A look at the current real estate market; provided by RE/MAX Alliance on Walnut.
We’re into the fourth year of a relatively stable real estate market across the Boulder Valley, Northern Colorado, and the Metro Denver area. Available inventory of homes continues to be an issue, with the current Absorption Rate for single family homes through February/2015 in Boulder County being 134 days. That number will decrease as the area real estate market shifts into a higher gear with the advent of spring and summer. The overall Absorption Rate for 2014 for single family homes in Boulder County was 76 days.
Boulder County sales activity is ahead of last year through February. There have been 328 single family homes sold thus far this year compared to 300 last year; 145 attached units sold this year compared to 124 attached units last year. Available inventory levels are somewhat comparable to last year for single family homes and attached units as we make our way through March.
As the national economy improves, the Federal Reserve has indicated they “may” raise the federal funds rate beginning in June/2015. The federal funds rate in the interest rate at which a depository institution lends funds maintained at the Federal Reserve to another depository institution overnight. The higher the federal funds rate, the more expensive it is to borrow money. Mortgage interest rates are dictated mostly by market movements, but the Federal Reserve can have a huge influence on rates. Even though the federal funds rate is not tied to mortgage rates, it affects them indirectly because it impacts lenders’ borrowing costs.
The Federal Reserve’s economic projections also influence mortgage rates, as they affect investors’ sentiments. A gloomy economic outlook usually means lower mortgage rates. Signs of a stronger economy often result in higher mortgage rates. The federal funds rate has remained close to zero since January/2009. In the early 1980’s, when the local and national real estate markets were experiencing troubling times, the federal funds rate was close to 20%, making lending almost impossible. Those were the days when buyers would assume an existing FHA or VA non-qualifying loan and the seller would carry back a portion of the home’s equity in order to get the property sold.
Mortgage interest rates have vacillated between 3.50% and 4.35% for the past three years for the traditional thirty-year fixed rate loan. Lenders are held to a higher standard these days in qualifying buyers and processing loans. This is the direct result of fraudulent and suspect lending practices by some lenders that led to the escalation in the number of bank foreclosures and short sales between 2006 and 2011, when the real estate market bottomed out.
Home values, driven by scarcity and new home construction, continue to increase. Through February/2014 the average sales price of a single family home in Boulder County was $476,297. Through February/2015 that number was $526,618 – an increase of 10.56%. With long term mortgage interest rates still reasonable and no end in sight for reduced inventory, expect buyer demand to continue to drive home values up.
Spring is traditionally the time of year when the area real estate market begins to heat up. Look for the same to happen this year, with rental properties at a premium.