WAITING ON HOUSING PRICES TO DROP? HISTORY TELLS A DIFFERENT STORY
With mortgage rates recently hitting a 22-year high, an assertion has been making the rounds among would-be homebuyers: with mortgage rates up and housing sales down, home prices ought to go down as well.
Right?
Not so fast. Previous experience tells us otherwise. Anyone advising you to wait for prices – or mortgage rates – to start falling is not paying attention to history.
Consider the last time interest rates reached this level. It was the summer of 2001, when the average rate on a 30-year fixed mortgage was 7.24 percent. Homeowners in the Fort Collins-Loveland area had just experienced a hot 10-year stretch of home price growth, adding about 120 percent in value to the average-priced home.
A common argument heard at that point in time? With rates this high, and the recent run-up in values, home prices had to start going down. But a far different story has unfolded. Home values – despite some dips along the way, primarily due to the Great Recession of 2008-2009 – have maintained a mostly upward trajectory (see chart, P. 2).
According to analysis from the Federal Housing Finance Agency, a home that sold for $200,000 in the Fort Collins-Loveland area in the summer of 2001 is now worth about $575,000 – an approximate increase of 187.5 percent.
Larry Kendall, co-founder of The Group Inc. and a 50-year veteran of the Colorado real estate industry, contends angst over local housing prices is not a new phenomenon.
“I’ve continuously heard that housing is too expensive and can’t go any higher,” Kendall said.
“I remember when we sold the first house in Fort Collins over $100,000 and everybody was shocked. Look around the country and the world. In most of the desirable areas, home prices are higher than here.”
Kendall offers a reminder that the 50-year average for a 30-year fixed rate is 7.76 percent. He stated that as homebuyers get used to the current state of interest rates, they will move forward with their homeownership plans – even if that means selling an existing home and letting go of their 3 percent mortgage rate.
“In time, people will decide to move on with their lives,” he added. “Their dreams and their family will be more important than the low rate.”
You could also ask anyone who bought a home in Northern Colorado with a 7-percent loan in 2001. It may have seemed like the wrong time then, but it turned out to be the right move.
WALL STREET INVESTORS SEE THE BRIGHT SIDE OF THE HOUSING MARKET
A reality of the current housing market is that homeowners who managed to borrow at a low mortgage rate are holding on tight to their good fortune. Approximately 85 percent of owners have a rate below 5 percent – well below the going average rate of 7.23 percent for a 30-year fixed-rate loan.
Consequently, the availability of existing homes to buy is tighter than usual. And more would-be buyers are turning to the new home construction market to join the homeowner ranks. Which means more customers for homebuilders.
Wall Street has been taking notice
As of mid-August, the stock prices of major American homebuilders such as DR Horton, Lennar, and NVR, have all gained about 30 percent in value since the start of 2023, according to a report by The Financial Times. Shares in the PulteGroup are up about 80 percent.
One of those investors jumping onto the homebuilder bandwagon is Berkshire Hathaway, the iconic investment operation headed by Warren Buffett, which reportedly poured $814 million into homebuilding stocks in August.
According to the National Association of Homebuilders, new construction homes represented about 30 percent of the national housing inventory as of the end of July, compared to a typical rate of about 12 percent. And the pace of new home building permits is up about 10 percent over the same time last year.
Larger, publicly traded homebuilders also possess the wherewithal to offer financing to buyers or incentives, such as credits toward closing costs, or mortgage rate buydowns.
VALUE PROPOSITION: HOUSING MARKET WORTH $46.8 TRILLION
Home values across the United States ticked up by an estimated $166.2 billion between June 2022 and June 2023, reaching a total worth of $46.8 trillion, according to the latest report from Redfin.
Based on an analysis of 90 million U.S. homes, Redfin said the total housing market gained 0.4 percent in value. But most notably, the market recovered all of the $2.9 trillion loss in value that occurred between June 2022 and February 2023. The rapid recovery is attributed to the impact of higher interest rates.
