ArticlesBizWest October 1, 2020

What will Boulder Valley real estate look like in the fall?

By “fall,” I mean autumn, not the fall of civilization, which one could be forgiven for misunderstanding.  The past six months have been a crazy rollercoaster ride, and many of the statistics we track indeed look like a sadistic rollercoaster.  One statistician remarked to me that “I have datapoints on my charts where no datapoints have ever been before.”

So, where are we now and what is the fall likely to look like? Let us look at a few key indicators that help tell the story.

Appreciation.  Many people predicted that as uncertainty grew in the pandemic, people would become more conservative in their decisions and less willing to take the risk of purchasing a new home, and average home prices would fall accordingly.  This, however, has not been the case, and single-home values were actually 7% higher at the end of this August than they were in August 2019. The average price of a single-family home in Boulder County is now over $850,000.  What has caused home values to generally increase during the pandemic?  Much of this phenomenon can be explained by looking at inventory, buyer psychology, and interest rates.

Inventory. Inventory, or more specifically the lack thereof, is the biggest story this fall.  At the end of August, the number of active listings in Boulder County was down more than 46% from the same time in 2019.  In fact, we are currently experiencing the fewest number of homes per sale that we have ever seen at this time of year. Remember above where conventional wisdom (wrongly) held that people would become more conservative during a pandemic? Well, it turns out that while it may have been wrong with respect to buyers, it appears to have been a spot-on prediction for sellers.  It seems that those who already own a home are holding onto it as a form of security and are less willing to part with it in these increasingly uncertain times.  And, as basic micro economic theory dictates, when the supply of a good is restricted, it can increase the price of that good, even when buyer demand stays the same.  Only in this case, buyer demand has not stayed the same, it has increased.

Buyer Psychology. It would seem that shelter truly is one of life’s basic necessities, and it further appears that many buyers are seeking to own a home in order to feel more certain in their situations. This can be seen in the 11% decrease in the average days a home spends on the market before selling as compared to last year. And not only are buyers looking for just any home, the pandemic has shifted the kind of home buyers are looking for. Because many people are anticipating spending a greater share of their time at home, they are now looking for larger homes (a home office, more room for family members to spread out, etc.), as well as more land.  For example, the median price for a single-family home (which comes with some land) in the city of Boulder increased about 2% from last August through this August, but the median price for attached dwellings (which mostly do not include a yard) fell 9% over the same period. Not only are buyers looking for larger homes with more land, thanks to historically low interest rates, they can also afford a lot more.

Interest Rates. I have discussed the 1% = 10% Rule for mortgage rates in the past.  Essentially, this rules states that, for every 1% drop in mortgage rates, a buyer can afford 10% more house. And interest rates have plummeted nearly 2%, back to historic lows — to 3% or less for a 30-year fixed conventional mortgage.  We are seeing buyers taking advantage of this extra buying power to buy larger homes with more land. In fact, the median price of homes on the suburban plains and in the mountains, which typically feature larger homes on larger lots, are up 16.3% (almost $100,000) and 18.4%, respectively, compared to this time last year.

Looking forward. What all this means as we head deeper into fall is that it will likely be an unusually good time for homeowners to sell, as less competition and strong demand boost home prices. It is also an unusually good time for home buyers because mortgage rates are projected to stay very low — if they can find an available home.

Of course, this party could be interrupted by more significant spikes in COVID-19 and/or the political fallout of a presidential election whose results are not immediately known. So, buyers and sellers, enjoy October and make hay while the sun shines.

Originally posted by Jay Kalinski is the 2020 chair of the Boulder Area Realtor Association and owner of ReMax of Boulder and ReMax Elevate.

ArticlesBizWest April 1, 2020

Real estate in the time of COVID-19

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.

Nationally:

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 and Boulder County outperform the nation:

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.

Summing up:

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.