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Let’s Do The Numbers!

April 5, 2019

By Ross

Well, it’s time for my two cents worth. We are at the end of the first quarter of 2019 so let’s see what’s happening.   I know this is a little dry…but hey, it is statistics!

Every day I get a download online from the local MLS service, locally known as IRES.  That download is all new listings of real estate in Fort Collins that occurred in the past 24 hours. So, every day I get a list of all the new stuff on the market. As an appraiser I’m in that same database every day looking for historic sales to use in my appraisals. I’ve started to note a couple of trends.

There are a lot of properties showing up in the daily report that are properties that have had price reductions and the days on market is increasing.  I have driven through several new home developments and noted more and more finished new homes that have “For Sale” signs in front of them. Two years ago, every one of them would’ve been a presold.  The Fort Collins Board of Realtors with the help of First American Title, provides a monthly review of the area statistics. These numbers are on a 12-month rolling average and here is where I compare them.

For the year ending 2018 the median price of a home in Fort Collins was $406,000. The average price was $451,000.  That was an increase of 4.6% in the median price, but only 1.1% in the average price. I don’t give much thought to the median price because in my mind it’s really pretty meaningless. It’s the one in the middle, when you array all the data, and if there is an odd number of data points, then it’s the same as the average. But it is alarming that through year end 2017, to year end 2018, the average sales price increased only 1.1%. The same information through February 2019 which shows an increase in the median sales price almost the same at 4.6%, but the change in average sales price is actually a negative number at -0.1%. That’s the first negative number I’ve seen in that category since 2011 when the recession of 2018 finally started correcting itself.

At the same time, I should note that the year-end 2018 inventory, or month supply of housing on the market at any one time, was 1.8 months. Traditionally a balanced market has been considered to be six months. That same number for the end of February 2019 was 1.2 months. So, there is still a significant shortage of supply, but the number of homes coming back through the listing system with price reductions tells me there appears to be a reduction in demand, because interest rates have gone up and now people cannot afford to obtain as big a mortgage as they used to. 

It also tells me that buyers are no longer in the frenzy of the past few years. They are willing to pay what properties are worth, but not more.  A couple of years ago as a real estate appraiser, virtually every contract I reviewed had some sort of a clause in it saying the buyer would pay $1000 more than the nearest competing offer up to a certain amount, I even saw a few that didn’t have a ceiling. As a broker I wrote a few of those clauses!  I am not seeing those contract clauses anymore.

On March 22nd the yield curve inverted. The yield curve is a financial analysis tool where the three-month treasury bill yield is compared to the yield for 10 year treasury notes. The inversion of March 22 was the first one since 2007. Every recession has been preceded by an inverted yield curve, however it is important to note that not every yield curve inversion was followed by a recession.  The experts that I read are not predicting a recession because the job market is so strong, and unemployment is so low.  Keep in mind however that the Federal Trade Deficit and the Federal Budget Deficits are at record highs, and interest rates have increased slowly.  One can only kick the can down the road so long…at some point all this is going to come home to roost (don’t ya love Colloquialisms!)

This is all going to lead to a slowing in the economy.  That is a little hard to believe in northern Colorado because there is so much new construction going on, especially commercial and new subdivisions.  But you must bear in mind that for every project you see coming out of the ground, that project was in the planning stage for years.  A lot of things get planned when the market is booming but when they come to fruition the markets have cooled.  The northern Colorado area is expected to grow by millions of people in the next 10 years so maybe the simple influx of new people will drive the markets.

What does this mean for owners or investors? There are still always deals. There were some screaming deals in 2009-2011. There is still opportunity. The increase in mortgage rates is going to force more people into rental housing until their incomes rise enough that they can afford to qualify. So, rental property is a good way to go, and it might result in better cash flow than would typical for this area. Downtown urban properties are going to remain average to strong because the supply is significantly limited and there is very little development space left in downtown Fort Collins. The suburban areas however I think are going to experience some slowness.  Interest rates are still reasonable and if you want to own your own home the next year may be a great opportunity to find something at a good price and an interest rate you can afford. Well that’s a lot of information to digest and I don’t mean to be the bearer of bad news, but I do see the market being slow to middling for the foreseeable future.

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