Market will stabilize as the year goes on – BizWest
FORT COLLINS — Homesellers will see increasing prices in 2023, but they may have to wait until later in the year and they may have to be patient as prices return slowly toward their peaks of mid-2022.
So said Windermere Real Estate Services Co. chief economist Matthew Gardner at the annual real estate and economic forecast event that the Northern Colorado branch of the company, based in Fort Collins, hosted Wednesday night. Gardner is based in Seattle; Windermere operates in 10 western states.
The reasons for today’s conditions:
- The Federal Reserve started too late, Gardner said, to tame inflation. The multiple, large target interest rate increases, which in turn bumped mortgage rates, put a damper on home sales and caused declines in asking prices.
- Homeowners sitting on sub-3% mortgages — about 25% of homeowners are in this category — are unlikely to sell because they won’t be able to match their current rate. That limits supply.
- At the same time, first-time homebuyers are delayed because of both the supply and the interest rate issue.
Gardner predicted that, despite the Fed’s interest rate hike of 0.25 percentage point this week and another of similar magnitude in a month, mortgage rates will stabilize and drop from their 7.12% peak last year to about 5.4% by the end of the year. “They might drop to below 5% in 2024,” he said. “We’ll go back to normalized levels, but they’re not going back to 3% or lower.”
“We will see a recession this year. It’s not 2007 again. It’s more like 1990; we’ll see a couple of quarters of decline, a modest contraction this year,” Gardner said.
“Blame the Fed. They’ve successfully regulated inflation only three times in history,” he said.
In addition to the levels of inflation driven by supply-chain issues, the COVID pandemic, wage escalation as people leave the workforce and other reasons, Gardner said inflation has also been driven by corporate profits. “There’s a lot of price gouging going on,” he said.
He predicted that Congress will come to an agreement on the debt ceiling, but “if the debt ceiling isn’t raised, recession will be far worse than what I show here.”
Northern Colorado will add jobs this year, “but it will be a much slower pace than you’ve become used to,” he said. Employment growth will be 1.1% to 1.2%, he predicted.
New-home construction will continue; in Larimer County, he expects 10,215 units to come on line in the next five years. In Weld, he expects 11,580 new households over five years.
Sellers “have had their way” in the market since 2012, and that’s changing. Northern Colorado is moving toward a more balanced market with buyers and sellers having more equal power over sales.
“The market is actually good. I’m not worried about it. You’ll [sellers] be giving back a bit of the amazing price growth that you’ve experienced over the past couple of years.
“Prices will stabilize, and then you’ll see price growth again, but at a significantly more reasonable rate,” Gardner concluded.