The Colorado real estate market is in rare company. Few state-wide markets (if any) have demonstrated a larger propensity for success than real estate in Colorado. If for nothing else, the entire state has remained at the forefront of the national housing market for the better part of a decade. That said, the Colorado housing market isn't without its own flaws. Not unlike everywhere else, inventory is in short supply. While increasing ever so slightly over the course of 2021, inventory is losing out to the speed at which homes are selling. As a result, prices have increased at an exponential pace over the last 12 months.
Therein lies the foundation of the Colorado real estate market: supply and demand. There aren't enough homes in the Colorado housing market to keep up with demand. In response to the competition, homeowners have increased their asking prices accordingly. As a result, real estate investors in Colorado have been forced to reevaluate their own exit strategies. Where flipping was once the area's preferred investment strategy, long-term strategies have become more prevalent. Due, in large part, to the new marketplace created in the wake of the pandemic, rental properties appear to be a more viable exit strategy, and investors are starting to take notice.
The Top Colorado Real Estate Markets
While the best real estate market in Colorado is up for debate, here’s a list of the cities investors may want to pay special considerations to:
Median Sales Price: $526,000 (+18.8% year over year)
New Listings: 11,440 (-1.0% year over year)
Days On Market: 22 (-46.3% year over year)
Inventory Of Active Listings: 8,679 (-44.5% year over year)
Months Of Supply: 1 (-54.5% year over year)
Median Rent: $1,612 (+14.2% year over year)
Price-To-Rent Ratio: 25.91
Unemployment Rate: 6.1% (latest estimate by the Bureau Of Labor Statistics)
Population: 5,758,736 (latest estimate by the U.S. Census Bureau)
Median Household Income: $72,331 (latest estimate by the U.S. Census Bureau)
Colorado Median Home Prices
The median home value in the Colorado real estate market is $501,345. At its current price point, the state's median home value is higher than it's ever been. In fact, home values in Colorado have tested new highs each month in 2021, which begs the question: Is it a good time to buy real estate in Colorado? To formulate an answer, let's first look at how the local market got to where it is and where it's going.
On its path to historic highs, the Colorado real estate market has drafted off of tailwinds created by the pandemic. It's true: real estate in Colorado was already strong and appreciating quickly before the global emergency. However, the new marketplace created by COVID-19 has expedited the pace of appreciation.
For starters, Colorado's active listings are 44.5% lower than they were at this time last year. Not surprisingly, the pandemic has simultaneously forced many homeowners to take their listings off the market for fear of the virus and having to become buyers themselves. Today, Colorado only has about a month of inventory (down 54.5% from 2020), which has increased competition dramatically. In turn, the competition has enabled homeowners to increase their prices accordingly, to the tune of 19.1% over the last year.
It is worth pointing out that competition isn't merely the result of inventory shortages. In addition to there being fewer homes on the market, more people appear inclined to buy than in years past. At the very least, the Fed's decision to lower interest rates below three percent encouraged more people to participate in the market. More people with increased savings and the promise of lower borrowing costs catalyzed the market, and prices increased accordingly.
The latest price increases pose an important question: Is Colorado good for real estate investing? Simply put, the Colorado real estate market is a great place to invest, as long as you listen to what the market is saying. While prices are high, the lack of inventory suggests they still have room to run. In fact, home prices could rise as much as 12.1% in the next 12 months because of the previously discussed indicators. Prices may be high, but today could be a great time to invest, especially with interest rates as low as they are.
Colorado Median Rent Prices
Colorado’s home prices impact the entire housing sector, and rental rates are subject to drastic changes in valuation. The last 12 months of home value increases have enabled landlords to increase their asking prices as well. If for nothing else, higher home values and a lack of listings prevent a large population of prospective buyers from participating in the market. As a result, a large contingent of people want to buy but can’t, which lends itself to another issue: the same supply and demand crisis facing would-be buyers is impacting renters.
Since more people are priced out of the buying market, we see more renters than average competing over fewer available properties. Landlords have found themselves in a position of power in Colorado, and their asking prices reflect as much.
According to the latest data released by Apartment List, the median rent in Colorado has increased 14.2% in the last year and now sits around $1,612. The latest increase in rents is almost in line with home values, albeit slightly lower. It may only be a matter of time until rents actually catch up to their value counterparts. Here's a better idea of what renters can expect to pay in the Colorado real estate market:
1 Bedroom $1,345
2 Bedroom $1,595
3 Bedroom $1,916
4 Bedroom $2,304
Comparatively, the national average rent price is about $1,219, or 32.2% lower than Colorado's. The difference is noticeable, and appreciation forecasts suggest the discrepancy will only grow for the foreseeable future. Therefore, now looks as good of a time as any for the Colorado real estate investing community to consider long-term investing strategies.
Colorado Foreclosure Trends & Statistics
According to ATTOM Data Solutions’ Midyear 2021 U.S. Foreclosure Market Report, a total of 65,082 U.S. properties received a foreclosure filing (default notices, scheduled auctions, or bank repossessions) in the first six months of the year. “That figure is down 61 percent from the same time period a year ago and down 78 percent from the same time period two years ago,” according to the report.
