Three Colorado Trends to watch for in 2016
2016 promises to be full of excitement in Colorado. Since 07 Colorado has been on a growth trajectory with huge in migration and large gains in value on both commercial and residential real estate. Will this growth and value gains continue into the new year? There are three items that could drastically change the trajectory in 2016.
The three areas to watch in Colorado in 2016 are energy prices, interest rates, and property appreciation. These areas will impact real estate and other industries throughout the state.
First, Colorado is still heavily dependent on the energy/natural resources industry (coal, natural gas, other minerals, etc…). Jobs in these industries typically pay good wages for the areas they are in. For example, in Clear Creek county (think Idaho springs along I-70) 70 percent of all property tax revenue comes from the Henderson mine which recently announced it is closing. Similar scenarios are occurring in other cities throughout Colorado. For example, Craig is heavily dependent on their coal mine which is downsizing or possibly closing. This closing would eliminate substantial revenue for the town.
Unfortunately, on the energy front most economists do not see a noticeable increase in prices of oil/gas until at least 2020 ( see recent moody’s article: sharp cut to 2016 forecasts ) Coal also continues to decline as alternatives are cheaper (think natural gas) and regulatory burdens increase (various clean air rules). Along with Coal and gas, other minerals are also declining as a result of a slowdown in demand from other markets such as china. Cities that are dependent on these industries should brace for continued struggles in 16.
Along with Natural resources, interest rates will impact most of Colorado. The recent increase of rates and statements from the federal reserve alluding to “measured” increases throughout the year will impact many industries (see federal reserve statement).
The most straightforward is borrowing costs will increase both for consumers and businesses. The most recent increase will have a nominal impact initially but as the federal reserve continues to raise rates the impact will be much greater.
Real estate appreciation is unlikely to continue at the same pace. The front range and many mountain communities have had double digit price appreciation for the last 5 years. As the price of real estate has increased wages (on the residential side) and rents (on the commercial side) have not increased at the same pace. With such a large disconnect it is impossible to continue the torrid pace we have seen. Most economists believe the pace of appreciation will moderate in 2016. Some economists think that Denver has hit a danger zone (see Denver post article: Has Denver hit a danger zone)
The dawn of 2016 is sure to be interesting with three major factors weighing on the economy including natural resource prices, interest rates, and the rate of real estate appreciation in Denver.
Written by Glen Weinberg, COO/ VP Fairview Commercial Lending. Fairview is a hard money lender specializing in private money loans / non-bank real estate loans in Georgia, Colorado, Illinois, and Florida. They are recognized in the industry as the leader in hard money lending with no upfront fees or any other games. Learn more about Hard Money Lending through our free Hard Money Guide. To get started on a loan all they need is their simple one page application (no upfront fees or other games).