2022: THE YEAR IN REAL ESTATE
Much like the football game where one team dominates early, only to see the other team turn the tide and take control, 2022 was a year of sharp contrasts in real estate.
Here’s a summary of the significant factors that shaped 2022:
Mortgage rates
After nearly three years hovering below 4 percent, average rates on 30-year fixed mortgages cracked the 4 percent barrier in mid-March. That’s when inflation influenced the Federal Reserve to raise borrowing rates for banks, indirectly driving up rates for housing loans.
By the time mortgage rates surpassed 5 percent in mid-April, the math for monthly mortgage costs was impacting affordability. Higher costs caused some would-be buyers to shelve purchase plans. Average rates eventually topped 7 percent in November, before retreating closer to 6 percent by the end of the year (and, notably, on par with the average rate between 1998 and 2008).
Housing inventory
Tight inventory has been a reality of the local housing market for several years. Today, available homes for sale across the region still linger well below the traditional standard for a balanced housing market which is six months of supply.
The good news? As demand relaxed in 2022, availability inched back toward balance. For instance, the supply of homes priced between $500K and $599K was down to a few days in much of Northern Colorado during January. By November, supply across the region was back to a month or more.
Market pivot
At the outset of 2022, buyers and sellers were coping with the confluence of low inventory, high demand, and significant affordability – made possible by historically low interest rates. “Appraisal gaps” – when purchase offers exceed appraised value – were becoming a familiar challenge.
Less than 12 months later, the housing market has been turned on its head; as interest rates climbed, demand slowed and affordability faded. “Appraisal gaps” are all but forgotten. Only the inventory picture remains somewhat similar, as buyers and sellers pivot to distinctly different real estate conditions.
With 2022 in the books, turn the page to get a closer look at the statistical profile of the year we just finished.
2023 COMMERCIAL FORECAST
Overall commercial sales across Northern Colorado (from Longmont north to the Wyoming line, and from Greeley west to the Front Range) dipped about 35 percent in 2022 from 2021. In terms of total sales, multi-family brought in the greatest dollar volume among the four commercial sectors (including multi-family, office, industrial and retail). However, the retail registered the smallest percentage decline – about 20 percent – from year to year.
Commercial vacancy rates across Northern Colorado decreased only slightly, by 0.3 percent, with 1.12 million square feet available for lease as of the end of the year. The office sector experienced the largest year-over-year decline in vacancy rate, tightening by 2.9 percent. Industrial vacancies, on the other hand, increased by 1.6 percent.
Comparing leasing analytics between 2021 and 2022, overall lease rates increased by $1.75 per square foot. Among the sectors, office rents grew by $2.46 per square foot, and retail decreased by $2.95 per square foot.
Looking at market indicators, we believe the commercial market will continue a downward trend through 2023.
2023 OUTLOOK
Employment Provides Insight
Employment has always been a forecasting tool of leading insight for us in our evaluation of the health of regional real estate markets. The current conditions at the end of 2022 suggest that employment across the region remains healthy. In Larimer County employment has rebounded and surpassed pre-pandemic levels with employment growth of 4.3 percent or an additional 8,611 employed over the February 2020 numbers. Larimer County has exceeded the state employment growth of 3.5 percent. Unemployment currently sits at 2.8 percent at the end of 2022.
Weld County has not experienced growth in employment, but has returned to employment numbers equal to pre-pandemic numbers in February 2020. Unemployment remains about .5 percent higher at 3.5 percent, but both counties appear to be adding jobs and rebounding well. There are currently no signs on the employment side that suggest trouble in the housing market for the next 12 months. Watching employment throughout 2023 should leave clues about future growth or contraction of regional housing markets.
Inflation
As the fight against inflation continues, the regional housing market goes along for the ride. We are at an important pivot point in the Federal Reserve’s inflation fight. Through the back half of 2022 signs are pointing to a downward trend in inflation as the CPI (Consumer Price Index) reached a high-point of 9.1 percent in June 2022 and showing continued signs of decline registering at 7.1 percent in November 2022. As the Federal Reserve continues to increase short-term rates, there are signs this approach has gained some traction and is reducing inflationary pressures on the economy. Expect a slow, but continued downward pressure trend in inflation in 2023. The 1st and 2nd Quarters of 2023 will be slower, but the 3rd and 4th Quarter of 2023 should see improved conditions as consumer confidence strengthens around housing.
Further Supply Shortages
As the market shifted in the back half of 2022, many would expect the inventory of homes for sale to grow substantially. While they have grown relative to 2021 if you compare homes for sale in Larimer County vs. December 2019 we currently have 47.8 percent fewer homes on the market with just 695 compared to 1333 in 2019.
