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Colorado Market Insights

for the month of February 2015

At the end of December/2011, there were 16,853 single family home listings available for sale across Colorado’s Front Range. That number shrank to 11,186 at the end of December/2012; 5,662 at the end of December/2013; and 3,982 at the end of December/2014. Thus we begin our fourth year of a listing drought in the Northern Colorado, Metro Denver, Aurora, Broomfield-Westminster, Douglas County, Jefferson County, and South Metro Denver areas.

There are pluses and minuses to the impact of a reduction in available housing inventory. On the plus side, scarcity creates demand, which in turn results in an increase in home values. Builders sense buyer pent-up demand and churn up ground for new homes, characterized by small lots and populated by pocket parks strewn throughout the subdivision. On the minus side, buyers often find themselves in a position where they can neither dictate a strong negotiating position nor dally in making a decision, as other buyers may come swooping in. To the victor belong the spoils, with the spoils meaning goods or benefit taken from the loser in a competitive situation.

From a pricing perspective, homes at an entry to mid-range price point sell the quickest, simply because there are more buyers in those price ranges. These buyers occupy three different levels of interest: (1) Entry Level (first-time buyers); (2) Move Up (buyers who need more room; normally due to a growing family); (3) Move Down (buyers who need less space; normally due to a dwindling family; the empty nester syndrome).

As the housing price point increases, the number of prospective buyers decreases. Although the overall Front Range real estate market has progressively improved since 2011, homes priced on the upper end have met with some resistance from buyers. As inventory levels continue near or at historic lows, and mortgage interest rates continue to vacillate in the 4% range for a fixed rate mortgage, look for higher priced homes to also be impacted positively from a sales perspective.

2015 promises to look a lot like 2014. Available inventory for the Front Range will continue to expand as the waning days of winter give way to spring. But like vultures eyeing a fresh kill (that may be a little dramatic), buyers will quickly gobble up homes priced within the parameters of what the marketplace will dictate. Remember that part about “to the victor belong the spoils”?

Home values will continue to increase, but are projected to rise more slowly. According to Forbes, nationally prices are near their spring 2005 levels. That was the time when home values reached a pinnacle and then began to retreat over the course of the next six years. The average price of a single family home in the Front Range in 2011, when the real estate market began to rebound, was $290,887. In 2014, the average sales value of a single family home in Northern Colorado was $367,203. That’s an average annual increase of around 7%.

Despite the increase in overall inventory, the vacancy rate for rental properties will remain below 5% for most areas. Look for rental rates to continue to increase in 2015.

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