As the year draws to a close, questions are beginning to mount about what 2024 has in store for regional real estate.
But before we get too ahead of ourselves, I think it’s important to consider what trends and data will shape the market in 2023.
The two main factors impacting local real estate in 2023 are limited inventory and higher-than-expected interest rates. As a result, the market is depressed as many holders with fixed interest rates resist selling and many potential buyers wait for interest rates to ease.
The facts are: While there is still very strong demand for real estate in northern Colorado, a few simple factors are holding back the market a bit.
Looking at the median prices around the region, we can look back and see that many of the pessimistic predictions made by many media about real estate prices at the beginning of the year have been proven wrong. Much of the region’s pricing has remained stable, as we expected. This is supported by comparing the median price at the beginning of the year with the price at the end of October 2023.
It must be noted that the apparent price decline in Windsor is caused by a drop in the construction of new luxury homes that were supposed to sell at high prices in 2023. In fact, like most of the region, the Windsor market remains very depressed. Prices are stable and sales are strong. Home values continue to rise in Windsor, albeit at a slower pace than historical average.
Next, let’s look at the entire inventory of single-family homes and compare market conditions to the beginning of the year.
Inventories have certainly increased overall, helping to meet continued strong demand. Fort Collins and Greeley, the markets with the highest median price increases, also have the highest growth rates of homes for sale, indicating there are more opportunities for buyers in the market.
In 2023, many potential buyers will be sidelined by rising interest rates. This trend has led to an overall increase in the supply of homes available for sale (measured in months of supply). This metric looks at the pace of inventory and properties under contract and reflects how long it would take to absorb all existing inventory if there were no new listings.
This data also indicates whether we are experiencing a buyer’s or seller’s market. And as 2023 progresses, Northern Colorado is certainly becoming a buyer-centric market. Buyers now have greater choice and bargaining power to seek out concessions, interest rate buyouts, and other incentives that sellers use to attract buyers to their properties. In this market, a competitively priced home in good condition still has a good chance of attracting a quick buyer. However, sellers should be aware of the dynamic changes that have occurred in the market in favor of buyers over the past 12 months.
Employment data can also be used to analyze where the real estate market is headed. It’s safe to say we can expect more of the same heading into the fourth quarter of 2023.
Employment growth has slowed as a result of more difficult economic conditions. The annual growth rate in employment is less than 2%, and the contraction comes after more than a decade of employment growth in the 3% to 4% range. This is part of the normal economic cycle and should be used to understand the local real estate market. The market will continue to move, but selling a property will likely take longer than most sellers are accustomed to. Buyers have more control in negotiations than in years past. Certainly, this is a more normal real estate market than we’ve ever experienced.
Interest rates and their trends will be a key indicator of market reaction. When interest rates fall, we see a timely release of demand in the market. And as more buyers compete for the same inventory, there will be even more upward pressure on prices. Meanwhile, the market presents a unique opportunity for buyers who have leverage in negotiations and are not responding to rapidly rising prices.
Brandon Wells is president of Group Inc. Real Estate, which was founded in Fort Collins in 1976 and has six locations in northern Colorado. You can contact him at: bwells@thegroupinc.com or 970-430-6463.
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