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2015 Wrap-up and 2016 Real Estate Predictions: Can You Say Déjà vu?

The final numbers are in, and 2015 was a record-breaking year. As home values appreciated throughout the year, new record high home prices were set with each passing month. Despite a chronic graph1shortage of listings for sale, the market still managed an increase of 8.8% in the total dollar value of real estate sold along the Front Range in 2015, setting a record in the process. $30.3 billion worth of Front Range real estate changed hands last year!
Before we unveil our predictions for 2016, let’s wrap-up 2015 with a quick look at December’s data.
 
The market finished the year with a powerful surge across the finish line. The volume of sales across the Front Range increased 16.2% in December on a year-over-year basis, and was up 29.4% on a month-over-month basis. As we predicted, a slow November was nothing but a blip most likely caused by a Thanksgiving that fell late in the month and new government-mandated closing regulations. The chatter by some analysts about a market slow down was yet another misread of the data.Screen_Shot_2016-01-13_at_14.20.55_PM
Strong sales in December and a scarcity of new listings coming on the market caused the supply of inventory to drop dramatically. Along the Front Range, the supply of available homes for sale fell to 1.4 months in December, the lowest supply of the year.
 
Now let’s take a look ahead. Our official, on the record, hold our feet to the fire, predictions for 2016 are:
#1. Sellers’ Keep the Advantage
 
The supply of inventory will remain tight, giving sellers the upper hand as buyers compete for a limited supply of move-in ready, market priced listings. Inventory levels will remain well below the six-month benchmark that divides a sellers’ market from a buyers’ market.
 
Front Range homeowners gained more than $39 billion in additional equity in 2015 due to double-digit home value appreciation. The number of homeowners that are “under water” with negative equity has decreased significantly. In fact, according to Core Logic, 97.2% of Colorado homeowners have positive equity.
 
These gains in equity will spur many to list their homes for sale to take profits, downsize, upsize and/or change locations. New listings, of course, will increase the supply of homes on the market. Unfortunately, there won’t be enough new listings, resale or new construction, coming onto the market to satisfy current demand.
 
 
#2. Tight Inventory and Higher Rates Don’t Stop Buyers from Closing More Sales 
 
Demand from buyers just keeps getting stronger. For Millennials, Colorado has become the new hot place to live, joining a group dominated by coastal cities like Boston and San Francisco. Just don’t tell them there’s no ocean. Colorado’s quality of life coupled with a robust tech driven job market is attracting a lot of folks, and no one wants to leave once they get here.
 
And the data backs up these claims. Specifically, Colorado added nearly 101,000 people and had the second-fastest rate of population growth of any state in the 12 months through July 1 according to the Census Bureau. The University of Colorado is projecting the State’s population to grow by another 95,000 in 2016.
 
Job growth is gaining momentum. Unemployment in Colorado fell to 3.6% according to the most recent Bureau of Labor report, and CU projects that 65,100 new jobs will be created in 2016.
 
Job growth and relatively low interest rates will give consumers, especially first-time buyers, the confidence to enter the market. Many have concluded that waiting just means higher prices (and interest rates), and possibly being shut out of the market for years. All these buyers will have to compete for a limited supply of inventory, thwarting many from actually completing a purchase.
 
Enough buyers, however, will figure out a way to close on a new home, resulting in an increase of 5% to 10% in the volume of real estate sold in 2016 compared to 2015.
 
 
 
#3. Home Values Up 6% to 8% 
 
Headlines in the second half of 2015 proclaimed that the market was cooling and home price increases were slowing down, or even set to fall. However, someone forgot to tell the market that. As the 2015 came to a close, appreciation rates are as high as they’ve been all year. Rates don’t appear to be moderating, and actual prices certainly are not falling. According to the most recent Core Logic Home Price Index, which lags the market by two months, home prices in Colorado were at an all time high and 10.4% higher in November than last year. And as the December data shows, the market has only heated up since then.
 
As a result, it appears inevitable that the frenzy we saw in the market last spring will be repeated this spring. Competing buyers will be writing multiple offers and engage in bidding wars to win the relatively few listings that are move-in ready and competitively priced. That is already happening even in this “slow” time of year. Unfortunately, it looks like things will only get more frenetic as we move into the prime spring selling season.
 
Overall, the conditions of low supply and high demand that drive up prices are firmly in place and possibly even more out of balance today than a year ago.
 
We expect to see appreciation rates exceed 10% through the first half of the year before settling back down to the 6% to 8% range by the end of 2016 as interest rates tick up.
 
 
 
Overall Prediction: 8z’s Outlook is a Strong Real Estate Market in 2016
 
Truth be told, our 2016 predictions are almost identical to our 2015 predictions. And as we detailed in last month’s newsletter, our predictions last year proved to be quite accurate. Together, we’ll see how we fare this year.
 
As real estate professionals, we can make predictions, but we cannot dictate what the market will do. That said, we remain committed to keeping you up to date and knowledgeable. As market events unfold in 2016, you can count on us to tell it like it is and share our insights so you can make better real estate decisions. Here’s to a prosperous year!

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