Weld County has experienced reductions of inventory of 24 percent (1052 vs. 799 December 2019 to December 2022).
Builder confidence has declined as interest rates, supply chain, and skilled labor challenges have further eroded their confidence and the National Association of Home Builders is predicting a 25-30 percent decrease in housing starts in 2023 from 1,000,000 annual starts to more around the range of 700,000 starts nationally. These pressures will allow the supply side challenges to persist in 2023, which will create reduced sales numbers but hold prices stable for our region.
Mortgage Rates
Perhaps the most significant story in 2022 and continuing into 2023. Mortgage rates and their adjustments have slowed demand and reduced affordability for many prospective buyers. As mortgage rates topped 7 percent in late 2022, we have seen continued declines into the 6.25 percent - 6.50 percent range for a 30-year fixed-rate mortgage. Rate expectations by most leading economists suggest rates leveling off in the back half of 2023 around 5.5 percent - 6 percent. Gone are the days of extremely low interest rates. This will continue to impede sales numbers as many homeowners don’t want to trade their current rate in a move. As rates stabilize and the reality of markets adjust the psychology of buyers and sellers, we will see demand increase in the back half of 2023.
2023 GROUP PARTNER ADVICE
FOR SELLERS.
After three years of conditions that heavily favored sellers, the market is more competitive for buyers. The likelihood that buyers will be bidding against each other for your property is slim. Above all, price it correctly. Don’t be swayed by what your neighbor got when they sold last spring. Times have changed and sellers must adapt. Pay attention to how you present your home—don’t overlook what needs repair. Get a pre-inspection and spruce it up; buyers want a move-in ready home. Work with a trusted real estate advisor who knows the market and how to stage your property. If offers don’t roll in right away, be patient. If you’ve taken the right steps, a buyer will find you.
FOR BUYERS.
Yes, buyers are in a better position than this time last year. But that doesn’t necessarily make it a “buyers’ market.” Supply is tight enough that you may need to act quickly to land the house you want in your price range. So, line up a reputable lender to help you get your financing in order, and a knowledgeable Realtor who has a grasp of the community where you want to live. Don’t ponder what interest rates used to be. There are advantages to buying now – perhaps you can negotiate on the price, or on the cost of fixing issues identified during inspection. And look at new construction. Some builders are offering incentives that could make a difference for you.
FOR INVESTORS.
One look at the stock market and you’ll see that real estate is where you want to place cash during a high-inflation or recessionary market. Consider how rents have been rising, and the investment value of real estate becomes clear. And thankfully, there are opportunities out there in Northern Colorado. But remember you’re not the only one who recognizes this potential for ROI. Work with a Realtor to help you identify ideal properties, and be ready to move quickly when the right one comes on the market that fits your investment goals. Also, if you’re looking to buy with cash, don’t assume a seller is going to let it go for a low price.
FOR BUILDERS.
There are plenty of would-be buyers looking for quality, move-in ready homes in attractive neighborhoods. With that in mind, if you can secure your supply chain vendors and build on a reasonable time frame at competitive prices, you’ll reap the rewards. Spec building can pay off if you’re building the right product in the right location. You may also need to offer incentives on interest rates to help buyers achieve affordability. Be mindful of market demographics and the needs for different types of housing. For example, baby boomers who need to care for aging parents are looking for en-suites, Gen Y and Gen Z want affordable options near entertainment areas, and empty nesters are eager for patio homes.
GROUP PARTNER DESIGN TREND PREDICTIONS 2023
KITCHEN
- Return of wood cabinetry and wood elements
- Warmer tones for paint or cabinets, blush-beige and Himalayan salt colors
- Darker stone and quartz countertops
- Induction cooktops and double appliances
- Full stone or single piece backsplash – no grout
BATHROOMS
- Clean, spa like bathrooms with natural woods
- Light-colored tiles and warm paint tones
- Heated floors and towel racks
- No basic vanity lighting
- Sustainable materials
- En suite closets with custom built-ins and soft-close cabinets
- Organized storage – closed up and not open shelves
OTHER INTERIOR TRENDS
- Accent wall with art deco-inspired wallpaper and furniture
- Nature-inspired spaces, live edges, large tree stumps for end tables
- Lighting from materials like rattan, rope, cane and wicker. Lighting is not an afterthought but a jewel of the home.
- Multiple study/workspace locations
- Butlers’ pantries and mudroom areas
- Spacious laundry rooms with storage and folding space
- Accent ceilings
- Statement front doors
- Wood or wood-look garage doors
- Hardwood, laminate wood or porcelain plank flooring
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