When to Hold 'Em [Market Update]

When to Hold ‘Em [Market Update]

Osman Parvez|February 18, 2021|Real Estate|

What does the Boulder real estate market look like today? We’re seeing increasing numbers of buyers chasing limited inventory, fueled by ultra low mortgage rates, an improving economic environment, and the highest level of job mobility in history. Oh, and add in a sudden increased awareness of mortality, just for good measure.

Welcome to Pandemic Real Estate.

Should you jump into the fray? Or, would it be smarter to sit on the sidelines and wait for better market conditions? These are the questions on the minds of our buyers today. Meanwhile, our sellers are wondering if they should accelerate their listing plans to better capitalize on the current imbalance.

To answer these questions, it’s important to look at the data. The chart below shows inventory of detached, single family houses for sale in Boulder County. The green shaded area represents the monthly average over the past three years. The yellow line is data from the most recent twelve months.

Before COVID, inventory (yellow line) was mostly in-line with the average (green shaded area). Once the lockdown lifted, the real estate community was largely caught off guard as a wave of buyers piled into the market. In response, inventory plunged.

At the beginning of Pandemic Real Estate (in May), inventory was only 6.7% below average. By January, it had fallen to 54% below average.

Shocking, but here’s the rub: current market dynamics are not just due to the pandemic. COVID is just the latest salvo in a long standing inventory shortage. When it bounces back, it’s unlikely to bounce back very far.

Take a look at the next chart.

The blue bars represent average available inventory in June, July, and August for single family houses in Boulder County. The Boulder real estate market is seasonal, and in a typical year, inventory is highest in the summer. The average of the summer months is a good ballpark for what was available at the peak of the market.

After the Global Financial Crisis and for the first half of the 2010’s, inventory was quite high but dropped year after year. Builders, stung by the housing bubble and subsequent GFC, were slow to break ground on new developments across the entire Front Range. Some places, like Boulder County, were further constrained by a lack of available land to develop (not to mention our unfavorable regulatory environment).

In 2017, 2018, and 2019, inventory stabilized and even started to notch slight gains. For market participants, like the Realtors at House Einstein, it felt almost normal. But then COVID hit, and inventory plunged.

Last summer, there were ~500 homes (monthly summer average) for the entire County. This is 38% lower than the previous year and about a quarter of what was available a decade ago.

What’s Next?

Right now, we’re seeing heated buyer activity. Showing slots book up within hours of a listing hitting the market. After a few days on market, sellers have a pile of compelling offers. Some buyers are paying more than asking for houses that, frankly, aren’t worth the premium.

How do buyers compete? And more importantly, should you compete for these limited assets? These are questions you should discuss with your real estate adviser. The answers are a competitive advantage for our clients.

When will supply increase? We see no obvious catalyst for a rapid increase in available homes to purchase other than the normal increase in seasonal inventory.

Yes, there are rumors of decreased regulation. Single family zoning in particular seems to be in the crosshairs of the regulatory bureaucracy. While this may one day unlock a new building boom, it could be years away. Meanwhile, most quality, local contractors are already booked out for months, if not years. If you’re planning to build a custom home, expect a two year process from start to finish. Meanwhile, there are few parcels left anywhere close to the city.

Why is there such sudden demand? When I first started analyzing and writing about the Boulder real estate market in 2005, it was clear that, due to the mobility of talent and capital, Boulder real estate was set to explode. The only surprise has been the forces of investment capital in a flight for safety.

Some are concluding that the buyers in this market are behaving irrationally. I think that’s the wrong conclusion. Affluent buyers are unlocked from their places of employment, and their needs have dramatically shifted, precisely as trillions of dollars are poised to begin impacting the economic system. Real estate is a classic inflationary hedge. What appears to be a frenzy could in fact be driven by an intelligent flight for assets that provide a safe store of value, not to mention a better place to live.

Should you wait to buy? Many of my clients are asking this question. The answer in part depends on (a) your current living situation and how it fulfills your needs and (b) alternative places for your investment capital. Given that inventory is unlikely to be dramatically better this spring and summer, the real question you should be asking yourself is whether you can afford to sit on the sidelines.

Should you wait to list and sell? Right now is probably the best time we’ve ever seen to list your home for sale. While this applies to all real estate, in particular it applies to less than desirable assets. In other words, if you’ve been thinking about selling a jalopy or a house that is in a compromised location, we would recommend moving quickly. If you’re planning to list this year, we advise our clients to have it on the market in April or early May at the latest.

Remember: There is no crystal ball. Nobody knows whether the market will stabilize as winter turns to spring, but one thing is clear: buyers had better be prepared for aggressive competition. In the heat of bidding wars, there is nothing more important than maintaining discipline. Not all houses are worth a premium. It’s absolutely critical to know the difference and to know your limits.

Osman Parvez is the Founder and Employing Broker of House Einstein. Originally from the Finger Lakes region of New York, he lives in Boulder with his wife and their Labrador Retriever. He has been a Realtor since 2005.

Osman is the primary author of the House Einstein blog with over 1,200 published articles about Boulder real estate. His work has also appeared in many other blogs about Boulder as well as mainstream newspapers, including the Wall Street Journal and Daily Camera. For more information, click HERE.

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The ideas and strategies described in this blog are the opinion of the writer and subject to business, economic, and competitive uncertainties. House Einstein strongly recommends conducting rigorous due diligence and obtaining professional advice before buying or selling real estate. image: Long Truong

When to Hold ‘Em [Market Update]