The latest FHFA Q3 data is out for Boulder County and it tells the story of a changing, cooling market. For the first time since the second quarter of 2012, the Boulder County MSA saw negative appreciation from one quarter to the next logging a negative .58% appreciation rate from the second quarter to the third quarter of 2017. This leaves Boulder as one of only 26 MSA’s across the country to see negative appreciation when compared to the previous quarter.
Now, before everyone gets too concerned, do realize that the FHFA HPI data is constantly being revised and what shows up as a negative quarter today may well be adjusted back into positive territory with the next Q4 data release at the end of February 2018. While Boulder has fallen towards the bottom of the 253 MSA’s when it comes to quarter to quarter appreciation, we still remain 57th for annual appreciation and number one for appreciation since 1991. This negatively appreciating quarterly number does show though that the market is changing. Here’s the chart for annual appreciation rates.
Both Denver and Boulder show decelerating, yet still positive, annual appreciation rates in the chart. Interesting that Denver is decelerating less sharply than Boulder which is likely due to better affordability in the Denver MSA. Hope everyone has a wonderful holiday season.
The shift in the market seems to be coming clearer as we move into the fall. Homes are taking longer to go under contract and inventory is building faster than sales. The shift is still patchy however in that certain areas and price points are still very active. I’ve even seen this patchiness within neighborhoods as some homes get scooped up quickly while others can linger on the market. Buyers are once again caring about finishes, upgrades and location when comparing homes. Homes with negative issues are starting to again be penalized by the market, just being for sale is no longer all it takes to move a home.
One of the metrics that is displaying a marked shift that caught my eye recently is the percent of homes under contract across all of Boulder County. This summer, this metric didn’t rise above 50% under contract like the last two summers. It is also now displaying an under contract percentage that is below what we saw during any point in all of 2015 and 2016. A definite shift in the market.
To try and display data that backs up what I’m feeling in the market, I also plotted the number of homes available for sale that aren’t under contract and the number of homes that are under contract for the same time period going back over the last 5 years. In the chart below you can see that the inventory of homes available for sale had been dropping for the previous four periods but this year has sharply reversed trend. The number of home under contract meanwhile has stayed fairly constant throughout. Homes Available increased almost 18% compared to last year while the number under contract grew only 3% during the same time period.
So, inventory is growing strongly while sales have only increased mildly. A big question though is this change in trend a seasonal pattern or indicative of a market shift. Since we’re comparing these numbers for the same date going back over the last 5 years, I don’t think we’re seeing a seasonal pattern, but I’m not sure we’ll be able to answer that until we see how spring of 2018 plays out. Enjoy the changing seasons!
The latest FHFA House Price Index data came out for the Second Quarter of 2017 and I thought I’d spend some time on those stats. You’ll see in the chart below that Boulder County MSA, the metro Denver MSA and the State of Colorado are all off their peaks in appreciation as our current cycle shows some weakness. Overall, the US is still showing increasing appreciation.
The Boulder MSA remains very strong compared to the other 354 MSA’s across the Country. Boulder ranks 1st for appreciation since 1991. Interestingly, Denver is 2nd and Ft. Collins is 6th. When looking at 5 year appreciation, Boulder ranks 31st, Denver is 22nd and Ft. Collins is 36th. For one year appreciation, Boulder ranks 20th, Denver is 17th and Ft. Collins is 10th. One quarter appreciation, has Boulder ranking 85th, Denver is 48th and Ft. Collins is 67th. The Denver Metro MSA is comprised of the City & County of Denver, the City & County of Broomfield, Jefferson County, Gilpin County, Clear Creek County, Park County, Douglas County, Elbert County, Arapahoe County and Adams County. In many of these rankings the Denver metro MSA is out stripping the Boulder County MSA and I think this is due to the generally lower price points in the Denver Metro MSA. They have more room for the frenzied appreciation we’re seeing occur on the lower end. Below is a chart from the FHFA website showing those appreciation numbers for the three MSA’s.
Sometimes I have a great idea for a new statistical chart after a conversation with a colleague. After a conversation with John Hampshire at my office, I decided to see if I could chart the Sales Price to List Price ratio for real estate sales in Boulder County over the last 6 years. The expectation is that during the spring when the market is most frenzied, that this ratio would show a much higher percentage that would gradually decrease throughout the year to the slowest time in the late Fall. This chart could then be used to show sellers the best time to get the highest price and buyers the best time to get the best deal.
