The fall market struggled in October to keep up with last year’s pace as the supply of properties contracted again. That said, considering the election may have kept some buyers and sellers on the sidelines, the market posted solid numbers.
The volume of real estate sold across all Front Range markets in October eked out an increase of 0.7% on a year-over-year basis. Prices along the Front Range were up more than 10% year-over-year, but closed transactions were off 9.8% compared to last October. The number of active listings shrank by 8.5%, and the inventory supply was unchanged at a tight 1.8 months.
One reason the market has remained relatively active this fall is due to a large number of investors in the market. Many have concluded that now is a great time to purchase a rental property. Here are 8 reasons why now is a great time to become a real estate investor or add to your portfolio:
- Rental Rates are UP – Rents have flattened in the past couple months, but the average rental rate in Colorado is at an all-time high and is up 4.7% this year. High rents translate into monthly positive cash flow for the property owner.
- Per Capita Income is UP – High rents can only be sustained if tenants can afford those rents. Fortunately, per capita income increased 3.61% according to the Census Bureau’s most current data and is expected to rise next year.
- In-migration is UP – People are moving to Colorado. In fact, the Centennial State is #3 in the nation, behind only Florida and Texas, for the highest net gains in new households according to a recent story in the Denver Business Journal.
- Stock market is UP – With the S&P and the DOW hitting record highs, now may be a good time to take some gains out of the market and diversify your portfolio with a real estate investment.
- Unemployment is DOWN – Colorado’s unemployment rate dipped to 3.6% in September, significantly lower than the national rate of 5.0%. This differential is a talent magnet for professional Millennials who often rent before settling down and purchasing a home.
- Interest Rates are DOWN – Following the election, mortgage rates jumped to levels not seen since the beginning of the year, but remain extremely low by historical standards. A 15-year loan, a favorite of investors, can still be had for just over 3%. Low interest rates have a huge impact on keeping a rental property’s expenses down and its cash flow up.
- Bidding Wars are DOWN – In the past few years of this inventory constrained environment, the market has followed a predictable pattern: frenzied activity in the spring in which bidding wars over asking price are common, followed by a calmer market as the summer winds down and the Holidays approach. We’re seeing the same pattern this year, giving buyers a bit more negotiating power. Look for the frenzy to return in the spring of 2017.
- Prices are DOWN (sort of) – Real estate sales follow a predictable seasonal pattern. Most properties sell in the spring and summer months, with the fall and winter months typically accounting for about half as many transactions. The seasonal slowdown causes a temporary softening in prices, even when prices are at record highs as they are currently. Industry insiders know that the colder months are the best time to purchase real estate, especially if you’re buying as an investor and don’t have to find the perfect property in which to live. The research supports this conventional wisdom. Based on a review of over 32 million condo and home sales, RealtyTrac found that properties sold from November to February closed at a 2.1% discount to the current fair market value. In a sense, properties are “on sale” this time of year.
In short, if you have ever considered investing in rental property, now may be the perfect time to turn your aspirations into reality. Of course, as your trusted real estate advisor, I can help you get started and evaluate your options. With Thanksgiving just around the corner, I am thankful for the opportunity to help my clients prosper and experience financial success, and real estate has proven to be an effective vehicle for achieving both. Have a wonderful Thanksgiving!
Home is Where Your Heart (and Appreciation) Is
If you were looking to buy a home this autumn, you certainly haven’t been discouraged by the weather. As you prepare to sit down for the Thanksgiving meal, the warm weather is just one of the many things you can be thankful for in terms of the housing market.
Indeed, as you carve the bird and pass the plates, you can be thankful that the home you are sitting in is most likely worth thousands of dollars more now than last Thanksgiving.
In addition to turkey, mashed potatoes and pumpkin pie, another tradition in recent years has been for Lane Hornung, CEO of 8z Real Estate, to discuss what we can be thankful for in his monthly Q&A session with John Rebchook, of Denver Real Estate Watch.
John: Certainly, homeowners in areas like Denver and the Bay Area of Northern California have a lot to be thankful for.
Lane: No two ways about it. Home owners have enjoyed some really nice appreciation. When the inflation rate is less than 2 percent and home prices are rising at or close to double digits, that is genuine appreciation. Even if prices started to rise by “only” 4 percent to 6 percent, I think we all would be thankful for that.
John: Of course, someone trying to buy a home in such a fast-appreciating market might not be thankful that prices have risen so fast.
Lane: It is challenging. But buyers can be thankful that interest rates are still incredibly low. Low interest rates help offset some of the sting of rising prices.
John: Not everybody thought the home market would continue on this appreciation path. One line of thought was that prices must come back down, after rising for so many years.
Lane: One of the things I think that people can be thankful for is that the rising market did not become a bubble market. We never re-visited the downturn of a few years ago.
John: It also seems that the much-talked about Millennials must be thankful when they have been able to trade record-high rents for the benefit of homeownership.
Lane: First-time home buyers are definitely qualifying for loans and buying homes, starting down that road of prosperity. Despite people saying that Millennials don’t want to be homeowners, we are seeing more young professionals contacting us every day. Believe me, they are thankful for being able to start building equity.
John: Home builders also are doing their part to bring more homes to the market.
Lane: Yes, I’m thankful that builders are building more homes. I do wish they were building them a bit faster, as we still could really use the supply.
John: In addition to interest rates, appreciation and builders, what are you thankful for?
Lane: I’m thankful that the homeownership rate in this country appears to have hit bottom. I think it has hit its low point and will slowly start to rise from here. I’m also thankful that the median U.S. household income rose 5.2 percent, the most since the Census Bureau began tracking that statistic.
John: How about in Colorado, specifically?
Lane: I’m thankful that Colorado continues to attract a lot of sharp, entrepreneurial people. And I’m thankful a tough year in the oil and gas industry didn’t spread to the broader economy and cause the economy to burst like it did in the 1980s. Thankfully, our economy is diversified enough to withstand a downturn in one sector.
John: What are you thankful for on a personal level?
Lane: I’m thankful that I work with a great bunch of professionals at 8z. I’m thankful that they have helped thousands of people buy and sell homes this year.