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Boulder Valley primed for its biggest real estate year ever
2020 was a chaotic rollercoaster for the Boulder Valley real estate market. Luckily, home values weathered the storm better than anyone could have hoped, and we are now primed for potentially the most real estate sales volume we have ever seen.
Buyer Demand. Our company has tracked buyer demand on a daily basis for many years, and it is higher than it has ever been for this time of year. This demand is especially strong for single-family homes. It appears that the trend of buyers desiring larger living spaces and more land will continue into 2021, as the pandemic lingers on and the work from home movement has finally crossed the chasm into mainstream acceptance. This latter work from home development is particularly salient for Boulder Valley, where our 300-plus days of sunshine per year and world-class quality of life are attracting those who can now work from anywhere. At each of our weekly sales meetings this year (attended by more than 100 of the best agents anywhere), we hear story after story of multiple offers on listings, prices getting bid up by tens of thousands of dollars, and buyers who are getting frustrated with all of the stiff competition. It seems that the pool of eager buyers is very deep this year.
Interest Rates. Adding fuel to the buyer demand fire is the fact that interest rates are forecast to stay at once-in-a-lifetime low rates for the foreseeable future. Our most veteran agents tell stories of helping people buy homes in the 1980s with mortgage rates above 18% — that is like financing a home purchase with a credit card. Now, buyers can expect to obtain loan rates at-or-below 3%, which is as close to free money (when average inflation is considered) as we are likely to ever see in America.
So, what could possibly derail this buyer juggernaut? Well, here are a couple of the most likely possibilities.
Lack of Inventory. In 2020, despite high buyer demand, many would-be sellers opted to stay put in their current homes. It is part of the human condition to become more conservative in the face of uncertainty, and COVID-19 presented humanity with one of the biggest uncertainties of the past 100 years. Thus, it is not surprising that we finished 2020 with only 313 single-family homes for sale in all of Boulder County, down 37% compared to the end of 2019 (498 homes). For added context, consider that at the end of 2002, we had more than 1,800 homes on the market.
It remains an open question as to whether sellers will get the message that 2021 will be an excellent time to sell a home — and an even bigger question regarding whether sellers will act on this message. If the answer to both questions is “yes,” then we really could have the highest dollar volume of home sales ever in Boulder Valley this year. This is a big “if,” however, because of…
COVID-19. At the time of this writing, more than 25 million Americans have contracted COVID-19 and more than 400,000 of them have died. This has — and will — greatly affect home sales in ways predictable and unforeseeable. Thankfully, there are multiple effective vaccines currently being distributed and administered. There remain, however, several unknowns on this front: Will too many people refuse to get vaccinated and thus thwart herd immunity? How quickly will enough of the population be vaccinated to provide such herd immunity and restore more certainty for people’s decisions? Will the current vaccines be efficacious against new (and perhaps more virulent) strains of the virus that are emerging?
A lot of things vis-à-vis COVID-19 will have to break in our favor this year to give enough sellers the confidence to move ahead with their home sale decisions, which is the only way we will even come close to meeting the apparently insatiable buyer demand. If we are lucky, this could be a year for the record books (in a good way).
Regardless of how things go with our fight against COVID-19, 2021 promises to be an excellent time to sell a home if you’re considering doing so… and a very challenging time to be a buyer.
May we all be lucky in 2021.
Jay Kalinski is the owner of ReMax of Boulder and ReMax Elevate.
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.
Boulder Valley Real Estate: The rise of virtual in real estate after COVID-19
It is evident that the world was woefully unprepared for a pandemic like COVID-19, and local real estate was no exception. COVID-19 wrought fright, confusion, and uncertainty on buyers, sellers, real estate agents, and legislators, as everyone tried to discern how best to navigate the crisis unfolding before them. Many contracts to buy and sell real estate that were then in-process fell through or were renegotiated, and the legal fallout from that may stretch on for years.
And yet, life marches forward, and people continue to need to move and buy/sell real estate, so all of the players have learned to adapt in order to help people move on with life. Some of these adaptations will likely become enduring features of the new normal, while others may fade with time. The following is a brief look at some of the most prominent trends to emerge from this pandemic and whether they are likely to last.
The real estate industry has been notoriously slow to modernize its practices, but one surprising benefit of the pandemic is that it appears to have pushed the industry into the 21st century.
- Marketing.Before COVID-19, a small minority of properties were marketed using 3D technology, relying instead on photos and, perhaps, static floor plans. Now, however, virtually every buyer expects (and sellers demand) an immersive 3D tour of a listed property. Pre-pandemic, buyers would likely visit many homes in-person before deciding on which home to make an offer. Now, buyers are almost certain to “tour” a number of homes virtually and then select the one (or few) that they actually want to see in person. We are even seeing this trend emerge in commercial real estate, as being able to tour a property virtually can save companies time and money in assessing whether a potential commercial space will fit their needs.
This 3D marketing trend will almost certainly continue for the duration of the pandemic, but it is less clear if it will continue after or slowly fade back to “normal” as people begin to feel safer again.
- Remote transactions.Before this pandemic, a large portion of a real estate transaction could be accomplished electronically, with agency agreements, purchase contracts and property-related disclosures all commonly being signed electronically. However, when it came time to close the transaction, the parties still had to physically attend a closing and physically sign documents in front of a notary public. This was the case for two primary reasons. First, Colorado’s previous attempts to pass remote notarization legislation, which would have removed the requirement of physical presence and allowed parties to sign documents via the internet, never made it through the legislature. And second, many lending institutions continue to require physical “wet” signatures and in-person notaries to minimize the potential for fraud. To solve the first problem, Gov. Polis signed an executive order allowing remote notarization. However, as we soon learned, even with remote notarization now allowed, lending institutions (inexcusably, in my view) persisted in requiring in-person physical signatures. Thus, we experienced the phenomenon of “curbside closings,” wherein the parties would drive to the title company and sit in their cars while a notary in a mask and gloves would hand them the document, watch them sign, and then notarize their documents. Having witnessed such “curbside closings,” which are clunky and awkward, I can predict that buyers and sellers will demand that the government and lending institutions allow fully remote closings in the future. Once in place, I believe this trend will be here to stay because it is vastly more convenient for people.
- Shifting consumer preferences.With most employees (those fortunate enough to keep their jobs) being forced to work remotely, many people and companies have discovered that, not only do they like working from home, they can actually be more productive. As a consequence, an emerging trend we are seeing is that buyers are looking for homes with an office (or workspace) more than before. And they also seem to be favoring rural (i.e., private space) over dense and urban. This may also portend a coming shift in the commercial office market, as companies realize that they can get by with much less space than before. This trend is likely to continue as more people become accustomed to being productive from home; however, the strength and reach of this trend will be limited by the fact that some jobs can be done only in person and more space at home costs more money, so not everyone will be able to realize this desire.
These are just a few of the trends emerging from the COVID-19 pandemic, and it is likely that others will develop as things continue to unfold. It will behoove buyers, sellers, and landlords to track these trends carefully to best position themselves for the future.
Originally posted by Jay Kalinski is broker/owner of Re/Max of Boulder.
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.
