Tag: Real Estate Economics

Is it worth it to pay more for an updated home?

If you are in the market to purchase a home you are more than likely wanting to negotiate the best price possible. But in the real estate market getting the best deal is not always about getting the lowest price. Rather it is about making smart financial decisions regarding convenience and long term value.

Remodeled sell for more

As you look at homes on the market you may have noticed that updated homes sell quickly. They also sell at higher prices. There currently is a greater demand for homes that have been “remodeled.” This demand is a shift in the market and what buyers want. In the past, buyers were more interested in purchasing a “fixer upper” and doing what was needed themselves. That leaves us with the question are you better off spending more for a home that has been fixed up? How do you decide whether to pay a premium for an updated home or roll up your sleeves and do the work yourself? From an investment prospective the math behind home improvements rarely favors the buyer doing the work themselves.

Do the math

This math is one of the reasons why buyers are willing to pay more upfront, rather than taking on the renovation costs and stress. Are you still trying to decide? Here are some things to consider when deciding if paying more makes sense.

  1. Do you have the time, patience and know how to do the renovations?
  2. Are the updates worth the premium that you are paying. Check to see if you can purchase the updated home for less or the same cost of a home that his not updated plus, how much the renovations would actually cost. Your real estate agent can help you with this.
  3. Remember that cost predictability rarely comes with home renovations. There is always the unexpected that costs more money. If you purchase an updated home you know what you are getting upfront. The updated home will not have the remodel surprises.

Every buyers situation is different. Sometimes buying a home that needs some work can be a good investment. Make sure that you take off your rose colored glasses and do the research to know the real costs of fixing up the home. No matter what route you choose, be sure to involve your real estate agent. Your realtor can help you evaluate, unemotionally what is best. They can also connect you with contractors for the things that you can’t do yourself. Lastly, your agent can ensure that you get the best price possible for your home.

The Cost of Renting

If you are a renter, you’ve probably noticed that the cost of rent is high. But you have never known anything else, renting is what you do. Purchasing a place of your own is not something that you can even imagine. But have you ever consider the cost of rent over a lifetime? While you have been renting, have you ever thought about the long term costs of renting? Thinking about the big picture could be something that will motivate you to explore the idea of owning a place of your own.

According to a study done by Self Financial (https://www.self.inc/info.lifetime-cost-renting-america/). The average American will spend a staggering $333,065 on rent and related expenses over their lifetime. That is roughly $25,260 per year from age 22 to age 35. In Colorado, the annual number is more like $41,598. Additional costs include $12,145 for moving. The study factored in that renters move every couple of years. That is a lot of money. You may be asking why the study only figured from age 22 to age 35. I believe this may be because they figured that by that age many renters would have purchased a home. The study also factored in some additional expense like many renters only get about 25% of their security deposit back.

How can you keep the lifetime cost of renting down? It is scary to think of handing over that kind of money to a landlord. Let’s talk strategy and figure out how to minimize how much you spend on rent in a lifetime.

Live with family

The first way to save money on rent is to live with family for as long as possible. Not everyone can or wants to live with their family between the ages of 22 and 35, but if you can you are saving money. The reality is that many young adults do find themselves living at home. Eighty five percent of parents that were interviewed for the study listed above are thrilled to have their adult kids move back home. So live at home adn make an effort to save as much money as you can until you can afford to purchase a place of your own.

Move less often

Another way to save money on that lifetime cost of rent is to not move as often. The study mentioned above revealed that the average renter moves every 27.5 months. The study went on to say that a move, can cost a renter as much as $12,000. So if you rent, try to minimize how often you move. Not moving can add up to significant savings.

Don’t damage your rental

Another thing to consider when trying to save money is to avoid damaging the rental you are living in. The study above provided this statistic, 26% of renters surveyed claim to have lost their security deposit at least once. It is also estimated that renters will lose 25% of their security deposit over the course of time that they rent. It is true that landlords can sometimes make it tough to get your deposit back. But if you leave the place clean and it great condition, your landlord will not really have a reason to keep your deposit. This can save you money!

Renting for a period of time in life is almost unavoidable. There is nothing wrong with renting. But if you would like to purchase a home in the future, use this tips to save money. Then that down payment will be ready and waiting when you are ready to buy a home.