Like many great ideas, this idea didn’t survive first contact with reality. I was able to pull the data without too much effort but that was the last easy step. A quick look showed SP/LP ratios that ranged from 19.79% to 559%, not what I expected. A quick look at some of the outliers to figure out my next action. The 19.79% sale was for a single family home that went under contract pre 2013 flood but closed as a piece of vacant land post 2013 flood. Many of the other very low ratio sales were for small mountain acreages that took multiple years to sell. First massage of the data, take out all of the Vacant Land sales.
Next, moving to the opposite end of the spectrum, how did something sell for five and a half times the asking price? Some more research determined this was a vacant land parcel that was sold in conjunction with the $2M+ dollar home next door and the combined price was reported for both the home and the vacant land. Where do you stop though? I can’t comb through 27,949 sales in my dataset and make corrections to each one. Also, some New Construction Homes really do sell for almost 200% over asking once you add in options, lot premiums, appliance packages, etc. A couple more massages to the data to correct the most egregious outliers but most get left in.
Next dilemma, what timescale do I use? Charting the sales by actual date seems like it would give too much movement. Charting by month seems like too little movement. I finally ended on Week #’s of the year, weeks 1 through 52. Still some issues with this approach too. Week 1 of 2016 didn’t contain a single business day, so no sales possible that week but still seemed to be the best approach.
Next dilemma, do I use the Sold date or the date the property went Under Contract. Contract date would more accurately reflect the market strength or weakness at the time the contract was negotiated, let’s go with that. “Shoot” (or something unprintable) Contract date isn’t a data field I can download out of IRES, Sold date it is. Sold date however is probably offset 30-60 days from contract date and the market conditions that existed then. I decided not to try and chase down that source of noise in the data.
So, after all of that, below is what my efforts came to, a metric that doesn’t really tell you anything. There isn’t a clear pattern to the SP/LP ratio throughout a year. Too many spikes and drops from outlier data. No clear trends in the shapes of each year. Only clear trend I can see is that the most recent years have had a higher SP/LP ratio than the years closer to the Great Recession. A shocking new insight to everyone I’m sure. I guess the lack of a clear pattern is an insight in some ways. There isn’t a consistent pattern to our market where a certain time will always produce a better or worse SP/LP ratio than another time. There will always be some sellers and some buyers more flexible than others.
Luckily not all was lost. For those of you who have ever downloaded large numbers of sales out of IRES, you know that there is a maximum cap of 2,000 records that can be exported at any one time. Since every year 2011-2016 has had more sales than this limit, I had to break my exports out into less than 2,000 sale chunks. The easiest way I have found to do this is by sales price. First chunk 0-250K sales, second chunk 250K-550K sales, etc. What became apparent as I made these downloads was that these chunks were changing dramatically over the years. This isn’t a dramatic insight, we all know our prices have been appreciating, but I was really struck by how we have lost the entry level of our market.
This insight was much easier to translate into a chart (next page). Each year on a 3D graph showing the sub-400K market in Boulder County for both attached and detached sales. You can clearly see the market shifting to the right towards higher sales prices. 2011 at the back of the chart to 2016 at the front of the chart. A stark visual reminder of how our market is evaporating for entry level buyers.
Hope everyone has a great August!
Many of the brokers that I chat with about stats are commenting on how they feel a change taking place in the market. This change isn’t uniform across Boulder County yet, but I suspect by the end of this year, we’ll all agree the days of instant offers and annual appreciation in the teens will have ended.
So aside from gut feel, what stats are starting to show a change? One of the ones I keep an eye on is the percent of single family homes in each area that is under contract. You can see in the chart below that we have rounded over the top in this metric. While there was a small drop from 2013 to 2014 that ended up not signaling a change, the drop so far from 2016 to 2017 seems significant enough to signal a change. We’ll eventually have further data to confirm this change and then get an idea for the slope of the change. Once we have a confirmed shape to the new direction, we can call when we break out of the new trend at some point in the future.
I maintain these same stats for each sub-area in the County. That chart is more interesting in that you can watch the individual cities move up and down as compared to the other cities in the County. I have been tracking these stats since 2004 and a very interesting change has occurred since then. Back then, the City of Boulder was always a top performer in this chart, frequently having the highest percentage of homes under contract in the County. Since the Great Recession however, the City of Boulder has been towards the bottom of the chart and lately has been tracking below the County average. Longmont and Erie back then were usually at the bottom of the chart but recently they’ve been trending much higher. I think this change is a reflection of affordability. As prices within the City of Boulder have climbed dramatically, the relatively lower prices further out in the County have driven demand outside of the City. One other observation, the Suburban Plains have been a perennial underperformer compared to the other areas within the County.
