Northern Colorado 2023 Q2 Real Estate Trends
Updates brought to you by Your Castle Real Estate.

KEY MESSAGES FOR NORTHERN COLORADO

Attached prices are significantly up from this time last year while detached prices are only slightly up. The small volume of detached drives volatility. Sales volume for homes and condos have sharply fallen. Inventory levels continue recovering from extremely low levels. DSF = Detached Single Family, e.g., House. ASF = Attached Single Family, e.g., Condo or Townhome.

Data Source: IRES, RE Colorado, and Shorewood Analysis. *Select Cities.
Your Castle Real Estate – 2023 – 2Q Residential Trends Report

HOMES MARKET SUMMARY

Data Source: IRES, RE Colorado, and Shorewood Analysis
Your Castle Real Estate – 2023 – 2Q Residential Trends Report

HOW THE MARKETS COMPARE: DETACHED SINGLE FAMILY

Data Source: IRES, RE Colorado, and Shorewood Analysis
Your Castle Real Estate – 2023 – 2Q Residential Trends Report

HISTORICAL CONTEXT

Inventory levels of homes.

On the left side of the chart:

  • The solid line on the top of the chart is the number of homes and condos for sale, from 2008 to today.
    • Notice the line is very high in 2008, due to LOTS of bank foreclosures.
    • Buyers didn’t buy as much during the downturn due to the scary media headlines and job loss.
    • As a result inventories were high.
  • The dotted line on the bottom shows the number of homes sold each month
    • Notice its been trending upwards.
    • This was caused by an improving economy and growth in the population.
  • Note more homes are sold in the summer than the winter
    • Investors buy consistently all year.
    • Families with kids in school prefer to move in
      the summer

On the right side of the chart:

  • Notice that the number of sales is about the same as the number of homes for sale.
  • There’s very little inventory and it’s competitive for buyers.
  • Other observations
    • We didn’t arrive in this low inventory situation overnight. It took almost a decade to burn off all of the excess bank inventory.
  • What does it mean for the client?
    • As long as the inventory is tight:
    • Buyers will have to compete hard (write great offers) to win a home.
    • Sellers will generally have the edge in negotiations

HISTORICAL CONTEXT

Inventory hit a new 11-year low in 2021. It increased sharply in early 2022. Inventory has since been increasing in 2023 after a seasonal pullback for the 4Q22 holidays.

Data Source: IRES
Your Castle Real Estate – 2023 – 2Q Residential Trends Report

HISTORICAL CONTEXT: MOI

Months of Inventory (MOI) is a great metric to track the strength of the market. It is the measure of how long it would take for all the properties on the market to be sold if no more inventory came on the market.

For e.g., if one home is selling per month in a certain neighborhood and there are currently 6 homes on the market, there would be 6 MOI in that neighborhood. (Note that Six MOI = 90 days on market.)

  • MOI was high in the mid to late 80’s, reflecting our slow Denver market at that time.
  • As the market strengthened going into the 90’s the MOI plummeted. During the 90’s MOI was under 4, a strong seller’s market.
  • MOI began increasing in 2001 and leveled off around 2004 at 6-7 (buyer’s market).
  • As the market began to strengthen after our downturn in 2007 – 2009 the MOI went down quickly. This indicates there are more buyers than sellers, and housing inventory is not keeping up with housing demand. This is where we are currently in the market.
  • We have way more demand for homes than we have supply, so prices are going up.

What does it mean for the client?

  • It is critical for your clients to understand the market in order to make correct decisions.
  • Low MOI means a strong sellers’ market with all that implies:
    • Multiple offers,
    • Picky sellers,
    • Buyers need to have their act together with strong contracts and pre-qual letters, etc.
  • Sellers: use this to help show your sellers how strong the market is to list.
  • Educate them on the difference between a buyer that is pre-approved vs. pre-qualified, and that not all offers are equally strong.
  • Buyers: educate serious buyers on how to be a strong buyer.

HISTORICAL CONTEXT

Inventory has steadily tightened since 2008. It hit bottom in 2021 and has been increasing in 2022, holding steady into 2023.
MOI for NOCO homes on 7/03/23 was 2.3. Denver is at 1.5 MOI as of the same date. Inventory, although not at record lows, is still quite tight.

Data Source: IRES, RE Colorado, and Shorewood Analysis
Your Castle Real Estate – 2023 – 2Q Residential Trends Report

HOME BUILDS IN THE UNITED STATES

Why is the inventory so low? Denver has experienced strong population growth in the past decade, but almost no additional inventory from new home builders. Builders are limited by high costs for land, water taps, labor, and materials. We don’t anticipate a boom in construction. As a result, inventories could remain low for several years.