2024 Real Estate in Review

What were the trends driving the real estate market in 2024? The year just ended was a mix for buyers and sellers. It was not an easy year for home buyers over all. It was particularly hard for first time home buyers that were dealing with higher interest rates and higher prices. The real estate market appears to be split into a couple of dominate groups. One is the first group is the first time home buyer that is struggling to get into the market. The other group is the current home owner, that may have a lot of equity and might be able to buy their move up home with cash.

First time home buyers

The percentage of first time home buyers has fallen to an historic low of only 24% according to the National Association of Realtors (NAR). As an example, prior to 2008 first time homebuyers made up 40% of the market. Today first time home buyers are finding that it take a lot of money to enter into the housing market. They have been hampered by high rent and may find themselves having a hard time saving the money for a down payment. The first time homebuyers that are able to get into the market to buy a home are older. The median age of first time home buyers in 2024 was at an all time high of 38 years of age.

Cash buyers

The other side of the real estate market in 2024 was the cash buyer. Cash buyers soared to an all time high of 26%, according to NAR data. Paying cash allows for these buyers to avoid a mortgage and the high interest rates that soared to over 7% in 2024. According to NAR, 31% of the repeat home buyers were able to pay cash for their home purchase. This is thanks to the appreciation that home owners have seen over the last several years.

Home sellers

That is the picture for homebuyers. What was 2024 like for home sellers? Nationally, home sellers were typically able to sell their properties at 100% of their asking price. This is the highest recorded list-to-sell median since 2002. Due to high demand sellers were likely to sell their homes quickly also. The majority of home sellers did not need to offer a sales incentive.

Bright spots in the market

There are two very bright spots in the housing market. One is for single women with no children or SINKs as they are called. Household with single incomes, women in particular, made up 20% of the home sales over the last year. Young males, on the other hand, only make up 8% of the home sales.

The other bright spot in the housing market is new home sales. New home sales nationally accounted for 15% of home sales. That is the highest number in seventeen years. Homebuyers are drawn to new construction for many reasons. Some reasons include the incentives that are being offered by builders, including a buy down of interest rates on the buyer’s loan. New homes also provide buyers with the ability to customize their home design and the ability to avoid renovations and problems with major mechanical systems in the home.

The National Association of Realtors update for 2024 shows a real mixed bag regarding the real estate market. First time homebuyers are struggling and sellers are doing well. The best way to stay updated on the market and how it affects you is to connect with an agent that you know like and trust that can guide you and help you to make good decisions in the market.

The Fed cut rates. Why are they still high?

If you are like most buyers, sellers and even some real estate agents, you get excited when the Federal Reserve cuts benchmark interest rates. After all, shouldn’t lower rates from the Fed mean lower interest rates for mortgages? It is understandable that so many people believe that a fed rate cut leads directly to lower mortgage rates. It is a common misconception. Media outlets fuel this assumption, highlighting potential benefits to home buyers and sellers.

What are rates based on?

So, what does a rate cut really mean for buyers and sellers? When the Fed cuts rates they are typically trying to stir the economy by making borrowing cheaper in the short term. Mortgage rates, don’t always move in lockstep. The Federal Reserve controls short-term interest rates. But the 30 year fixed rate mortgage rate follows long-term rates. The long term rates are primarily influenced by the bond market-specifically the yield on the 10 year U.S. Treasury Bond. Since mortgage lenders tend to set their rates based on what’s happening with these long-term bond yields this is the key thing to watch. But, even watching the 10 year U.S. Treasury Bond doesn’t give you a clear picture of what to expect regarding mortgage interest rates and where they are going. There is so much more that goes into whether interest rates go up or down. It is hard to predict even for a mortgage expert or economist.

How it affects you

Of course mortgage interest rates matter somewhat when you are deciding to buy or sell a home. The current interest rate will make a difference in your monthly payment and what you can afford. Remember, if you can afford the payment, whether you buy or sell a house should be based on if it makes sense for you personally. For example, if you need to sell a home because you are getting a divorce or because you just had a new baby, you should make the change in your housing because it is important to you personally. Interest rates, whether they go up or down this week, should not really matter.

Home Buyers

So what do the Fed’s interest rate changes mean for home buyers and sellers? It is important to understand that mortgage interest rates are influenced by complex factors. This includes, but is not limited to, the Federal Reserve. As a buyer you should stay informed about what is happening in the economy. You should work closely with your lender to get a feel for what mortgage rates likely will do and how that could affect you. Don’t want to time the market perfectly. There is no perfect. Lock your rates when the numbers work for you.

