The final numbers are in for 2016. The overarching headline is that 2016 turned out to be a record year in real estate, recording the highest home prices ever in Colorado and the highest volume of real estate sold. The market is carrying a lot of momentum into 2017.
In the spirit of transparency and accountability, let’s review the predictions we made a year ago in the January 2016 version of this newsletter:
Prediction #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.”
Reality – Inventory became even tighter in 2016. Despite occasional signs that the supply of homes for sale was trending upward, each increase in listings was absorbed quickly by strong demand, bringing inventory back down. We started the year at 2.1 months of supply along the Front Range, fell to 1.9 months in February, and remained below 2 months for the rest of the year, ending at 1.3 months amidst a market more active than usual in December. Keep in mind, 5 to 7 months of supply is considered a balanced market, anything less favors sellers.
While the overall supply levels remain low, we are seeing pockets this winter where listings are sitting on the market a bit longer, giving buyers more negotiating power, and causing prices to flatten out. This presents a good buying opportunity before the expected spring frenzy arrives.
Prediction #2 Tight Inventory and Higher Rates Won’t Stop Buyers from Closing More Sales
“Demand from buyers just keeps getting stronger. For Millennials, Colorado has become a hot new destination. Buyers will have to compete for a limited supply of inventory, thwarting many from actually completing a purchase. Enough, however, will figure out a way to close, resulting in an increase of 5% to 10% in the volume of real estate sold in 2016 compared to 2015.”
Reality – Sales volume across all Front Range markets was up 3.4% in 2016 compared to 2015, a bit lower than the 5% to 10% increase we predicted.
The headwinds caused by the lack of inventory proved to be a bit stronger than expected. Many ready, willing, and able buyers tried to purchase in 2016, but couldn’t find a home or lost out to better offers. Fortunately, a large percentage of those buyers are still actively looking. Many are finding that new construction homes coming online is the answer to the inventory shortage.
Prediction #3 – Home Values Up 6% to 8%
“It appears inevitable that the frenzy we saw in the market last spring will be repeated this spring. The conditions of low supply and high demand that drive up prices are firmly in place. 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.”
Reality – Colorado home values increased 10.3% in 2016 according to the latest data from Zillow. The Core Logic Home Price Index pegs Colorado appreciation at 8.8%.
Although lower than actual 2016 appreciation, our prediction of 6% to 8% was quite aggressive at the time. Many so-called experts were predicting much lower appreciation rates. Zillow, for example, predicted 2016 appreciation of 3% to 5% for major Colorado metro areas.
We all knew the market would be hot in the spring. The surprise was that prices kept rising through the end of 2016, hitting new all-time highs each month.
Our overall prediction for 2016 was “a strong real estate market.” There is no question it was a strong market, and we will happily accept a cumulative grade of A- for our 2016 predictions.
2017 is off to a fast start. Rising interest rates and less frenzied winter market conditions are causing many buyers to get off the fence and get busy. Investors are also jumping on attractive rental property opportunities, and sellers are already prepping their homes for the spring market. If I can help with any or all of these activities, shoot me an email, text, or phone call.