Data Source: Keeping Current Matters, Robert Frick, NFCU
Your Castle Real Estate – 2023 – 2Q Residential Trends Report

YIELD CURVE INVERSION & RECESSION

As of March ’22, the yield curve inverted, which is a great predictor of recessions. The median time from the inversion to the actual recession is 18 months, but as you can see, this lead time ranges from 7 to 33 months

Data Source: The Wall Street Journal, The Daily Shot
Your Castle Real Estate – 2023 – 2Q Residential Trends Report

CONDOS MARKET SUMMARY

Data Source: IRES, RE Colorado, and Shorewood Analysis
Your Castle Real Estate – 2023 – 2Q Residential Trends Report

HOW THE MARKETS COMPARE: ATTACHED SINGLE FAMILY

Data Source: IRES, RE Colorado, and Shorewood Analysis
Your Castle Real Estate – 2023 – 2Q Residential Trends Report

HISTORICAL CONTEXT COMPARISONS

Average home prices in Northern Colorado trail a bit behind those of Denver. Average price of condos and townhomes in NOCO have surpassed the price point of Denver units.

Data Source: IRES, RE Colorado, and Shorewood Analysis
Your Castle Real Estate – 2023 – 2Q Residential Trends Report

HISTORICAL CONTEXT

Average Greeley home & condo price from 1979-2006 was mostly an upward march: +5.7% per year. In the last recession, prices dropped 18% from 2006 peak, hitting bottom in 2010. Prices have risen ever since. 2023 has seen a slight pullback. Second quarter of 2023 the average was at $408,390. This data from the Federal Reserve and is their estimate for ALL properties (homes + condos).

Data Source: FRED Economic Data
Your Castle Real Estate – 2023 – 2Q Residential Trends Report

HISTORICAL CONTEXT

Average Fort Collins home & condo price from 1979-2006 was mostly an upward march: +5.1% per year. In the last recession, prices dropped 5% from 2006 peak, hitting bottom in 2010. Prices have risen ever since with only a slight pullback in 23Q1. Second quarter of 2023 the average was at $430,390. This data from the Federal Reserve and is their estimate for ALL properties (homes + condos).

Data Source: FRED Economic Data
Your Castle Real Estate – 2023 – 2Q Residential Trends Report

HISTORICAL CONTEXT

Average Boulder home & condo price from 1979-2006 was mostly an upward march: +5.5% per year. In the last recession, prices dropped 5% from 2008 peak, hitting bottom in 2010. Prices have risen ever since, with the smallest dip the last 2 quarters. Second quarter of 2023 the average was at $448,800. This data from the Federal Reserve and is their estimate for ALL properties (homes +condos).

Data Source: FRED Economic Data
Your Castle Real Estate – 2023 – 2Q Residential Trends Report

CURRENT MARKET

Let’s look more closely at different prices
segments of home sales.

  • This chart breaks sales down into the sizes of homes: under 1,040 sq. ft. (smallest 10%), 2,774+ SF (biggest 10%) and four buckets in between.
  • It looks at the metrics for each size bucket so you can accurately assist your clients much more in making buying and selling decisions.
  • Instead of just looking at neighborhood or type of home or price range we can get right down to the size of the home.
  • For e.g., if your client is looking to buy a 1,500 sq. ft. home, you’d look at segment 3. 1352 -1729 sq. ft.
    • You see there’s only 2.3 MOI, prices have risen 6% in the past year.

What does it mean for the client?

  • It’s critical for a smart buyer or seller to understand everything they can about their
    market, down to the size range of the property in question
  • This slide helps you provide specific, quantifiable data to your clients based on
    the size of their home so they can make the right decisions.
  • Used in conjunction with other data like neighborhood metrics and local comps, this
    chart will help your clients make better decisions.

NOCO HOMES COMPARISON BY PROPERTY SIZE

There is the most inventory in the luxury area of the spectrum. Appreciation remains mostly in the single-digits for the trailing twelve months. All homes are moving slower than this time last year.

Data Source: FRED Data Source: IRES, RE Colorado, and Shorewood Analysis Data
Your Castle Real Estate – 2023 – 2Q Residential Trends Report

NOCO CONDOS COMPARISON BY PROPERTY SIZE

Active attached properties are nearly nonexistent. Marketing times for these properties are significantly up from what they were just one year ago. The middle-sized condos are experiencing the best appreciation rates.

Data Source: IRES, RE Colorado, and Shorewood Analysis
Your Castle Real Estate – 2023 – 2Q Residential Trends Report

HISTORICAL CONTEXT: MORTGAGE RATES

Mortgage rates have recently increased, which has made headlines. However, when looking at fifty years of history, rates are still below the historical average. On the right, the mortgage spreads are higher than historical trend… that could eventually provide some downward pressure to rates.

Source(s): Freddie Mac, Your Castle, FRED, US10Y
Your Castle Real Estate – 2023 – 2Q Residential Trends Report

ASCENT OF THE RENTERS

There is a strong relationship between home price (e.g., affordability) and what percentage of the population rents (vs. owns). More expensive cities have a higher percentage of renter households.

  • As Denver’s housing prices have increased in the past decade, the percentage of renters has increased, too.
    We anticipate the projected increase in prices from 2023-25 will mean fewer people can afford homes. Despite
    a growing population, the number of home sales likely will be flat. It’s a great time to be buying rental property!
Source: YCRE analysis, Census Bureau
Your Castle Real Estate – 2023 – 2Q Residential Trends Report

On the left-hand chart

  • If home prices continue to increase faster than wage growth (or if mortgage rates go up); we’d expect to see ownership rates in Denver decrease.

