Signs that housing markets along the northern front range are cooling may leave some buyers worried about buying at the top and getting stuck with falling prices.
Predictions are hard to come by, but Location Inc. offers some guidance for the next five years based on its Scout Vision computer model: Stay away from Boulder, expect prices down about 10% in Fort Collins and Metro Denver, and if appreciation matters, buy from Greeley.
“We still expect the market to decline, more in some markets than others,” said Andrew Schiller, CEO of the Connecticut-based analytics firm.
In April 2017, Location Inc. caused a stir when it warned that home prices along the Front Range would peak in the fourth quarter of 2019 and drop 15.6% over a five-year window. Given the sharp rise in house prices at the time, this forecast was met with skepticism, to put it mildly.
A stronger-than-expected economy prompted the model, which is adjusted quarterly, to push back and temper its forecast, Schiller said. The location is now calling for a 9.9% decline in North Front Range home prices over the next five years, with the regional price peak occurring in the second quarter of 2021.
The model looks at dozens of variables, but one of the most important is affordability – how well income can support home values. Along the Front Range, home prices have never been so misaligned with income, Schiller said.
So far, the migration has delayed judgment day, Schiller said. People have moved here from more expensive markets, which has helped drive up prices. But that will decline, especially as the economy shrinks.
“You need enough earned income in a market to support house costs,” Schiller said. “You can’t always support it from people carrying a black bag of money from other places.”
The Scout Vision algorithm calls for home prices in metro Denver to drop an average of 10.5% over the next five years. He predicts the peak will occur in the first quarter of 2021, not the fourth quarter of 2019 as predicted in early 2017, and that prices will fall below current levels in the second quarter of 2022.
Fort Collins and Larimer County will see a similar decline, of 10.1%, but it will begin later, in the third quarter of 2021. On average, someone who buys today will fall below the purchase price around fall 2022.
Boulder and Boulder County face an impending readjustment, according to the model, which predicts a fourth-quarter price spike and an 18.9% price decline over the next five years.
“The vacancy rate has gone up as the units added continue to rise,” Schiller said. “The population is growing, but things are vacant.”
The best bet for buyers looking to enter and hold a gain in 2022 is to buy in Greeley and County Weld. Prices there are expected to increase by 4% in five years and not peak until the third quarter of 2021.
Schiller cautions that forecasts are a moving target and price fluctuations will vary from neighborhood to neighborhood. Trulia, in a separate study, estimates that 14.3% of Denver Metro vendors had to cut their listing price in the 12 months to August, but in the Woodland Valley neighborhood of Arvada, near a third had to back down, a harbinger of the future. the price goes down.
A lot can happen in five years, let alone five days. The model did not calculate what last week’s interest rate spike will do to affordability. The passage of larger drilling setbacks in November could blow expectations of a more resilient housing market in Weld County. And Boulder County has repeatedly defied forecasts of its housing market slump.
Count Nick Bailey, president and CEO of Century 21, among those who dispute the price drop predictions. Metro Denver has a robust economy. Job gains, wage increases and population growth remain well ahead of other areas.
Denver also has an above-average share of millennials, and after a long delay, they’re starting to buy homes in greater numbers. He believes they will provide strong support for the market in the months and years to come.
“We have such a shortage in the mid-range and affordable price ranges, there’s pent-up demand there,” said Bailey, who lives in Parker. “Buyers need a chance, especially in the middle price range, especially in Denver.”