Signs that the housing markets along the northern Front Range are cooling may leave some buyers fearful of buying at the top and getting stuck with price declines.
Predictions are hard to come by, but Location Inc. offers some advice for the next five years based on its Scout Vision computer model: Stay away from Boulder, expect to take a hit on prices of around 10 percent in Fort Collins and metro Denver, and if appreciation matters, buy in Greeley.
“We still predict that the market will go down, more in some markets than in others,” said Andrew Schiller, CEO of the Connecticut-based analytics firm.
In April 2017, Location Inc. created a stir by warning that homes prices along the Front Range were going to peak in the fourth quarter of 2019 and decline 15.6 percent over a five-year window. Given how robustly home prices were rising at the time, that forecast was met with skepticism, to put it mildly.
A stronger-than-expected economy has caused the model, which is adjusted quarterly, to push out and temper its forecast, Schiller said. Location is now calling for a 9.9-percent decline in northern Front Range home prices over the next five years, with the price peak regionally coming in the second quarter of 2021.
The model looks at dozens of variables, but one of the most important is affordability –- to what degree can incomes support home values. Along the Front Range, homes prices have never been more misaligned with incomes, Schiller said.
So far, migration has delayed the day of reckoning, Schiller said. People have moved here from more expensive markets, helping push up prices. But that will taper off, especially as the economy contracts.
“You need enough earned income in a market to support the costs of houses,” Schiller said. “You can’t always support it from people carrying a black bag of money from other places.”
The Scout Vision algorithm is calling for homes prices across metro Denver to fall an average of 10.5 percent over the next five years. It predicts the peak will come in the first quarter of 2021, not the fourth quarter of 2019 as forecast in early 2017, and that prices will dip below current levels in the second quarter of 2022.
Fort Collins and Larimer County will see a similar decline, 10.1 percent, but it will start later, in the third quarter of 2021. On average, someone who buys today will drop below the purchase price around the fall of 2022.
Boulder and Boulder County face an imminent readjustment, according to the model, which expects a peak in prices in the fourth quarter and an 18.9-percent price decline over the next five years.
“The vacancy rate has been climbing while the housing added continues to climb,” said Schiller. “The population is growing, but things are sitting vacant.”
The best bet for buyers looking to get in and still hold a gain come 2022 is to buy in Greeley and Weld County. Prices there are expected to be up 4 percent five years from now, and not peak until the third quarter of 2021.
Schiller cautions the forecasts are a moving target and that price fluctuations will vary from neighborhood to neighborhood. Trulia, in a separate study, estimates 14.3 percent of metro Denver sellers have had to reduce their listing price in the 12 months through August, but in Arvada’s Woodland Valley neighborhood, close to a third had to back off, an early warning sign of future price declines.
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A lot can happen in five years, not to mention five days. The model hasn’t calculated what last week’s spike in interest rates will do for affordability. The passage of larger drilling setbacks in November could blow up the predictions of a more resilient housing market in Weld County. And Boulder County has repeatedly defied predictions its housing market would fall.
Count Nick Bailey, president and CEO of Century 21, among those who dispute predictions of price declines. Metro Denver has a robust economy. Job gains, wage hikes and population growth remain well ahead of other areas.
Denver also has an above average share of millennials, and after a long delay, they are starting to buy homes in larger numbers. He thinks they will provide a strong support to the market in the months and years ahead.
“We have such a short supply in the median and affordable price ranges, there is pent up demand there,” said Bailey, who lives in Parker. “Buyers need a chance, especially in the median price range, especially in Denver.”