Other statistical notes from the study include:
- Modest and mid-priced homes picked up the most value. Homes worth between $250,000 and $500,000 gained 4 percent in value, while homes worth between $500,000 and $750,000 increased 4.1 percent in value.
- High-priced homes experienced a decline in value. Homes worth between $1 million and $2 million reported a 2.6 percent loss in value, while homes priced between $2 million and $5 million lost 7.4 percent in value.
- Rural homes gained 2.6 percent in value, and suburban homes gained 0.2 percent. Urban-area homes lost 0.9 percent in value.
YOUR GUIDE TO APPRECIATING THE AUTUMN SEASON IN NORTHERN COLORADO
The sights. The sounds. The smells. As the calendar flips into the fall months, Northern Colorado offers a wealth of opportunities to savor the season. We’ve put together some suggestions for visiting farms that offer pumpkin patches and more along with traditional Halloween events. Or take a colorful walk along the Poudre River Trail.
The Poudre River Trail extends from Island Grove Regional Park in Greeley, with sections in Windsor, and ends in Fort Collins. There are informational signs that highlight historical sites along the way, plus there are benches so you can rest and enjoy the scenery. Click below for more information, including a map, wildlife, trail conditions, and more.
In our most recent grant cycle, GroupGives celebrated a significant achievement by disbursing a record-breaking $77,500 in grants to seven deserving organizations in Northern Colorado. Since our inception in 2013, GroupGives has been funded by the collective generosity of The Group, and we are proud to have contributed over $1 million in grants to support over 70 organizations in the Northern Colorado region. Our overarching vision centers on ensuring that everyone has a place to call home, and GroupGives grants to organizations that help people get into and stay in their homes through education, home maintenance/improvement, and financial assistance.
REAL ESTATE BY NUMBERS
- 714,000. Total sales of single-family houses during July across the United States, up 4.4 percent over June 2023 sales and up 31.5 percent over July 2022 sales, according to the U.S. Census Bureau Economic Indicators report.
- 8.4 percent. Average home price growth in Windsor in July, the fifth-highest price growth rate in Colorado during the month, according to a Redfin report. Fort Collins was No. 10 at 5.4 percent.
- $5.5 million. Price paid by City Lights Church for a 48,044-square-foot vacant commercial building located at 7251 W. Fourth St. in northwest Greeley. The property includes the 38-year-old building and about 4.6 acres of ground.
- $8.53 million. Sale price for a new 36,000-square-foot building located in the Airpark North industrial park in east Loveland. Owners of Colorado Floor Co. acquired the property, located at 6987 Rickenbacker Road.
- 500. Number of apartment units proposed by developers for a site at 2601 S. College Ave., near the southwest corner of Drake Road and College Avenue in south Fort Collins.
- $13 million. Price paid by Utah-based investors for the 83-unit Candlewood hotel, located at 3530 W. 29th St. in southwest Greeley. The three-story hotel was built in 2012.
- $38 million. Combined sale price for three properties in south Boulder, which make up a senior-living community along Table Mesa Drive. In all, the buildings span 76,000 square feet and include 46 assisted-living suites and 44 memory-care suites.
- 92657. The most expensive zip code for housing in the country, located in the southern California community of Newport Coast. The median residential list prices in Newport Coast in July were $10.645 million, according to Realtor.com.
- $11.5 million. Price paid by Utah-based investors for the 93-unit Comfort Suites hotel, located at 4851 Thompson Parkway in Johnstown. The three-story hotel was built in 2015.
- 38 percent. Share of homebuyers under age 30 who get some financial assistance from a family member, or benefit from an inheritance, according to a recent survey by Redfin.
- $188 million. Price paid by Colorado investor Marcel Arsenault for the new 404,159-square-foot Medtronic Inc. campus in Lafayette. The two-building complex, which sits on 42 acres, finished construction earlier this year.
- 2,200. Number of new housing units that a developer wants to build on the site of a former sugar beet factory in south Longmont. The developer is also proposing 250,000 square feet of commercial construction on the site.