The sun is rising on Colorado.A year ago, it was hard to sell good news about the Rocky Mountain Region. About the only ones actively working the real estate market were investors, who were "cherry picking" lower-end deals as inventory piled up and many buyers stood on the sidelines.
But toward the end of last summer, there was a shift.
Between May and August of 2008, the number of active listings on the market (year-over-year) fell by more than 20%. The Federal Government stepped in and offered a $7,500 "tax credit" (really an interest free loan) to get people off the fence.
And foreclosures began to drop for the first time four years. As 2008 came to a close, we were seeing the first significant momentum at the entry level of our market in at least five years.
Over the first six months of this year, the demand for homes under $200,000 has been ridiculous, at least in comparison to the last few years. There are three key reasons for this:
1) Low intererst rates
2) A federal tax credit upped to $8,000 and made non-repayable for qualified first-time buyers
3) Tacit approval from a "late to the party" media, which finally began reporting some of the strength and value in our real estate market
I expect this trend to continue for the rest of 2009.
Interest rates are rising, however, responding to the positive economic news that has been generated by $1 trillion of federal stimulus money.
The tax credit may go away November 30 (I say "may" because there is already intense lobbying going on in Washington to extend, or even expand, the $8,000 first-time buyer credit next year).
And values are coming back... in the case of homes under $150,000, it's not unreasonable at all to say values have increased 10% or more (in some areas 20% or more) since last summer, when it seemed like investors were the only ones with the courage to step into the market.
In summary, I expect the market below $250,000 to continue to recover... but I see some of the value in this market segment slowly starting to erode as interest rates rise and prices continue to inch up. Buyers in this category, while still able to get great deals, are seeing their purchasing power diminsh by a little bit each month as rates and prices both rise.
From $250,000 to $400,000, there has been improvement only in the past few months... perhaps a "trickle up" effect from the new strength at the entry level. Below $300,000, the market is actually well balanced... above $300,000, it's a bit slower, but certainly better than it was in the winter and early spring.
Above $400,000, the market continues to be soft, and above $600,000, it's dead.
I have said repeatedly since last fall that the psychology in our market has changed. "Small is the new big". "Less is more". And caution has replaced excess as the rule of thumb in buying a new home.
If you're buying at a higher price point, make sure there is value in what you are buying. Don't be tricked into buying the biggest house on a lower-end block. Insist on some equity going in, so if things don't bounce back as quickly as you would like, you're not in a tight spot.
It's a little harder to play by these rules, but it's worth it.
I want to see my clients succeed, both now and for the long haul.
Exercise some discipline on the front end of a deal and your long term prospects will be much brighter.
