At the start of the year, I read an article about the 10 biggest threats to the global economy in 2020, written by a prestigious international organization. “Global pandemic” did not make the list, which goes to show how generally lousy we humans are at accurately predicting the future. As such, any predictions that I (or anyone else) could give you about how this pandemic will unfold, in terms of its impact on the local real estate market, would likely fare no better than random chance. Similarly, with the situation evolving so rapidly, any advice or best practices I could offer today may become obsolete in short order.
So, rather than peddle advice and predictions, let’s pause and take stock.
Back in 2008, the financial crisis was sparked in the real estate sector and led to a crisis that nearly collapsed the banking system. We see from history that recessions that begin in the housing sector tend to be worse and last longer than recessions ignited by other factors. Today, the recession we are likely heading into has a very different background — our economy and housing market were far stronger and more resilient, thanks in part to the measures put in place after that recession (tighter lending restrictions, more stringent liquidity requirements for banks, etc.). In fact, we were enjoying the longest economic expansion since WWII.
According to National Association of Realtors chief economist Dr. Lawrence Yun, “Conditions today are very different than the last boom/bust cycle. In 2004, we had a huge oversupply of new homes. In 2019, we still had a huge undersupply of new homes. In fact, we haven’t been building enough new homes to keep up with demand in over a decade. During the last downturn, there was the subprime factor and the variable interest rate. Now there are fewer variable rate mortgages and virtually no sub-prime mortgages.”
Colorado is well-positioned as a top economy nationally. Real GDP growth in Colorado ranked seventh in the nation year-over-year, and the state’s five-year average ranks fifth, according to economist Rich Wobbekind with CU-Boulder’s Leeds School of Business. Wobbekind says that Boulder County’s economy has been outgrowing the state economy, and is uniquely able to weather a recession. Boulder County’s economic vitality is fueled by a highly educated workforce and diverse ecosystem of industries including government research facilities, aerospace, biotechnology, cleantech, and information technology — industries that endure in the long term.
Boulder ranks number one in the nation for home value stability and growth for the fifth consecutive year, according to SmartAsset. As discussed in our recently published real estate report, based on our extensive data and market analysis, we have had a healthy housing market through 2019. Even through the grim days of the Great Recession, home prices in Boulder County declined only by 5 percent and recovered quickly post-recession. If you held onto your home for at least six years, there is no period when you would have lost money on your investment here.
While past performance is no guarantee of future results, the real estate market in our area has a history of weathering recent recessions better than other places and recovering more quickly after the storm has passed. Given everything that is going on, I still believe that owning property in Boulder Valley is and will continue to be an excellent investment.
Be well and do what you can to flatten the curve. Stay home.
Good times in Boulder County and in Colorado will continue said local economic experts at the recent Boulder Economic Forecast. But they caution that 2018 may not reach the heights of 2017, and the difficulties could impact us well beyond next year.
Organized by the Boulder Chamber and the Boulder Economic Council, the 11th annual Boulder Economic Forecast was held on January 17 at the new Embassy Suites Hotel, and RE/MAX of Boulder was among the event’s sponsors.
“By almost every economic indicator we measure, 2017 was an historic year,” says Executive Director of the Boulder Economic Council Clif Harald in his opening remarks.
Statistics show a superlative year. Colorado ranked third in the country for the pace of GDP growth, while unemployment dropped to 2.5 percent, the second-lowest rate nationally. The state’s labor force soared with the fastest growth rate in the U.S., according to speaker Rich Wobbekind, Executive Director, Business Research Division, Leeds School of Business, CU-Boulder.
But, Harald noted that 2017 presented challenges, too. And, these challenges could escalate in the coming years.
He pointed to constraints for Boulder’s economy, including a shortage of labor and resources and high housing costs that cause long commutes for many Boulder County workers.
In his keynote address, Wobbekind called the labor shortage the area’s “biggest short-term challenge.”
While job growth in Boulder County continued in 2017, the pace slowed from the peak of 2014-15.
“Almost every industry sector reported lack of available labor or properly trained labor. This doesn’t go away,” Wobbekind says.
And chief among the factors impacting Boulder County: age.
Colorado State Demographer Elizabeth Garner says residents 65-and-older will represent 20 percent of residents by 2030. The 65+ group will be 77 percent larger than it was in 2015.
“We are aging fast,” says Garner, noting that the age wave will overtake the entire state.
Garner explains that demographics – and the age wave beginning to sweep the state – are an economic issue. As people retire, aging results in a labor shortage. When people choose to age in place, housing stock for people moving in or moving up is negatively impacted. Aging also impacts healthcare and public financing issues.
At the same time, those migrating here are typically ages 20-27 and never married. Total household income is below $50,000 for 80 percent; 65 percent earn less than $24,000. People move to Colorado for the jobs. But, Garner cautions, the biggest increase in jobs are those that are low- to medium- wage, while the cost of living is relatively high.
The highest income and spending group – 45- to 65- year-olds – is the smallest demographic in the state and in Boulder County. It also has the slowest growth rate and the numbers are declining.
In addition, diversity will increase as the Hispanic population is projected to grow from the current 20 percent to 30 percent by 2040.
Among the challenges and issues facing Boulder County and the state, Garner listed:
– Aging with its far reaching impact across the economy, housing, labor supply and healthcare. As the workforce ages and retires, Colorado could experience a natural decline;
-Disparate growth across the state with Colorado’s economy flourishing along the Front Range and 1-25 corridor, but far fewer gains in the rest of the state and rural areas;
-Attracting the best and brightest to Colorado;
-Population growing at slower rate, with a total population growth from 2015-2050 reaching 2.5 million along Front Range and 1.5 million in Denver;
Garner says Colorado’s population has increased by 578,000 since 2010, making it the eighth highest state in the U.S. for total growth.
Boulder County’s growth rate is the second lowest statewide. The population in-migration peaked in the 1990s. Garner notes that students move to Boulder for college, leave after graduation, then return, and then leave again. One key reason: As a young adult it’s hard to live, buy, and rent in Boulder.
Now, fewer young families live in Boulder, and the tide has shifted toward a higher number of deaths than births.
But the dynamics of Boulder County’s economy are strong, outperforming state and national economies in job growth and educational attainment.
Boulder County, though, has well-supported economic vitality, fueled by high concentrations of companies and employment in aerospace, biotechnology, cleantech, and information, according to Wobbekind.
The area’s high quality of life and business, and cultural and outdoor attractions appeal to a highly educated workforce and visionary entrepreneurs.
Incomes are above average. The median household income for Boulder County residents was $74,615 in 2016 compared to $65,685 for Colorado residents, according to data from the U.S. Census Bureau.
But Garner cautions that Colorado’s housing affordability is a big concern. The disparity between median home value and median income is the second-highest in the U.S., which fuels the labor shortage and decreases the ability for young families to live here.
For more information, see Boulder Economic Forecast presentations at:
See Leeds School of Business, CU-Boulder’s Economic report at: https://www.colorado.edu/business/sites/default/files/attached-files/2018_colorado_business_economic_outlook.pdf