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Archive - September 2021 - What's Driving This Crazy Real Estate Market?

In September 2021, everyone was asking, what's driving this crazy real estate market? To help shed some light on why, Julia Purrington wrote an article for Colorado Serenity Magazine:

Active Listings in the Foothills
Active Listings in the Foothills

Have you been hearing lately how busy the real estate market is? Wow, we’ve never seen prices grow this fast. And it is because we are in a major inventory shortage. As you can see on the graph herein, we have lower inventory than at any time in the last three years. In fact, inventory was declining steadily from April 2020 through April 2021, when we started to see inventory slowly increase. The graph shows all residential properties actively listed for sale in the foothills areas from Golden to Morrison, west to Kenosha and Loveland Passes. In this area right now, there is real, tangible demand for housing, so why the low inventory? There may be several reasons creating this “perfect storm” including anecdotal ideas about folks not listing homes due to fear from COVID, but there are some more tangible things going on here. Likely, the biggest factor is that the baby boomers are downsizing less and deciding to “age in place” and we are seeing that this generation is actually holding onto multiple homes. In fact, this age group holds the biggest share of the real estate market in the U.S. (44 percent) according to the Federal Reserve data.

At the same time, the millennial generation is aging into homebuying and typically now choosing to buy instead of rent, which adds more buyers to a market which doesn’t have enough homes to satisfy buyers. These demographic trends are working together to create a real inventory shortage in the resale market. To add to the problem, the dramatic increase in construction costs (both building material and labor) has created a similar inventory shortage and higher pricing in new builds. Some may have heard talk about the possibility of an impending glut of inventory from foreclosures (once COVID-related forbearances lift). However, this won’t happen because home values are so high, almost all of the homeowners in this situation have a lot of equity in their homes. They know that the market is good and they can sell at any time. I suspect some of the limited inventory increase we are seeing now is this group anticipating the end of forbearance and listing to prevent the issues related to possible foreclosure. I also suspect that if there are foreclosure-related sales, they will be at the lower end of the price spectrum and unlikely to affect the foothills market much.

So, the question is, what can we do about it? The obvious solution is to find more inventory! If you’ve been considering selling a second home, income property, or even that vacant land that you’ve been holding onto, now might be the time to sell. If you’re looking to downsize, there is a legitimate concern about finding your downsized home. The good news is that since sellers are so rare right now, they are the ones who can control the deal. So go ahead and list that bigger home so a new family can grow there—and demand a 45-60 day rent-back so that you have time to find your next place to call home. Looking at it from a financial perspective, interest rates are, and have continued to stay, at all-time lows (below 3 percent), which equates to higher buying power. The trend is that rates will not remain this low as the Federal Open Market Committee is continuing to see inflationary pressures, and they are committed to begin the tapering of their purchase of mortgage-backed securities, which was elevated through the pandemic. What that means for the consumer is that rates will likely begin to rise shortly. Putting this together, if you’re looking for top dollar on the sale of your home and great financial buying power on the purchasing side, this is a great time to consider a move.

Is now the right time to list your home? With homes selling at an average of 102 percent of asking price and buying power staying high, it very well may be the best time. Contact a Mountain Metro Association of REALTORS® local expert for advice on the market value of your property to help you make your decision on best timing in this current, low-inventory and ever-changing real estate market.

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