For what it's worth, the decline in foreclosures is the direct result of government intervention. Forbearance programs and government aid prevented many landlords from following through with evictions, and lenders weren't allowed to initiate foreclosure filings. Foreclosures in Colorado are no exception, as filings are down about 76.7% over the first six months of 2021 from the same point in the previous year. In all, Colorado saw a total of 334 properties file for foreclosure from January to June. At that rate, only 0.01% of the state's housing units are considered distressed. Consequently, Colorado has one of the lowest foreclosure rates in the country.
While the Colorado real estate market is expected to retain one of the lowest foreclosure rates in the country, it's safe to assume the number of distressed homeowners will increase soon. It is too early to tell just how many distressed homeowners will file for foreclosure once government aid expires, but investors should prepare for an influx. Real estate investors in Colorado should position themselves well now to aid distressed homeowners soon; doing so may simultaneously help those at risk of foreclosure and help investors land their next deal.
Tax Lien Investing
Tax Lien or Deed: Tax Lien State
Interest Rate: 9% (Plus Fed Rate) (rate is established by adding nine percentage points to the federal discount rate as of September 1, 2007, and rounding to the nearest full percent).
Redemption Period: 3 years until foreclosure can be initiated (non-judicial); plus 120 days after foreclosure initiation. = 3 years, 4 months.
Below you will find a list of online auctions in the state of Colorado. Most counties in Colorado conduct their tax lien sales in November and December. Colorado offers great opportunities for online tax lien investing:
As discussed, the new market created by the Coronavirus has increased home values across the entire state of Colorado. As a result, real estate investors in Colorado have had to change the way they invest. That's not to say there aren't opportunities to flip homes, but rather that profit margins are growing thinner on a national level.
According to ATTOM Data Solutions' second-quarter 2021 U.S. Home Sales Report, "the typical single-family home and condo sale across the United States during the second quarter of 2021 generated a profit of $94,500. That was up from $90,000 in the first quarter of 2021 and $60,572 in the second quarter of 2020."
There's no doubt that home prices are becoming more prohibitive to rehabbers with each passing month. That's why, in addition to rehabbing, many investors in Colorado are looking for long-term investments like rental properties.
Thanks to historically low interest rates, investors may help offset today's high acquisition costs. As recently as August, the average commitment rate on a 30-year fixed-rate loan was 2.84%. While up slightly year to date, today's rate is historically low and represents a great opportunity for Colorado investors to simultaneously increase cash flow and offset higher acquisition prices. At the very least, the less money rental property owners have to pay towards their mortgage each month, the more they can pocket from incoming rent.
In addition to lower borrowing costs, Colorado's price-to-rent ratio is 25.91. At that level, it's more affordable to rent in Colorado than to own real estate. At that level, the state's price-to-rent ratio will actually drive more people to become renters; houses are too expensive for many to even consider buying. The lack of affordability driving people to rent will increase demand, and landlords will be able to increase asking rates and mitigate the risk of vacancy.
Profit margins remain for real estate investors in Colorado, but they are growing harder to find. Instead, most investors are turning to long-term strategies to use the current tailwinds that are being offered.
Colorado Housing Market Predictions
Regardless of an investor’s experience, it’s nearly impossible to predict the direction the real estate market will head without any degree of error. Regardless of how likely something is to happen, too many variables are at play to guarantee anything. That said, Colorado's real estate market trends may provide a glimpse into what may happen shortly.
Using what we already know about the market, it is possible to make well-informed, educated guesses. The secret is to understand that they are just that: guesses. Nonetheless, predictions founded on data and facts may provide enough insight for investors to gain at least a slight edge. At the very least, keeping a finger on the market's pulse is the simplest way to keep pace with today’s fast-paced market cycles. With that in mind, here’s what investors may see transpire sooner rather than later:
Long-term exit strategies look the most promising: Median home values in the Colorado real estate market have escalated almost exponentially in as little as a decade. As a result, deals with attractive profit margins are growing harder and harder to come by. However, passive income investors can navigate around today’s higher prices by renting the property out for an extended period of time. Several years of renting may prove more than enough to offset the extra money it took to secure the deal. Colorado’s current rental rates should generate enough cash flow to justify acquiring higher-priced assets.
Home values will continue to increase: The Colorado real estate market only has about one month of inventory; that's five months less than the typical, balanced market. As a result, demand will continue driving prices higher, just as it has for the last nine years. In fact, some forecasts are calling for an increase as high as 12.1% over the next year.
Inventory will remain tight: The Colorado real estate market is in dire need of housing inventory; it’s part of the reason prices have risen so high. The state only has about 20% of the available housing it would prefer. New construction projects are in the works, but the state needs far more inventory than what is expected to come to the market in the next year. More homes are expected to hit the market, but not enough to satiate current demand.
The Colorado real estate market continues to fire on all cylinders, mainly because of a strong economy and an even stronger desire to live in The Centennial State. The resulting housing industry is, therefore, extremely conducive to savvy investors. While prices are high, strong economic fundamentals allow more people to actively participate in the market, which bodes well for everyone: buyers, sellers, and investors.
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