Wine & Beer in Colorado grocery stores, Big changes to CO liquor laws on ballot and impact on real estate
Colorado is an odd state, prior to a few years ago, you were unable to…
Crazy times we are in, real estate in Summit county (home to Breckenridge) increased 51% in the past year. Denver has increased 28%. Will the crazy times continue to roll on in Colorado real estate? Don’t bank on it, Semiconductors are firing a warning shot of things to come in real estate. Why will your house payments jump in the next twelve months? Are you ready for sticker shock? Will the Colorado resort communities fare better than Denver in the next cycle?
The Federal Reserve is seeing a lot more shortages across the U.S. economy, in ways that might be construed as early warning signs of inflation if they persist. In the Fed’s Beige Book report released Wednesday, the central bank mentions the word “shortage” or “shortages” 31 times, the most going back at least a decade. That is a jump from 19 in the January edition and more than triple the average number of citations in the eight reports issued since the survey’s first reference of the coronavirus in March 2020.
Their latest regional radar is dotted with mentions of crunches in global supply chains for tech equipment. There are nine references to shortages of semiconductors — the memory chips made mostly in Asia that go into everything from cars to home appliances. That’s up from zero such mentions in the January report.
Semiconductors are a warning shot for shortages. Basic economics show when there is scarcity/shortages prices rise. In this case not only are there shortages but increased demand for appliances, cars, computers, etc.. which is furthering the pricing pressure.
Semiconductors epitomize the issues in the economy, supply chains have been disrupted while at the same time consumer demand and behavior has been altered. These rapid economic changes are leading to price increases which in turn factors into inflation.
As the market adapts to a future of higher inflation, buyers of bonds are demanding higher returns to compensate for the risk. We see this through the increase in yields on 10 year treasuries. Recall 10 year treasuries are a “benchmark” for other long term rates like mortgages or car payments. As the rate on bonds rises so do consumer and business rates.
We are seeing increases in bond yields flow through the mortgage market in the form higher interest rates. The 30 year mortgage reached its highest level since July and looks to keep on moving up over the next year.
Prices: Prices throughout Colorado have gotten expensive. Denver’s prices have increased 28% in the last year and Summit county (Breckenridge) has increased 51% to an average sales price of 1.5m. Compare this to Atlanta’s average of 337k or Salt lake city of 425k. As prices rise in Denver and the resort communities more buyers are priced out and/or seek out lower cost alternatives.
Interest rates: As interest rates rise and prices continue to rise, payments also rise. With the recent move in the mortgage market, payments have increased about 10% from the lows of last year. At the same time, we haven’t seen huge increases in wages so many prospective buyers will not be able to afford the swift rise in payments.
|Median home price||2.5% rate||3.25% rate||Change in payment / month|
|Salt Lake City||$ 425,000||$1,679.26||$1,849.63||$170.36|
|Average price||assessment rate||assessed valuation||Mill Levy||taxes||Change|
|2019 assessment||430000||7.15%||$ 30,745||0.0812||$ 2,925|
|2021 assessment||690000||7.15%||$ 49,335||0.0812||$ 4,694||$ 1,769|
Although the average sales price in the Colorado mountain towns like Breckenridge is over double Denver the impact will be less profound for two primary reasons:
On the other hand, the resort communities are more dependent on stock prices as many buyers are high net worth that are invested in the stock market. If there is a sudden downturn in the stock market due to rising rates, which is a high probability, then all bets are off for mountain real estate.
The stratospheric rise in Colorado real estate values is quickly coming to an end due to the recent rise in interest rates and ironically the sharp rise in prices. The sharp rise in prices is also leading to large jumps in property taxes further raising the total cost of homeownership. Denver, due to its high costs, will feel the impact more than other cities. With costs rising so quickly don’t count on future increases even close to what we have seen in the past couple years.
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Written by Glen Weinberg, COO/ VP Fairview Commercial Lending. Glen has been published as an expert in hard money lending, real estate valuation, financing, and various other real estate topics in Bloomberg, Businessweek ,the Colorado Real Estate Journal, National Association of Realtors Magazine, The Real Deal real estate news, the CO Biz Magazine, The Denver Post, The Scotsman mortgage broker guide, Mortgage Professional America and various other national publications.
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