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.
A well-functioning market consists of two sides: suppliers who offer a particular good for sale and consumers who purchase those goods. In the Boulder Valley residential real estate market since 2012, there have been more consumers looking to buy homes than there were sellers offering homes for sale, which has led to a long appreciation period for homes. Now, however, it appears that the number of buyers is dropping as is their willingness to pay ever-increasing prices.
Spotting the trend
First, how do we know that there are fewer buyers in the market? The most direct measure of buyer activity that my company tracks (courtesy of Broker Associate Mike Malec) is the number of showings per available listing. From examining the data, it is fairly easy to see that this year’s showing activity is markedly below the recent boom years, but is still above the levels present during the recession.
Second, to further substantiate this decline in buyer activity, we can look at more indirect measures, such as average sales prices, available inventory of homes on the market, and average time a home will be on the market before sale. Each of these markers indicates a decline in buyer activity. Through May of this year, the average price of a single-family home in Boulder has fallen 0.6 percent, while the average attached unit has fallen 4 percent, compared to the same timeframe last year. This indicates that there are fewer buyers competing for available homes to the point where home appreciation rates have stalled. At the same time, the amount of homes available on the market has increased nearly 20 percent for single-family homes and almost 50 percent for attached ones, while the average time on the market for single family homes has gone up 5 percent and nearly 20 percent for attached ones. These statistics indicate that those buyers in the market are becoming choosier and are able to take their time making decisions.
Based on the above discussion, it seems that there are fewer buyers in the market and that those who are in the market are more cautious, but why?
It does not appear that our local economic conditions explain the drop in buyer activity. According to the State Demographer’s office, people are continuing to move into Boulder and Broomfield counties, albeit at a slower rate than previous years (though the city of Boulder has seen its population declining in the last two years). And local unemployment levels continue to be historically low.
Economic conditions at the national level are softening, to the point where the Fed is discussing interest rate cuts, so these conditions may play some role. But, interest rates are actually about half a percent lower than they were at this time last year, which would appear to weaken that argument.
Could it be the weather?
Another possible explanation I’ve heard is that our unusually cold and snow winter could have suppressed buyer demand as people were less willing to trudge through the snow to go see houses. While this is plausible, all else being equal, we would have expected to see that pent up demand being released as the weather improves, but we just have not seen that play out in the data yet.
Whatever the cause of the decline in buyer activity may be, local real estate legend Larry Kendall of the Group Inc. Real Estate in Fort Collins always says that buyers are the smartest people in the market, so they may be acting as the proverbial canary in a coal mine, meaning that they could be a leading indicator that our market is shifting from a seller’s market to either a balanced or buyer’s market. If you are a seller, be wary of pricing above the market in these shifting conditions.
Originally posted by Jay Kalinski is broker/owner of Re/Max of Boulder.
2018 was another strong year for residential real estate in Colorado in general and Boulder Valley in particular, but what’s in store for 2019?
First, a look back at 2018. Nationally, Colorado jumped from 10th to fifth among all states for one-year appreciation, with a 9.16 percent increase in home values. Boulder County improved from 57th in 2017 to 41st in 2018, with over 9.5 percent price appreciation. Below are the 10 “Vital Statistics” for Boulder Valley we track to gauge the health of the real estate market from year to year.
As you can see, most of the indicators point toward an appreciating market, though increasing interest rates and a drop in the percentage of homes under contract indicate potential signs of weakness emerging.
In the city of Boulder, the average price of a single-family home topped $1,215,000, which was up 11 percent from 2017. However, Boulder also saw almost 50 fewer home sales than last year, which highlights our continued shortage of inventory. The most affordable city in Boulder County continues to be Longmont, but even there, the average price of a single-family home is now over $460,000 and may reach $500,000 if its appreciation trend continues.
One statistic that gets very little attention is that we often see home prices dip slightly in the second half of the year as compared to the first. As the chart below shows, we generally see appreciation through June or July, and then values trail off slightly. What this chart means is that, if you’re a seller your best bet is to sell in the spring, and if you’re a buyer, try to buy in the fall when home prices are stagnant or dropping.
2018 was quite strong — will 2019 be similar?
Locally, conditions in our area generally support continued appreciation in residential real estate. The total number of active listings available is still less than half of what it was before the Great Recession, which is likely to keep home prices growing, especially as our economy remains strong (very low unemployment) and we continue to see net migration into our area.
There are, however, several trends that could derail continued growth in our market. First, interest rates are almost a full point higher than they were in 2017, and I’ve discussed before how a one point increase in interest rates can reduce purchasing power by 10 percent. The Fed had indicated its intent to continue to raise rates in 2019, however, the news from the Fed’s most recent meeting in January suggested that they may hold off until at least June.
Second, the potential for a recession in the next year or two could begin dragging on home sales. One indicator is that the yield curve (which compares rates for short-term vs. long-term Treasury notes) has been getting flatter. When the yield curve inverts (that’s when rates for 10-year notes dip below rates for 2-year notes), it is very often followed by a recession.
Finally, local no-growth and anti-growth policies, regulations, and mindsets are making it increasingly difficult to add inventory to our region. The dearth of homes to sell could negatively impact our market — and it is the only factor here that we as citizens have a measure of control over.
2019 has the potential to be another great year for residential real estate in Boulder Valley, but we need to be mindful of the potential derailers mentioned above.
Originally posted on BizWest. Jay Kalinski is broker/owner of Re/Max of Boulder.