HOW SELLERS CAN MAKE THE MOST OF A BUYERS' MARKET
“Price reduced.”
It’s a sign of the times when home sellers grow impatient to attract a buyer.
But when the market seems slim, what’s a better way for a seller to make a buyer happy than simply trimming the price tag? Buy down the interest rate.
Here’s what it means and why it’s a beneficial compromise for both seller and buyer:
If you plan to sell your home for $600,000, and the going interest rate is 6.75 percent for a 30-year fixed-rate loan (based on a $480,000 loan with a 20 percent down payment), the buyer needs to bring $133,372 to closing. The loan will then require a monthly payment of $3,613.27, (assuming $500/month for taxes and insurance).
Reducing the price by $45,000 means the buyer would need to borrow $444,000, pay $124,008.40 at closing, and make a $3379.78 monthly payment – a monthly discount of $242.49. Good for the buyer. Not so much for the seller.
But by contributing $15,000, a seller can buydown the buyer’s interest rate 75 basis points – which lowers the buyer’s interest rate from 6.75 percent to 6 percent. As a result, the buyer cash to close is $127,972 (slightly more than the price reduction approach), but a slightly smaller monthly payment of $3,377.84. Compared to the price reduction model, the net effect for the buyer is nearly the same, while the seller keeps $30,000 in their pocket.
Seller concessions have a proven track record. Homebuilders have been utilizing the tactic with success in recent years as a means to sell excess inventory without lowering prices. What about individual sellers and buyers? A seller eager to improve the appeal of their home to buyers can craft a buydown offer by working with their real estate professional. Similarly, buyers who want to make a specific home more affordable can approach a seller with a buydown proposal.
When both sides are willing, it’s a win-win solution.
MILLIONS UPON MILLIONS: 7-FIGURE HOME SALES REACH NEW HEIGHTS
A recent review of home sales data reflects that more than 8 percent of all transactions across the U.S. fetched at least $1 million as of last summer. While Northern Colorado sales don’t approach that same lofty territory – about 5 percent of regional sales reached or exceeded $1 million in 2023 – seven-figure deals have escalated locally since the beginning of 2020.
Looking at Northern Colorado statistics, we see that sales of $1 million+ jumped sharply in 2020 and 2021, before making a modest uptick in 2022 and sliding back in 2023. In raw numbers, Northern Colorado’s $1 million+ sales (not counting Boulder, Longmont or Estes Park) jumped from 107 in 2019 to 199 (up 85.9%) in 2020, then to 411 (up 106.5%) in 2021. The pace leveled off after 2021, but still reached 452 (up 9.9%) in 2022, then 403 (down 10.8%) last year.
What’s behind the push to higher-priced housing? A few factors are at play:
- First, remember that record-low interest rates – which plunged in early 2021 to 2.65 percent on 30- year fixed mortgages – boosted purchasing power for all Americans. Homebuyers could afford larger loans to pay for more expensive housing.
- Next, during the pandemic, more Americans desired features such as home offices and larger yards – which typically required bigger and pricier property. With the help of low interest rates, as well as access to ample supplies of equity in their previous homes, many buyers were willing and able to upsize.
- With the increased demand described above, real estate values surged across the country. Homes that were priced in the $700,000-$900,000 range before the pandemic suddenly became $1 million+ properties. For example, in 2021 the Fort Collins-Loveland metro area reported 18 percent appreciation and the Greeley area posted 18.9 percent; in both cases, it was the highest one-year appreciation gain in four decades.
ANALYSIS:
LOCAL PRICE APPRECIATION SLOWED DOWN IN 2023
In its latest Home Price Index (HPI) report, the Federal Housing Finance Authority (FHFA) confirmed what observations have been telling us: after several years of surging price appreciation, home values in Northern Colorado made only modest gains in 2023.
The HPI report shows the Fort Collins-Loveland metro area realized 1.2 percent yearly appreciation, while the Greeley metro area registered 0.7 growth. In 2022, by comparison, FC-Loveland reported 11.7 percent appreciation, while Greeley gained 8.5 percent. Long-term appreciation averages are 5.7 for FC-Loveland (1978-2023) and 5.0 for Greeley (1984-2023).
We anticipate similarly sluggish appreciation during the first half of 2024 but upward pressure on prices in the second half. That’s because moderating interest and inflation rates, coupled with more housing inventory, should add up to greater demand from homebuyers.
Looking beyond Northern Colorado, 2023 appreciation on the Front Range included 2.26 percent for Colorado Springs and 3.33 percent for the Denver area. Colorado’s appreciation was 3.31 percent statewide, No. 43 among all states. The national average was 6.49 percent.
Call me to learn how much homes in your neighborhood have appreciated.
AT $46.9M, HIGH COUNTRY RANCH IN LARIMER COUNTY ATTRACTS A HIGH PRICE
Investors recently ponied up nearly $47 million to acquire the sprawling Diamond Tail Ranch, located along the Laramie River in northwestern Larimer County.
The ranch spans nearly 38,000 acres, or more than 59 square miles, when combining deeded property with grazing leases. By comparison, the entire District of Columbia covers 61 square miles.
