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.
A tale of two markets emerged in November, as Boulder County’s single-family home sales skidded to a stop, while townhomes and condos took a significant leap forward.
Single-family home sales in the Boulder-area markets dropped 14.4 percent in November compared to October —310 vs. 362 homes—while condominium and townhome sales rose 14.5 percent—126 units vs. 110.
Yet when data for 2018’s first 11 months is considered, the two markets tracked closely together, and both appear to be slowing, according to Ken Hotard, senior vice president of public affairs for the Boulder Area Realtor® Association.
“This is the first month single-family home sales fell below last year, and condos and townhomes are only slightly ahead,” Hotard explains.
Year-to-date through November, sales of single-family homes decreased 1.4 percent compared to the prior year with 4,205 homes sold vs. 4,266. Attached home sales over the same period improved 3.3 percent – 1,445 vs. 1,399 units sold.
Inventory decreased in both housing categories, though more significantly for single-family homes, which dropped 13.1 percent in November compared to October with 821 vs. 945 Boulder County homes for sale. Condo/townhome inventory fell 6.1 percent in November compared to the previous month with 263 units for sale vs. 280.
“My guess is the growth of the townhome/condo market is due to a larger inventory and more affordable pricing,” says Hotard. “Interest rates are making people jumpy, but the reality is that mortgage rates are still historically low. The more complete view is the inventory and pricing dynamics of the Boulder-area markets.”
He notes that single-family home sales could recover in December, but it’s not likely.
“We have the ongoing headwinds of low inventory and rising prices. When we look back, we’ll see 2018 as market slowdown for housing in our market areas,” Hotard predicts.
Despite the slow-down in housing, Colorado’s economy continues to show strength, wage growth is increasing, and gross domestic product is up, according to recent news reports.
“What the Boulder-area needs is more housing that is desirable and more affordable for people,” adds Hotard.
Colorado’s economy continues to expand in 2018, even after signaling a slowdown at the beginning of the year. Job growth was revised upward to 2.4 percent growth for the year, according to the mid-year economic report from the Leeds Business Research Division at the University of Colorado Boulder.
The rebound follows a slowing of employment growth last September to less than 1.9 percent – the lowest level in almost six years. In June 2018, job growth increased 2.8 percent year-over-year.
The increase means about 15,000 more jobs than expected will be added through 2018, bringing the total to 62,000 new jobs by the end of the year.
The state’s gross domestic product also rose 4.5 percent year-over-year for first quarter 2018. The increase shows Colorado’s economy is continuing to grow after slowing to just 1.4 percent in 2016— the lowest level since 2010. Economic output rose to 3.6 percent in 2017.
Meanwhile, Colorado still has one of the lowest unemployment rates in the nation, logged in June 2018 at 2.7 percent. While fewer people have been moving to Colorado – dropping from 67,781 in 2016 to 46,626 in 2017 – more Coloradans are going into the labor force. The increase in workers has enabled continued employment growth, despite the decrease of people moving to the state.
Sectors leading the way in job growth are natural resources and mining, and construction.
Natural resources and mining have shown strong employment growth, according to Business Research Division Executive Director Richard Wobbekind. “Energy prices are obviously factoring into it,” Wobbekind notes.
The construction industry is “finally back to the same level of employment that they were at pre-recession. They are really mostly constrained by lack of available workforce,” he says.
While a shortage of skilled labor continues to challenge the construction industry, Bureau of Labor Statistics data shows construction employment across the state was 171,200 in June 2018, a 5.2 percent year-over-year increase. This surpasses the last peak of 170,100 in July 2007. Average annual pay for construction workers was $59,446 in 2017, slightly above the average Colorado pay of $56,916.
Agriculture’s outlook is not as robust, however. Drought, wildfires, and low prices are slowing growth. For example, corn prices have declined more than 30 percent from five years ago.
“It’s a tough road to hoe in some of the rural areas,” Wobbekind said.
Read the full Mid-Year Economic Update at https://www.colorado.edu/business/2018/08/17/state-economy-adding-thousands-more-jobs-expected-report-predicts