Home Sellers

As a home seller, it is easy to get caught up in the belief that the lowering of rates will mean that home buyers will be flocking to your home. Lower rates may mean more buyers in the market. The most important thing for you to focus on when selling your home is pricing your home competitively and making sure it looks its best.

Insurance Costs Continue to Climb

Colorado homeowners insurance costs continue to climb. Now, Colorado ranks seventh in the country for above-average homeowners insurance costs, according to data from Barkrate. Extreme weather and Colorado wildfires have lead to increased premium costs. A study that was just released by the National Bureau of Economic Research, found that insurance premiums have increased by 33% nationwide in the last three years. The increases that are occurring nationwide are due to extreme weather events. It is expected that insurance premiums, in Colorado, will increase by as much as $700, in the next 10 years. These increases are happening all across the state of Colorado, including parts of the state that are NOT affected by wildfires.

Insurance changes

Why is this happening? Professionals believe that insurance was underpriced for a long time. This was because the average homeowner would file a claim only every eight years. But now we are seeing a change. Homeowners are filing claims far more often and the payout for insurance companies in much higher. Both due to the increase in catastrophes and the increase in wildfires. Unfortunately insurance premiums have had to adjust for that increased risk and payout.

Dropping coverage

Another thing that is happening in Colorado is insurance companies are dropping certain residence in high risk areas. The insurance companies are unable to turn a profit due to the increase in extreme weather events, so they are refusing to provide insurance. What can the homeowner do?

Do a check up

A bill passed in this year’s legislative session that requires the state’s Division of Insurance to conduct a market study into increasing costs and canceled policies. They are to study potential solutions and make recommendations. The results of that study are required to be released publicly by January 0f 2026. In the meantime, as a homeowner, take a moment to check your insurance policies. Make sure that you are properly insured. Insurance should not be skimped on. Do a check up with your insurance professional annually. Ask questions before the unthinkable happens and it is too late.

Thinking of buying an investment property for your college student?

You are considering buying an investment for your college student to live in while they go to school. What questions should you ask yourself before making this decision?

A significant amount of money will be spent on housing if you have a child going to college. According to an article published by Education Data Initiative, the average room and board costs can range from $8,000 to over $14,000 per year. The costs vary depending on a two year school or four year, and whether it is public or private school. Those are averages and the actual cost may be higher or lower depending up the school your student attends. Regardless of where your student attends school, housing costs are a significant amount of money. For this reason, many parents consider purchasing an investment property for their child to live in while in school. But is buying an investment right for you?

Does the math work?

Here are some questions to ask yourself before you decide. Does the math make sense? Would buying a property, actually save you money? Depending on the real estate market where your child will be living, does the cost of buying and maintaining a property save you money over the cost of a dorm room?

Renting rooms?

With that question being asked, do you plan on other students renting rooms to cover some of the costs? This is one way a parent might justify the cost of buying a place. Tenants could defray costs. If that is the plan, make sure your child feels comfortable living with whoever has committed to renting there. Also make sure the other students sign a lease. If the tenant/students back out, do the numbers still work or would it be cheaper to have your student in the dorm.

Is your child responsible?

Is your child responsible enough to handle living in their own place and being in charge of it? This can be a growing and learning experience for your student to live in a place and be responsible for the day-to-day upkeep. But it can also be distracting or in some cases, overwhelming. The most important thing for your student is school. You want them to focus and be successful at school. If they are able to learn life skills and school at the same time this might be a great experience for them.

Appreciation?

Another question to ask is regarding appreciation. Will the property will appreciate enough over time to offset the carrying costs and the costs of sale. This question is impossible to predict, but with research you may have a good idea whether you will make a profit over the time that you own the property. One last question to ask is if the property will sell easily when your child graduates. This is another question that is impossible to answer but you can make some educated predictions. Is what you would like to purchase a popular, desirable choice in the real estate market? If the property cannot be sold quickly could you continue to use it as an investment property? Will you hire a property management company to manage the property at that point?

These questions are not intended to scare you away from buying an investment property for your child to live in while in college. These questions are meant to ensure you make a well informed decision. If you feel a purchase is right, be sure to connect with a business savvy real estate agent to guide you, like me! Call Lestel 970-310-8379.

