As we look back at the first half of 2014, we find few surprises in how the market performed. This month, we will compare actual year-to-date market performance with our 2014 predictions and look ahead to what we can expect in the second half of the year.
But first, a quick review of the June market data.
The volume of real estate sold across all Front Range markets in June increased 6.3% compared to last June, the largest year-over-year gain this year, signaling an uptick in sales activity.
The supply of inventory remained tight at 2.0 months, indicating a market that continues to favor sellers.
In Boulder County, the volume of real estate sold in June decreased on a year-over-year basis, dropping 4.1% compared to June 2013, but was up 14.6% month-over-month.
The supply of inventory is a scant 2.8 months. A lack of listings continues to choke the market.
Now let’s compare our predictions made at the outset of 2014 with the actual year-to-date numbers through June.
Our predictions for 2014:
#1. Sellers’ Market Rolls On
“The supply of inventory will remain tight. Inventory levels will remain below the six month benchmark.”
Mid-Year Update: Unfortunately, this prediction has proven all too accurate. In fact, inventory levels have fallen even lower. We dubbed 2014 the “Year of the Move-up Buyer”, and while many home owners have realized now is a great time to sell and purchase another home, not enough of them have pulled the trigger to satisfy the seemingly insatiable demand of buyers for new listings.
Looking ahead, there does not appear to be anything on the horizon that will alter this dynamic in the second half of the year, and inventory levels will remain low.
#2. More Buyers Drive Up Demand
“Demand for housing is driven by two primary factors: jobs and interest rates. Positive signs in each area will result in gains of 5% to 10% in the volume of real estate sold in 2014.”
Mid-Year Update: The good news is that Colorado is experiencing job growth. Unemployment in the state fell to 5.5% in June, the lowest it’s been since October 2008.
A bit of a pleasant surprise has been that interest rates have stayed low in 2014. In fact, rates today are less than they were a year ago and have remained in a relatively tight band of 4% to 4.5% this year.
Unfortunately, the lack of available inventory has not been able to meet the demand created by job growth and low interest rates. As a result, the market has only been able to squeak out a paltry 0.7% increase in volume year-to-date compared to the first half of 2013.
June’s year-over-year gain of 6.3% could be the start of a trend, but even with a strong showing in the remaining six months of 2014, we will probably finish the year with a 0% to 5% increase in volume.
However, it’s important to put that figure in context. This means 2014 could set an all time record for volume of real estate sold along the Front Range, finally topping the volumes seen in the previous peak in 2006.
#3. Home Values Up 4% to 6%
“Low supply and high demand will drive up prices, but only about half as fast they rose in 2013.”
Mid-Year Update: According to the most recent Federal Housing Finance Agency (FHFA) report, Colorado home prices have appreciated 9.3% in the last year, so that’s a bit of a surprise to the upside.
For the second half of the year, home price gains could moderate a bit, but national forecasters have been saying this for well over a year a now. Zillow predicted that Front Range home prices would increase 1.8% in 2014. Gains will clearly be higher, extending Zillow’s streak of being wrong to a second consecutive year. When 2014 comes to a close, it now appears that home values will be up 5% to 10%.
Overall, the second half of 2014 looks like it will be quite strong as our steady “tortoise” market leaves the boom- and- bust “hare” markets like Phoenix behind…once again. Here’s to a great second half of the year!
This article is a compilation of the insights of 8z Realtors written by Lane Hornung, 8z CEO.