission Lawsuit Rules Now in Effect

The new rules regarding real estate commissions in the wake of the class action lawsuit against the National Association of Realtors are now in effect. These rules prohibit home sellers and their agents from using the MLS to advertise and guarantee that a buyer’s agent will be paid a certain amount for selling their property. 

Sellers are still able to pay a buyer’s agent for selling their home if they choose. But, they have to communicate the offer of compensation off the MLS, usually verbally or via email. They can also choose not to offer a particular commission amount in advance. Instead, they can wait to receive an offer and then negotiate the commission as a line item on the contract along with the other terms. Whereas prior to the new rules, the buyer agent commission was most often decided in advance by the seller, and was typically not a point of negotiation on the purchase contract. 

Home sellers are still able, as they always have been, to refuse to pay a buyer’s agent altogether. But, because the public is in the habit of using buyer agents, and because buyers are coming out of pocket with down payment funds and loan closing costs, adding their agent’s fee on top of these costs can be a significant hurdle. Also, buyers who are forced to pay their agent will typically be looking to offset this cost with a price reduction, and some may be unable to do it altogether. So if the seller paying their agent is not an option, they may have to move on to the next home. 

When should I sell my house?

As we move from summer into fall, homeowners often ask us about selling in the off-season and how much it affects prices. This is great question because depending on how you slice the data, you get very different answers. If you consider how median prices change between seasons, you might be shocked. The market’s median price often increases 10% in the summer compared with the fall and winter! Using that metric, you’d be crazy to sell anytime other than the prime season. But let’s take a closer look.

If you look at comparable sales in a particular neighborhood, you don’t see a home that sold in January selling for 10% less than a comparable home sold in June.  The reason for the seasonal price swing is that more higher priced properties are listed in the spring and summer, likely because owners of these properties tend to be less sensitive to financial stress, and are more prone to wait until the prime spring or summer. Conversely, lower priced properties tend to have owners that may need to sell on short notice.  The same is true for rental properties with unexpected tenant turnover, they are more prone to sell in the fall and winter. 

So the median price swing between seasons has more to do with a larger percentage of higher priced properties being listed in the summer, not because a particular home’s value swings by 10% seasonally. 

A better metric for evaluating price differences between seasons is percentage of list price. In the winter, the percentage of list price tends to be about 97.5%, and often rises to 100% in May and June. So you can assume that your home will fetch a little more in the summer, about 2.5% more, but for many people, personal situations often outweigh the need to wait for prime time. 

Is my Zillow Estimate Accurate?

Figuring out how much your house is worth is complicated. Every house is unique and adjustments must be made for differences in square footage, finish quality, lot size, garage spaces, floor plan, views, and many other variables. If you’re wondering how accurate your Zillow estimate is, don’t wonder anymore. Just reply to this email and we’ll provide you with a free, no-obligation home value report. 

 Friends don’t let friends make contingent offers!

So many of our clients are in the position of needing to sell their current home before they buy their next home. The conventional way to do this is to put on offer on the new home and make that offer contingent upon the sale of the current home. The problem is that sellers are very hesitant to accept a contingent offer. 

The most important thing to a home seller after price is certainty. They need to know that the offer they accept will close, and a contingency provides a huge layer of uncertainty. The result is that contingent offers rarely get accepted, and buyers that are successful with a contingency often have to pay dearly to get their offer accepted. Often full price or over full price, when they could have gotten that same home at a discount with a non-contingent offer. 

But now you can forget all that, we have a better way! A bridge loan can be a very valuable tool when buying and selling a home simultaneously. This allows you to tap into your current home’s equity and purchase a new home first, ensuring you have all the time you need to find the perfect property.

If you’d like to learn more just reply to this email and I’ll provide the details. 

Thank you for reading my market report! To all my past, current, and future clients, your trust means the world to me!

Kelly Renz - Grey Rock Realty

970.820.0750 KellyRenzRealEstate@gmail.com