Precipitous Price Increases Unlikely to Last
With the median Boulder County home sales price up 7.8%, and the average sales price up 4.9% this year, many of you have asked if I think prices will continue to rise as precipitously. I don't. The market took off this year due to pent up buyer demand and very low interest rates. The current pace of price increases isn't sustainable for three reasons:
Inventory should expand. Property owners who have been hesitant to sell because they were concerned that they couldn't sell their home for an acceptable price are feeling more confident.
Mortgage rates are rising. Rates are up .625% this month over last month. The 30 year fixed rate was 3.5% and it is now 4.125%.
Investor interest will fade. Undervalued prices attracted investors who then helped push up home prices. But as prices rise, investor interest fades.
The next question is whether expanding inventory, rising mortgage rates and declining investor activity will cause home prices to drop? Slow down, yes, but not drop. Just as these factors should cause home prices to slow, job growth and increased household formation should support a continued recovery in housing demand. My sense is that the market will level out for the year by the end of summer. Historically, our market sees prices rise in the first and second quarters, leveling off by August when most buyer demand has been met for the year.