Colorado EconomyEconomics 101 June 24, 2021

The Biggest Risk in Front Range Real Estate

In today’s world, the biggest risk in Front Range real estate for buyers is to wait! Eric Thompson from Windermere Local shares some insight below as to why this is and what it means for buyers across the Front Range:

Why Waiting Isn’t a Good Idea
Thinking back to 2008-10, we can learn a lot about the market’s expected behaviors based on the data during that time period. Many revisit this time in our market’s history because of the growing concern that there will be another recession. Naturally, this is causing some buyers to think waiting is best and that prices will decrease as they did from 2008-10 – however, that’s not the case.

It’s important to understand that back then, along the Front Range, we saw a very small impact from the Great Recession. We saw a slight change in prices as a result of what can only really be described as a meltdown of the economy. What we could argue is that back then, that was the worst economy of our lifetime. Even worse than what we experienced in March-May of 2020 when the pandemic struck – however, the economy bounced back very quickly in comparison to the Great Recession.

In reality, the prices in the Front Range real estate market only dropped by a nominal amount during the recession, regardless. Based on our research, we see that our market has a history of unwavering, steady appreciation. So, the biggest risk in Front Range real estate is holding out hope for another price drop that could actually cost you more in the long run.

Pricing Will Do What It’s Always Done
In the short term, there is nothing that is telling us that prices will decrease. It all comes back to simple supply and demand. As we look at the market today, we are vastly undersupplied. Right now, new construction is just a small portion of what it once was back in 2006-07, even with a heightened population. On the demand side of things, what we have is a healthy economy, a very attractive region as a place to live, and people who can now live anywhere they please with working from home on the rise.

What’s true about our market in the medium-term, is that prices appreciate at about the same rate as they do for the long-term. What this means is that if you look at market data from the last 40 years, in 10-year segments, prices appreciate at about 5% per year within those 10-year timeframes. Considering the long-term, what we expect over the next 10 years is for prices to keep pace with what they’ve historically done in the medium-term: increase.

The Impact of Interest Rates
Interest rates are currently at historic lows – and they simply can not last. Technically speaking, interest rates can’t do much of anything besides go up. With this in mind, experts are expecting rates to increase by half a percent within six months and will be 1% higher in one year’s time.

That means if rates go up by 1%, that’s effectively a 10% increase in overall price because it creates a 10% increase in a monthly payment.

Bottom Line: Keep Going
Based on market data, the biggest risk in Front Range real estate for buyers is to wait because we expect to see list prices and interest rates going even higher than they are now. What we want to communicate to buyers who may be feeling let down or overwhelmed with our current market, the best and smartest thing you can do is keep going. In the end, it will all be worth it, for you, your family, or any other situation calling you to explore the market.