In addition to its picturesque location at the foot of the Medicine Bow Range, the new owners of the Diamond Tail also acquired the 2,509-square-foot gathering house, 12 single-family guest cabins, a dining hall, cabins for ranch staff, chapel, multiple barns, and even a grassy runway for private aircraft.
The ranch, which includes 11 miles of Laramie River front, has more than 100 years of history behind it. According to listing information, the Diamond Tail brand dates to 1915, and the property is home to a bison herd.
According to a report by BizWest, the property was purchased in two transactions. EFTR LLC from Denver paid $28.8 million for 51 parcels, and Lakewood-based Diamond Tail Investment LLC paid $18 million for 22 parcels.
GOING UP: FEDS HIKE CONFORMING HOME LOAN LIMITS FOR BORROWERS
With a nod to escalating home prices, the Federal Housing Finance Authority has once again raised the limits on conforming mortgage loans. The FHFA increased the cap for homebuyers in most communities in the country this year – including most counties in Colorado – to $766,550, a 5.5 percent bump from the 2023 limit.
The $766,550 cap applies to Larimer and Weld counties. But in a handful of Colorado counties, where average home prices are higher, the conforming loan is greater. On the Front Range, those exceptions include counties such as Adams ($816,500), Boulder ($856,750), Broomfield ($816,500) and Denver ($816,500). The limit for El Paso County is also set at $766,550.
The advantage of a conforming loan – also called a conventional loan – is that borrowers typically pay less in mortgage insurance over the life of the loan. Conforming loans also benefit borrowers by allowing down payment options for less than the traditional 20 percent threshold. Borrowing more than the conforming loan limit – or a jumbo loan – requires higher down payment levels.
The new cap figure also signals a continuing effort by the FHFA to expand the borrowing potential for homebuyers. Before the recent string of annual increases, the cap was stuck at $417,000 for 11 straight years – from 2006 through 2016.
PHILANTHROPY BEGINS AT HOME: THE GROUP STARTS GROUPCARES
One key trait of a world-class company is to give back to its community. The Group has checked that box for a long time, contributing more than $1 million to local housing causes through our GroupGives program.
The Group is now applying the spirit of GroupGives to provide more support for our own people who confront life challenges.
Coinciding with our 48th anniversary in February, The Group launched GroupCares, designed to help co-workers when they or their family members are in a time of need.
Like GroupGives, GroupCares is funded entirely through donations made by Group partners and staff, as well as from in-house fundraising drives. A volunteer 15-person committee consisting of Group partners and staff will manage the program, which serves Group colleagues along the Front Range and in Steamboat Springs.
We see GroupCares as one more way that we can strengthen our organization and contribute to the overall well-being of our people.
REAL ESTATE BY NUMBERS
- 52.9 percent. Share of adult population in the Fort Collins area with at least a bachelor’s degree, according to U.S. Census data. That ranks No. 8 among the most educated metro areas in the country. Boulder is No. 1 at 63.2 percent. Colorado ranks No.2 among states at 45.9 percent, behind only Massachusetts (46.6).
- 12 and 15. Where the Fort Collins and Greeley metro areas rank respectively on a recent listing of the “Hottest U.S. Housing Markets,” according to U.S. News & World Report. The ranking is based on market improvement between December 2022 and December 2023. Denver ranked No. 1.
- $1.45 million. Median sale price in Boulder during January. For Fort Collins, the January median price was $604,702. Greeley-Evans reported a median of $415,000.
- 451. Number of housing units proposed for a Hunters Run West, a subdivision planned for a 177.5-acre site in west Loveland. As planned, the first phase of the project will include 236 housing units on 57.08 acres. Another 215 units will be built across 120.48 acres.
- $37.2 million. Price that a California investor paid to buy the Trade@2534 property in Johnstown, which includes two industrial buildings. Two sales – one for $12.35 million and another for $24.85 million – added up to the total sale value.
- 28 percent. Share of large homes in the United States (three or more bedrooms) owned by baby boomers with no children at home, according to a recent report from Redfin. Millennial households (ages 26-41) with children own about 14 percent of large homes.
- $71.9 million. Price paid by a Georgia developer for Millennium Harvest House hotel, located near the University of Colorado campus. The new owner plans to convert the property into a student-oriented apartment complex with 303 units totaling 900 bedrooms.
- 19 and 27. Where Fort Collins and Greeley rank, respectively, among “Best Cities for Aspiring Homeowners,” based on a study by This Old House. The analysis looks at factors such as local inventory, affordability, mortgage rates, and down payments required. Among 148 cities evaluated, Denver ranked 101 and Boulder 145.
- 62.7 percent. Home ownership rate in Colorado as of the fourth quarter of 2023, down from 69.7 percent in the fourth quarter of 2022, according to U.S. Census Bureau data.
- 33,700. Square footage that LaForce LLC, a manufacturer of commercial door frames, will lease in the new Boyd Lake Commerce Center, an industrial-distribution complex at 3841 Vander Meer Drive in east Loveland.
- 603. Number of housing units planned for Union Park, a new residential development proposed for a site in southeast Fort Collins on the north side of Front Range Village shopping center.
- 72 percent. Share of aspiring homeowners who were unsuccessful at buying a home in 2023 who still plan to pursue a home purchase in 2024, according to a report by This Old House, a home improvement and remodeling information service.