We’ll be keeping an eye on this chart as the market potentially shifts. Dramatic changes in the positioning of the competing subareas will give us some insight to what’s happening and how big a factor affordability is playing.
Hope everyone had a wonderful Fourth of July!
One of the signs I’ve been watching for that could indicate our market is changing is an increase in available inventory. As you can see in the chart below, we’re starting to see that increase. 2017 is the first year in which we have not set new lows in the number of homes available for sale across Boulder County.
A definite change in the market, but determining the significance is more challenging. If the number of homes available for sale peaks and then drops back into the range of 2015 & 2016, I think we can say this was a temporary quirk of the market this year. If instead we see the # available continue to climb throughout the year that would be more troubling. If we see the # available leave the red zone and start transitioning back towards the blue zone of the years 2005 through 2011 that would be even more concerning for continued price appreciation. It is also hard to tell if this increase is due to larger numbers of sellers or fewer numbers of buyers snatching properties off the market. More sellers would be better for the health of the market than fewer buyers.
There are some long term trends occurring within Boulder County however that make comparisons to previous years more difficult. We may have transitioned to an era where we may not get back up to those higher inventory levels. Generally higher interest rates, lack of substantial new construction, continued population growth, and very low unemployment may all combine to create a market where we won’t again see the high levels of inventory we saw from 2005-2011 as people are more likely to stay in their homes. If this is true and the red zone is our new normal, than a move back to the top of that area may be concerning enough. This is one I’ll be watching throughout the summer.
I was recently at a meeting with the Boulder County Assessor and this year’s property re-appraisal cycle is going to be very interesting. The Boulder Assessor is forecasting that single family residential values will jump 28-30% since the last re-appraisal May 1, 2015. The change for attached homes will be even greater. Many homeowners out there are in for a spring surprise.
The one bright spot on the horizon is that the State Legislature is changing the assessment rate for the first time since 2003 and is considering lowering it to 7.20% from 7.96%. This number isn’t fully set in stone yet but must be set prior to the end of the legislative year on May 10th. The net effect of these changes is that residential property tax bills should increase, but not the same 28-30% increase we will see in valuations.
The Denver Post has great maps from seven metro area Counties showing their forecast changes in value. Here’s that link and below, Boulder County’s map.
Last month we talked about the Sales Price to List Price ratios for properties that sold in 2016. This month I wanted to take a look at that same statistic but just for properties that sold for over a million dollars after concessions were removed from the sales price. In 2016, 412 properties met this criteria, a mix of single family homes and downtown Boulder attached loft type properties. I was surprised once I ran this analysis how closely the over a million market matched the overall market but there were some differences.
|Week 1||Week 2||Week 3||Week 4||Week 5||Week 6+|
|% of all Sales||32.52%||8.74%||7.77%||4.13%||3.40%||43.45%|
|Asking or better||70.90%||38.89%||37.50%||5.88%||7.14%||12.29%|
|<80% – 95%||4.48%||22.22%||28.13%||47.06%||42.86%||44.13%|
|95% – 97%||6.72%||22.22%||15.63%||11.76%||28.57%||21.79%|
|97% – 99%||10.45%||13.89%||12.50%||23.53%||21.43%||15.64%|
|99% – 100%||7.46%||2.78%||6.25%||11.76%||0.00%||6.15%|
|100% – 102%||52.24%||22.22%||31.25%||5.88%||7.14%||10.61%|
|102% – 105%||7.46%||8.33%||6.25%||0.00%||0.00%||1.68%|
You can see in this first chart that million dollar plus properties that sell quickly mostly sold for their asking price. In the overall market, the majority of properties were selling in the first week on the market while in the million dollar plus market the majority of properties sold in week 6 or later. The million dollar plus market also does not show as much strength in properties selling for over asking price. The peaks in weeks 4-6 for the million dollar plus market also were all in the greater than a 5% discount off asking price category. For the overall market, the greater than 5% discount off asking category never was the majority of sales in any week.
Aside from all of these differences, I was surprised at how the chart of this data wasn’t substantially different than the chart of the overall market. Both charts have a strong spike in week one for sales right at asking price. Both charts have peaks in weeks 2 & 3 right at asking price. Both charts show strength in week 1 sales over asking price. I went into this analysis expecting the million dollar plus market to be dramatically different. The reality is that there were minor differences but it was generally the same. It will be interesting to look at this data again next year and see if and how it changes. Until then, have a great spring.