Real Estate Projections 2023

News on the Market! What are the real estate projections for 2023? It is always nice to hear what the professionals think is going to happen in the new year. Here are some predictions from the Chief Economist with the National Association of Realtors. Mr. Lawrence Yun. The predictions are most favorable for buyers. There is one prediction that will be one tough pill for buyers to swallow. No one is predicting that we will be going back to three percent interest rate for a fixed rate mortgage. Mr. Yun instead predicted that interest rates will be around 5-5.5%. This is lower than the peak that we saw in the final quarter of 2022. This was when interest rates for a fixed rate mortgage were at seven to seven and a half.

Real Estate Projections 2023: The Good News

An image of a house and the words 2023 to explain the idea of real estate projections 2023

Some good news for buyers is the prediction that includes a slowing nationwide in the price growth. Buyers will have longer to think about buying a particular home with homes taking longer to sell. It is also likely that fewer homes will come up for sale. This means that buyers will have fewer homes to choose from but that is good news for sellers in that there will be less competition in the market.

New Construction Projections

The news regarding new home construction is that the demand is not keeping up with the supply of new homes nationwide. This means that prices will be going up. Also, the cost of construction is predicted to be up 14 percent over last year. There are still problems with supply chains. The items that builders are struggling to get changed but there always seems to be something that is slowing the process. Last year’s appliance issues have changed to garage doors in the new year. With the demand for new homes outpacing supply the value should be in existing homes rather than new.

The new year brings a few positives for sellers but buyers appear to be getting the upper hand in the housing market. This will be a refreshing change for buyers. With price appreciation slowing more buyers may see it possible for them to try to buy!

Those are the real estate projections for 2023. If you are ready to step in the market, whether you are a buyer or a seller, contact us to get more information and the latest on the market and how it affects you. Lestel Meade, Century 21 Elevated Real Estate, 970-310-8379

What Happens When The Market Shifts?

If you have been in the real estate market, you know that changes can happen rather suddenly.  The real estate market can be much like the stock market, but the real estate market does not usually see the wide changes that the stock market does.  How do you keep up with the shifts in the market?  Who usually is aware of the changes first?  What happens when the market shifts?

Early Indicators of a Market Shift

An image of a front porch, What happens when the market shifts?

The answers to these questions are good things to know if you are in the market to buy or sell.  Let’s examine these questions and their answers. The best way to keep up with the real estate market and what is happening is to stay in touch with an agent that is active in the market that you are interested in.  The agent is usually the first to notice changes.  They notice that the homes that they have for sale are staying on the market longer perhaps or they are quickly going under contract.

Timing Is Everything

When looking at a real estate market it is important to not just look at homes for sale. It is vital to be aware of what the market looks like. To do so involves understanding what happens when contracts are written.  Are there competing offers?  If so how many.  How much over asking price is the winning offer? How quickly is all of this happening?  Is this consistently happening or just in certain price points in the market? Or is this happening only in certain locations?

What Happens When the Market Shifts: Sellers

When the market shifts, active real estate agents are typically the first to notice the change, followed by buyers that are trying to buy in the market.  The last person to usually figure out that a change or shift has occurred is the seller. A seller was typically informed by their agent when the house was listed for sale what they might expect in the market. If the market shifts they may not be told or be kept up to date on what is happening.  They may notice that their house is not selling and not know for sure why that is.

Causes of A Market Shift

What causes shifts in a market?  There are usually only a handful of things that can cause a shift.  One is a change in demand.  The real estate market is ruled by the supply and demand.  If there is high demand and low supply that can cause a shift and if the reverse is happening that can also cause a change in the market.

What Happens When the Market Shifts: Interest Rates

A image of a home, What happens when the market shifts?

Another thing that can happen is a change in interest rates. That can affect affordability and cause a shift.  Buyers that were able to buy when interest rates were at 4% may find themselves priced out of the market when interest rates are at 5.5%.  Another thing that can cause a shift is the upward price of homes can affect affordability and when prices reach a certain point some buyers will no longer be able to afford a home and they will stop looking for a home.  The demand will go down and this can affect the market and cause a shift. You can view historical interest rates here.

Knowing what to expect when you are in the market to buy are sell is very important. If you would like an update on what is currently happening in the market, contact me today.

Should I Buy A Home Now?

