Northern Colorado real estate is still hot. Single family homes in Fort Collins, Loveland and Berthoud priced under $400,000 sell after an average of 18 days on the market — and sellers are getting slightly above asking price.
In Fort Collins, a starter home — one that has a mortgage comparable to area rent, is now between $300,000 and $400,000 — increasingly out of reach for many first-time buyers.
But this isn’t a housing bubble.
There are several factors that have to be in play for a housing bubble to exist. The inventory needs to outweigh the demand — too many houses on the market — which will lead to dramatic price drops.
“In our case, the cities and counties are holding [builders] at bay by issuing only a certain number of permits per month in an effort to keep them from over building,” said Kelly Moye, spokeswoman for the Colorado Association of Realtors. “So they’ve been holding back, keeping our inventory incredibly low.”
Another factor that contributes to a bubble involves the reaction to a hot market. Houses take time to build, so if demand decreases or stagnates at the same time that the supply of houses increases that can result in a sharp drop in prices — the bubble bursting. But in Northern Colorado, the demand is staying high due to the job market.
“It’s very hard for the housing market to crash in the job market is strong, and right now we’re at one of our lowest unemployment rates of all time,” Moye said.
The appreciation rate for single family homes has been about 10 percent annually — a healthy rate, but not a large enough number that would allow for a big drop.
“The biggest problem now is our lack of affordability, and the prices continue to go up but wages do not go up with them. You are seeing that fewer people can buy, and that will slow a market down,” Moye said.
Private investors have also zeroed in on the market and are buying up homes with cash.
“Unfortunately, what’s happening is investors are beating out people in bidding wars — those first time homebuyers who are just trying to get into a house,” said Moye. “It’s making the market pretty tough to be a first time homebuyer right now.”
The Federal Reserve is expected to raise interest rates this summer. Moye thinks that could induce people to buy before the hike to take advantage of the lower interest rate.