At the start of each year, I’m always analyzing the sold data from the previous year and this month I wanted to take a look at the sales price to list price ratios of all the 2016 sold properties. Last year I originally ran this analysis without removing seller concessions from the sales prices. This year, all of the data below has already had sales concessions removed from the sold prices, so the sales price to list price ratios should be as accurate as possible.
The first analysis was just to look at the percent of the market that is selling for over asking price and how that metric is trending over time. In 2016, the percentage of Single Family homes selling for over asking price continued to climb, but the increase appears to be slowing. For Attached homes, the increase has not only slowed but dropped just over 1%. Hard to tell how significant this Attached change is if at all. If we get a second year of drop in the over asking percentages after the end of 2017 that could signal a change in the trend. Hard to believe that over half of all Single Family homes and almost ¾ of Attached homes sold for over the asking price again in 2016.
The second stat I wanted to revisit again was the sales price to asking price ratios and how those ratios change depending on how quickly the home goes under contract. As you would expect, the more quickly the home gets snatched up, the more likely the sales price was to be at or over the asking price. In 2016, 75.81% of the homes that went under contract within the first week of their market entry eventually sold for over their asking price. As we saw in 2015, not a lot of negotiating room for properties during the first week on the market. Also as expected, the percent of homes that sell for asking price or better drops the longer the home sits on the market without an offer. The one quirk to this IRES data that I haven’t been able to eliminate is the possible inclusion of properties that were withdrawn and then re-entered with a new MLS # and possible new asking price that then sell quickly even though they have a lengthy combined days on market.
|Single Family||Week 1||Week 2||Week 3||Week 4||Week 5||Week 6+|
|% of all Sales||44.69%||14.63%||7.59%||5.59%||4.08%||23.42%|
|Asking or better||75.81%||48.38%||30.83%||31.07%||23.26%||21.59%|
|<80% – 95%||1.98%||7.13%||10.00%||11.86%||14.73%||24.83%|
|95% – 97%||2.83%||10.58%||16.67%||15.25%||16.28%||17.14%|
|97% – 99%||9.69%||21.38%||30.00%||29.38%||34.11%||28.48%|
|99% – 100%||9.69%||12.53%||12.50%||12.43%||11.63%||7.96%|
|100% – 102%||37.48%||27.00%||21.25%||24.86%||17.05%||17.95%|
|102% – 105%||19.09%||11.66%||6.25%||3.95%||3.10%||2.43%|
In this graph, I’ve plotted, in separate colors, the sales per the week they went under contract. The expected strength in the properties that went under contract in the first week is displayed in blue. As we saw in 2015, those “under contract in the first week” properties had numerous sales that were at asking price through sales that were up to 10% over asking price. It’s not until homes have been for sale into the third week that you start to see the peaks in the chart at something less than asking price. One other quirk in the data that I didn’t attempt to adjust for was for properties that went under contract, had a buyer back out and then re-entered the market.
As with most of our statistics lately, looking at these same stats for Attached Homes shows an even stronger seller’s market than the Single Family homes. In 2016, Attached homes that went under contract within the first week on the market sold for asking price or better 86.23% of the time. More than half of all 2016 sales of Attached homes went under contract in the first week. As we saw in 2015, there is an odd increase in the sales price to list price ratio when you get to week 5 and beyond. My best guess to explain this phenomenon is that in condos you start seeing successful price reductions more quickly than in single family homes.
|Attached||Week 1||Week 2||Week 3||Week 4||Week 5||Week 6+|
|% of all Sales||55.16%||13.83%||5.04%||4.56%||3.84%||17.59%|
|Asking or better||86.23%||59.54%||38.10%||29.82%||45.83%||50.00%|
|<80% – 95%||0.58%||4.05%||9.52%||7.02%||10.42%||5.45%|
|95% – 97%||1.45%||6.36%||14.29%||8.77%||10.42%||12.27%|
|97% – 99%||5.94%||19.65%||22.22%||45.61%||29.17%||23.18%|
|99% – 100%||5.80%||10.40%||15.87%||8.77%||4.17%||9.09%|
|100% – 102%||35.65%||31.21%||28.57%||24.56%||41.67%||34.09%|
|102% – 105%||21.45%||10.40%||4.76%||5.26%||2.08%||9.55%|
In the chart below, we take the same Attached Home data and display that date per the week in which the property went under contract. As in the Single Family graph, you see great strength in the properties that go under contract in the first week. Oddly, for Attached Homes, only in properties that go under contract in week 4 do we see the numbers peak at less than asking price.
