2021 Real Estate Roller Coaster: Insights and Considerations

The Colorado real estate market has been on a roller coaster ride recently, with various factors contributing to its wild swings and unexpected turns. Here are some key thoughts and considerations for both buyers and sellers as they navigate this dynamic landscape.

1. Interest Rates: Still Historically Low, but Not Forever

Interest rates have been fluctuating in recent weeks but remain at historically low levels. This presents a unique opportunity for buyers, as low rates provide increased purchasing power. However, it's important to recognize that these rock-bottom rates won't last indefinitely. As rates slowly climb in the future, some potential homebuyers may find themselves priced out of the market.

2. Escalating Prices: A Market in Overdrive

At present, home prices are skyrocketing with seemingly unchecked enthusiasm. Demand continues to fuel bidding wars in many parts of Colorado, including its mountain communities. It's an unprecedented scenario, and homes that have been sitting on the market for over 30 days without offers may indicate issues with pricing, condition, or other challenges. It's crucial for sellers to avoid the mistake of overpricing their homes. While it's impossible to predict how long this bidding war environment will persist, it's safe to say that the days of expecting "affordability" are long gone.

3. Impact on Vacation Homes and Investment Properties

Recent shifts in regulations have affected the second home and investment property market. Tightened restrictions have led to increased rates and mortgage costs for investors, prompting some to exit the market. While the rate and fee hikes are less severe for second homes, they still impact potential buyers. If investing in real estate is part of your immediate plans, consulting with an experienced lender is advisable to understand the implications.

4. The Mountain Market and Cash Buyers

The mountain real estate market is experiencing an influx of cash buyers, with demand remaining high. It's worth monitoring how the new rules regarding investor properties will impact these areas in the coming months.

5. The Power of Merchandising and Marketing

Even in a hot market, homes that are properly merchandised, staged, and marketed tend to sell at the best price and terms. Now is not the time to cut corners when preparing to sell your home. Ensure it's impeccably clean, professionally staged, expertly photographed, and marketed effectively. Negotiation skills are also critical. Choose a broker who is honest, experienced, and well-versed in working through the nuances of these market conditions.

6. COVID-19's Ongoing Influence

While COVID-19 safety protocols have become routine, the virus has created other challenges, particularly for self-employed individuals or borrowers who own their own companies. Lenders continue to scrutinize these borrowers more closely. Although self-employed borrowers can still secure financing, the process may be more complex, time-consuming, and potentially costlier. It's advisable to consult with your lender for guidance.

7. Appraisals and Appraisal Gaps

In the current high-demand market, appraisal valuations may not always keep pace with the rapid appreciation driven by demand and bidding wars. This can lead to situations where the home doesn't appraise for the contract price. Buyers are increasingly waiving appraisals or offering to cover appraisal gaps. However, this can impact the amount a buyer can borrow (loan-to-value). Buyers should fully understand the implications before agreeing to this strategy. If budget constraints make it difficult to bring additional cash to the closing table, it may not be a suitable option.

Navigating the Market with Caution and Confidence

Demand remains high across Colorado, creating a challenging environment for buyers. While it's natural to hope for more market balance, it's uncertain when and how that might occur. Rates will play a pivotal role in the future dynamics of the real estate landscape. For determined buyers willing to persevere, hanging in there and staying proactive can lead to success.

To fellow real estate professionals, the challenges of this market are well-known. The public may not fully grasp the intensity of our work in these conditions. Nevertheless, our dedication, professionalism, and hard work are appreciated. Keep pushing forward in these demanding times.