Should I buy a home now or should I wait for the market to cool a bit?  This is a question that I am frequently asked by buyers.  It is a valid question and one that should be considered.  What has happened to the market, if you have been looking for the last six months, in Northern Colorado? 

An image of money, showing the bottom line when considering should I buy a home now

In the last six months interest rates have gone up nearly 2 points.  Also prices have gone up 7 to 9 percent.  That means that you’re buying power is significantly diminished. In January and into February of 2022 interest rates were between 3% and 3.5%.  Now that same buyer is looking at interest rates at 5.375% to 5.5%.  That means the payment for a house priced at $425,000 has potentially gone up $110 per hundred thousand.  That can mean a house payment going from approximately $1750 to $2200.  That makes a heck of a difference!  This does not take into account the increase in prices that we have been seeing and how that would impact your payment.

Why Move Now?

Buyers that are in a position to make a move right now are encouraged to do so.  Interest rates are rising and are projected to continue that trend throughout 2022.  With interest rates creeping up and property values continuing to climb, waiting can cost you money.  It may just price you out of the market. Low interest rates and rising home values make for an opportunity.  Since 1988 rent has increased at a rate of 3.5% per year, according to the National Association of Realtors.  If you owned a home, priced at $425,000, after 5 years of ownership you will likely have over $165,000 in equity. If you are paying rent, on that same home every month you are not earning $165,000, instead your landlord is.

Should I Buy A Home Now: Supply and Demand

In Northern Colorado the demand continues to outpace supply.  This is supply and demand.  Too many buyers, plus not enough homes, equals rising home prices. It is a good idea to take this time, make a plan and budget for a purchase.  Meet with a recommended lender and verify that your credit is clean and you are ready to buy. Do an application and lock your rate now.  Bottom line is that interest rates are going up, they could come down some but home prices will continue to rise.

Contact us today if you have questions or if you are ready to begin the home buying process.

Is a Housing Crash Likely?

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One question that I am frequently ask is if the real estate market will undergo a massive correction?  Is a housing crash likely to happen in Northern Colorado? Buyers are particularly concerned about this.  Many buyers can remember the housing crisis that occurred in the mid to late 2000’s.  If the buyers themselves cannot remember that crisis they have parents that can.  Do you need to be concerned about this when considering buying a home?  Here is what you need to know about real estate market corrections.

Contributing Factors

Many of the factors that were present and that contributed to the housing crisis are not present today.  Mortgage loans are not as easy to get today as they were then.  We no longer have the stated income loans.  There also is not the speculation in the market that there was then.  There were a lot of crazy deals happening that contributed to the crisis. Today we have real buyers wanting to buy a home to live in.

Is a Housing Crash Likely? Supply and Demand Matters

How do I know for sure that we will not have a market crash?  I look as several factors.  One thing to look at is to see what supply and demand in the market is like.  We have great demand for homes.  It is not uncommon for a home that comes in the market to have several buyers write offers to buy the home.  Only one buyer can have their offer accepted and purchase the home.  That means that all of the other buyers that wrote contract on that home that did not get accepted are often times continuing to look and trying to buy a home. This is happening due to limited inventory of homes for sale. We do not have enough sellers that are wanting to sell and do not have enough new homes that are being built to meet the demand.

Demand in our market also comes from the desirability of our area to live in.  This has only increased during the pandemic.  The pandemic made it more common for folks to be able to work from home.  If you can work from anywhere, why not live in a place that you want to live.  That brought many people to Northern Colorado to live here and work remotely. Because of this we also had an increase demand.

Long Term Investors

Another factor that can demonstrate the strength of our real estate market is to look at the number of investors that are purchasing homes to use as rentals and the strength of the rental market.  Our rental market remains strong with a vacancy rate of less than 2% and consistently higher rents being charged. This makes Northern Colorado a great place to invest in real estate and this also adds to the demand for real estate to purchase.

Appreciation

One other thing to look at to determine the strength of a market is to look at the appreciation that the market is seeing.  During the housing crisis Fort Collins had one year where we had depreciated values of homes.  Just one year and it was less than one percent.  Appreciation has been in the double digits in recent years and is expected to slow some but remain strong.

So, is a Housing Crash Likely? The real estate market in Northern Colorado is strong and all indicators are that it will remain so. The Council of Residential Specialists also thinks this trend will maintain nationwide.  Don’t wonder when the sky will fall.  Invest in your future and buy a home. Contact Us today to get the ball rolling.