There is still plenty of fear and unknown in the Northern Colorado real estate market and we aren’t entirely sure how things will play out in the region post-COVID. What we do know is that there has been a constant demand for Northern Colorado homes in the last decade and we don’t expect that demand to slow. Every homebuyer has fears of buying at a financially unsettled time. The best we can do is use data and projections to help us determine where the safest real estate in Northern Colorado actually is. This will help buyers feel more at ease knowing that their investment is safe and protected. Higher equity, lower debt is the first place to start.
In 2008/2009, the most impacted real estate in Northern Colorado were areas in which job loss, coupled with either adjusting or balooning payments on predatory loans created a perfect storm of short sales and foreclosures. That, coupled with eventual tightened lending caused a freefall in prices in the most vulnerable of areas. Even those who were able to keep their homes had their prices negatively impacted by these distressed sales.
To gain a better perspective on which areas might be hardest hit, I did some digging to get an idea of the lending profile of homebuyers in each community in Northern Colorado. The results were illuminating.
When purchasing a home, there are plenty of options, but essentially 4 main options: cash, fixed rate conventional loans, fixed rate FHA loans and fixed rate VA loans. Cash is straightforward, you do not have a mortgage and you own the home outright. Conventional loans are provided by third-party lenders and are not guaranteed or insured by any government agency; your downpayment is typically between 5% and 20%. FHA loans are insured by the Federal Housing Administration and typically require a 3.5% to 5% downpayment. VA loans are available only to Veterans and are insured by the Department of Veteran Affairs; they require 0% downpayment, although some downpayment might be necessary to qualify for a specific monthly payment.
Because short sales and foreclosures will negatively impact neighborhoods and communities, the financial safety of an area can be directly linked the the predominant type of loan in each community. If, for instance, a negative correction in the market receeds prices by 5%, homeowners that have at least a 20% downpayment can absorb that shock whereas a community full of 0% and 3.5% downpayment homeowners may not be able to keep their house should they lose a job or have other financial hardships. Starting off with good equity, even before years of appreciation, will help absorb any market correction that could come of the COVID crisis.
For the purposes of this example, we’ll say that cash and conventional loans are “high downpayment loans” (HDPL) and FHA and VA are “low downpayment loans” (LDPL). The areas that have high concentrations of HDPL’s will be able to whether any financial storms. This is good news for homeowners who don’t want to see their equity erode, and good news for homebuyers who want to make sure their investment is safe and protected.
The two graphs below chart out the average percentage of either HDPL or LDPL. For example, if there is an average of 50% of HDPL, 50% of loans over the last decade for a specific area were either Cash or Conventional.
If you’re in Fort Collins, Timnath or Windsor, you’re in great shape. With a high percentage of HDPL and low LDPL, there is a lot of saftey and equity in your area that should be able to withstand a negative price correction. The only issue is that these communities are the “least affordable” in terms of median price in the region, so if the demand is for a more affordable product, homebuyers will look for better deals elsewhere.
In Wellington, Johnstown/Milliken and Greeley, things aren’t as comfortable. When one-third of your market is dominated by 0% to 3.5% downpayments, even small corrections can wipe out homeowners who are struggling. This happened in the Great Recession as well. While being the most affordable markets, these communities are also the most volitile.
In reality, while we still don’t know the overal impact on housing in Northern Colorado yet, the ENTIRE market is very well positioned to take anything that comes. We have had a strong decade of increased median values and incredible amounts of equity throughout the region. Job loss and unemployment will really hurt the economy, but at this point, it doesn’t look like home values will be largely affected unless the lockdown continues for months and months.
If you’re considering a move after COVID, give me a call, text or email. I’m happy to work on a specific plan to help you make a move. It’s an unprecedented and wild time, but together, we can create a manageable plan to make anything work.
About the Author: Jared Reimer is a native Coloradoan and an Associate Broker at Elevations Real Estate in Old Town Fort Collins. He’s a community advocate, business champion, blogger, leader, tireless volunteer, innovator, thinker and expert on all things real estate in Fort Collins and surrounding Northern Colorado. You’re likely to find Jared spending quality time outside with his wife, Kacie, and his kids, Hudson and Isla, or sharing a beer or two with a friend throughout Fort Collins. Call or text Jared at 970.222.1049 or email him at Jared@TheCraftBroker.com