What does it mean for the client?

  • It would be wise to become a homeowner now before it’s altogether unrealistic to save for a down payment.
  • If one has the means, it’s also a good time to acquire investments properties as the tenant pool grows.
  • 50% of the households in Denver, CO are renter-occupied in 2023.

Renter calc: 3,116,000 population in 2016, add 0.8% or 25,800 people per year for ten years. Estimated 2025 population= 3,375,000. 2016 Has 3,116,000 *47% that rent. 2025 has 3,375,000 *525 that rent.

NET WORTH FOR OWNERS IS HIGHER THAN RENTERS

Homeowners are the 1%’ers!

  • Well, it’s not quite that simple .. but what is true is that the vast majority of wealth in America
    is held by homeowners, not renters.
  • The average net worth of a U.S. homeowner in 2019 was $255,000, compared to just $6,300
    for the average renter.
  • The numbers are shocking, and renters definitely aren’t aware of this, so educate them. Let them know that if they want to build wealth over time owning a home is the tried-and-true formula.
  • Investors (landlords) with a few rental properties do even better!
  • The more the world changes, the more it stays the same – buying a home is the right thing to do to house one’s family and build long term wealth.
  • Or they can just make their landlord happy (and wealthy) forever. Whichever they choose.

What does it mean for the client?

  • If you are renting you should STRONGLY consider buying if you want to build wealth. The numbers are clear

NET WORTH FOR OWNERS IS HIGHER THAN RENTERS

Buying is generally more affordable and less expensive than renting. In addition, research by the Federal Reserve found that home owners accumulate 40x more net worth than renters over their lifetime.

Data Source: Federal Reserve Survey of Consumer Finances 2016-2019
Your Castle Real Estate – 2023 – 2Q Residential Trends Report

SHOULD I BUY NOW?

Denver wealth creation for first-time buyers. The Federal Reserve chart about net worth is interesting, but let’s try to make it a bit more tangible for Denver.

  • We’ll consider several typical scenarios – this one is for a first-time buyer
  • The top left looks at what that first-time buyer client might face if they buy today.
  • The bottom left examines how much more their payment might be in a year if..
    • Home prices go up 5%
    • Interest rates go up 0.5%
    • The payment could go up 11% if you wait for a year (and what will your rent do in the interim?)
  • The right side is a chart depicting…
    • Top: The home value, with 5% annual appreciation.
    • Middle light purple: the mortgage balance, which is paid off over time.
    • Lower heavy grey line: the accumulated equity (“wealth creation”) for the client.

What does it mean for the client?

  • The first-time buyer’s 5% down payment of $25,000 turns into over $400,000, or +1635%.
  • For most buyers, this gain would be tax free!
  • You also get to save on rent expense.
  • Potentially, you deduct your property taxes and mortgage interest as tax deductions, reducing
    your tax burden. These benefits are not included here. Talk to your CPA.
  • Historically, the stock market (S+P 500) returns around 11% per year before tax or 8% per year
    after tax.
  • If history predicts the future, that $25,000 down payment invested in the stock would
    worth $54,000 (after tax) in ten years, for a 115% return.

1ST TIME BUYER

If you buy a home today vs. next year (First Time Buyer). More than $400,000 in wealth creation in ten years!

Data Source: BankRate.com
*This does not include approximately $93k paid in interest over first 10yrs.
Your Castle Real Estate – 2023 – 2Q Residential Trends Report

BOULDER HOMES: HISTORICAL CONTEXT

Data Source: IRES, RE Colorado, and Shorewood Analysis
Your Castle Real Estate – 2023 – 2Q Residential Trends Report

FT COLLINS HOMES: HISTORICAL CONTEXT

Data Source: IRES, RE Colorado, and Shorewood Analysis
Your Castle Real Estate – 2023 – 2Q Residential Trends Report

GREELEY HOMES: HISTORICAL CONTEXT

Data Source: IRES, RE Colorado, and Shorewood Analysis
Your Castle Real Estate – 2023 – 2Q Residential Trends Report

LONGMONT HOMES: HISTORICAL CONTEXT

Data Source: IRES, RE Colorado, and Shorewood Analysis
Your Castle Real Estate – 2023 – 2Q Residential Trends Report

LOVELAND HOMES: HISTORICAL CONTEXT

Data Source: IRES, RE Colorado, and Shorewood Analysis
Your Castle Real Estate – 2023 – 2Q Residential Trends Report

TOTAL: BIG 5 CITY HOMES: HISTORICAL CONTEXT

Data Source: IRES, RE Colorado, and Shorewood Analysis
Your Castle Real Estate – 2023 – 2Q Residential Trends Report

Analyze Before You Buy
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Start analyzing your Colorado investment properties today
Rental Property Spreadsheet • House Hacking Spreadsheet BRRRR Calculator Spreadsheet • Fix and Flip Deal Analyzer Investing Maps • Rehab Pricing Estimator
Authors
Chris Lopez
Chris Lopez is a Denver area real estate entrepreneur and investor, as well as the host of Bigger Pockets’ House Hackerz and the Denver Real Estate Investing Podcast.
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