All of these numbers are from last year and this year feels subjectively to be just a touch slower. It will be very interesting to revisit these numbers after the end of 2017 and see what changes occurred. Have a great start to 2017.
As is typical at the start of every year, we look back at what happened in the previous year and attempt to sift the tea leaves into some meaningful patterns to help determine where we’re headed. As with any time you’re trying to interpret data sets, different people can see different patterns, but this is my take based on IRES only data.
2016 remained a great time to be a seller and a frustrating time to be a buyer. While many sellers still enjoyed multiple offers, it felt as if there were fewer numbers of offers in our multiple offer situations. In 2015 you might have seen 8 offers for a new listing where in 2016, maybe you only saw 3 offers. Hard to complain about as there were still multiple offers, but a change from 2015. It also felt like buyers who waited until mid-summer to start making offers had a little bit more leverage than they did in 2015. One thing that is apparent to me as I go through the 2016 stats is that we are starting to see some wobbles, different metrics telling opposing stories about where the market is heading, typically a sign that change is coming.
Sales in 2016 did drop compared to 2015 with 374 fewer Single Family home sales for a total of 3,176 sales and 126 fewer Attached Dwelling home sales for a total of 1,254 sales. The market effect of this drop in home sales is hard to quantify. The number of homes listed for sale also dropped but on a percentage basis, the number of sales dropped more. So if demand and supply are both dropping, but demand is dropping more than supply, what does that mean? Probably a sign that price appreciation is set to slow down. With prices having risen as much as they have, the continued drop in the number of sellers remains perplexing. I think many sellers are sitting on the sidelines due to a combination of a lack of good replacement options, the cost of those replacement options and the rise in interest rates that combined typically make a change to a new home a difficult decision to make. With the loss of these sellers who choose to move, we’re left with the lower number of sellers who have to move due to life changes that necessitate a change, such as death, divorce, job change, etc.
The above chart shows that we continue to see lower levels of homes for sale than we’ve seen at any time in the last 13 years. I also don’t see any sudden moves in this chart that show that supply is set to dramatically increase in 2017. We remain firmly in the bottom of the red area that is our new normal that we’ve seen since 2013. For the people that see a bubble in our rapid price appreciation, I say that it is really hard to have a bubble with the constrained supply shown in this chart. I don’t expect to see major changes in our market strength until we see major changes in this chart and supply that rises up and out of the red area.
While the chart above gives me confidence in the strength of our market moving ahead, the chart below does give me some pause. This chart is one of those wobbles I referenced above, a metric that is trending in a direction that would imply the market is changing, a possible leading indicator. In the chart below, you’ll see a downward red arrow at the top right connecting the % of Homes Under Contract at the start of Jan. 2016 with the same number at the start of 2017. The downward slope of that line tells me our market is slowing even though we’re still seeing multiple offers and buyers fighting over properties in the lower price points. If you look back in this chart to the period from 2005 to 2009, you’ll see a similar downward trending red arrow in the lower left that led us into our last downturn. At a recent economic forecast presentation that I attended, the speaker joked that economists can find trends in any two points and while that joke got a laugh, we’ll want to see some further confirmation of the new trend in the chart below before we start to be too concerned. One other trend I see is that homes that sell the first week are very active with possible multiple offers, but if the property lasts on the market longer than a week, the showing activity slows quickly. We have really trained our buyers to be ready to jump on properties that meet their needs but once a property gets past that initial rush there can be a showing lull. The sales price to list price ratio also quickly drops once a property remains on the market past the initial week. I’ll have those stats in next month’s article.
For 2017, I see the beginning of the year looking a lot like 2016. I expect we’ll see a very active market through the spring with bidding wars in the lower price points. As you move up in price, the activity will moderate some, but these properties should also expect to see an active spring. We’ll have to see if we get the mid-summer lull we’ve seen over the last three years. There has been a debate about the higher interest rates we’ve seen so far this year, will they hurt or help the market. In the short term, I think the higher rates are making many buyers jump off the fence and buy something before rates get even higher which is helping the market activity. In the long term though, higher rates will slow the market down. We have been at historic mortgage rates for so long now, we’ve forgotten how good rates are. A chart of interest rates going back to 1974 should add some perspective. While there have been three periods of lower rates than today, they’ve all been since 2011 and we’ve had good strong markets many times since 1974 with much higher rates. When rates do rise, we’ll survive.