2020 End of Year Market Recap
Whew! We made it through 2020 and what a year it was. Only a few major events happened, like a worldwide lockdown, the largest fire in Colorado’s history, and the unprecedented use of the word unprecedented…which I never used prior to 2020, and plan on never using again #buzzword. The real estate market also saw some unusual activity this past year as we broke away from a normally cyclic style of activity, to what I would describe as a “choose your own adventure” book in real estate that bucked the norms of expectations. Here are 3 things that happened in 2020 that will affect how the 2021 market pans out.
Low Interest Rates
We started at the beginning of 2020 with already low interest rates, but as the year progressed and stay at home orders and business shutdowns continued, the interest rate lowered along with it. The low rates for a 30 year mortgage started near 4% at the beginning of the year (which in the grand scheme is still really low) and pushed all the way below 3% by the end of the year.
These low rates allowed many prospective home buyers to enter the market as the ability to lend finally matched up with ability to finally purchase a property. Concurrently, homeowners took advantage of the lower rates to refinance homes into new historic low mortgages, further lowering their monthly payments, and in some circumstances, tapping into equity in their own homes to make repairs, do renovations, and generally have more disposable income. This is purely hypothetical, but I think that this mass wave of refinances may be one of the many reasons why 2021 is starting with such low inventory across the board as newly refinanced homeowners are less likely to make a change after securing the deal of the decade with their home loans.
Altered Housing Wants/Needs
Home offices were a big trend in 2020
2020 certainly brought on an onslaught of work from home needs for a large portion of the working population. We certainly felt the strain in our household, and luckily we had an extra downstairs space that we were able to convert into a dedicated office space/guest room. Other homeowners may have found their spaces in need, or felt a lack of space in their setup. This was also especially true for families who struggled to find dedicated space for at home schooling and distraction free environments. Home workout spaces, and outdoor entertaining spots also topped the list for homeowner wants.
Shift in Seasonal Buying Patterns
This is where things get interesting…at least for a numbers nerd like myself. I’ve found that the Fort Collins market generally can be tracked in a seasonal buying pattern based on watching the days to offer for properties. Generally, the market gets lumped into the following categories: (DTO stands for Days to Offer)
DTO 1-7 (a property was under contract within 7 days)
DTO 8-14 (a property was under contract within 14 days)
DTO 15+ (a property took over 15 days to go under contract, or was later expired or withdrawn from the market
As a frame of reference, here is what the buying pattern, based on days to offer, looked like in 2019 for single family homes in Fort Collins priced under $400,0000 (This price range really highlights the seasonality)
The market historically trends towards the front of the year sales, with activity dropping off towards the end of summer as families travel and schools go back in session towards August. We usually see an uptick in activity again in September/October, with the holiday season being pretty slow
We also tend to see a bell-curved shape in regards to the amount of listings per month, with the most amount of listings coming on the market during the mid summer months of May-July
In general, just about the same amount of homes hit the market in Fort Collins in 2020 as did in 2019
In 2020, however, the seasonality completely changed across all price points. Whereas we normally expect a slowdown in late summer, the lack of travel plans, uncertainty of schooling, and low interest rates fueled a steady flow of buying through the months of August-December. This is incredibly important leading up to 2021 as historically this period of time, where homes tend to stay on the market longer, accumulates a “reserve” inventory for the start of the next year. In 2020, however, we pretty much sold all the reserve inventory leading into 2021. In fact, the speed of sales ramped up as we neared 2021 leading towards the most aggressive market I’ve seen.
Look at September through December. These are the months we normally start to accumulate housing inventory. Instead, we sold through it
Rising Cost of Building Materials
A worldwide shutdown affected everyone in different ways, some directly and some indirectly. One such indirect affect was in the increase of cost in building supplies, specifically lumber. According to a newsweek article written in August of 2020:
““Lumber producers both in the U.S. and Canada...curtailed operations to a great extent in March and early April, both because there were lockdown orders and they forecasted that plunge in demand,” ”
This shutdown in operations, mixed with other factors in the lumber market, has caused soft lumber prices (think framing materials) to skyrocket over the past 6-12 months. I actually just spoke recently with the contractor who did our home addition, and he said that he had a client who’s lumber cost for his addition went from $70K to $124K in the span of 6 months! This phenomenon is especially affecting the new build community, who are struggling to keep up with demand. Some new build communities have waitlists in the double digits and are no longer advertising their base pricing, as they just don’t know when they will be able to release more lots to build, and at what prices.
Moving on Towards 2021
I have to admit that I am cheating here on this one, as I am writing this well into 2021, but the sentiments would still be the same if I was writing this a few months earlier. The real estate market continues to plug along at a fast rate, and while you could try to look at all of the small variables with politics, vaccines, refinances, etc. the market still does, and will always come down to supply vs. demand. Until we see demand curtail to allow supply to gain a foothold, or supply starts to outpace demand, we will continue to see an appreciating market that favors sellers and makes for competitive buying.
I’m always happy to further a conversation with anyone interested in learning more about the market, give a shout anytime!
