The Calm Before the Storm [Analyze This]

Let's talk about the real estate market. 

I just wrapped up two days of obsessive data crunching on market conditions. My analysis paints a picture of a market gone wild in response to rapidly changing economic and social conditions. 

I've put together dozens of charts, but rather than inundate you, I'm going to share just one.   

You're looking at inventory levels for single family, detached homes in Boulder, Boulder County, and Denver. It's based on the latest market data (through the end of October) and shows inventory levels relative to the 3 year average. 

Inventory last month was 40% below average (red line) for October in Denver and Boulder County. The city of Boulder was not nearly as low, but it too is far what's normal for this time of year. 

Normal. Sometimes it's hard to remember what that was like. 

Meanwhile, as inventory has trended lower, sales are exploding. I've plastered those charts across our socials (Instagram, Facebook, and Twitter). Pick your poison (personally, I think Insta has the cleanest presentation). 

It's not the same story for condos and town homes, where inventory is actually higher than average. So far, the benefit to buyers has mostly been better selection, not wholesale discount pricing. Year to date, condo sales in Denver are now up 12% above average. But inventory is even higher, 72% above average Given the shift to lifestyle that has occurred due to Covid, this shouldn't be a surprise. 

The Crystal Ball
Under these sorts of conditions, what does the future hold? My crystal ball factors in low interest rates and increasing worker mobility. It also says there is no catalyst for large increases in housing supply. I expect the coming 2021 market to be more intense than this year. There will also be spillover effects to housing adjacent industries.

All of the Covid stimulus, past and future, applied globally, will likely begin to spill out and inflate asset bubbles all over the world. In case you missed economics 101, real estate is a traditional inflation hedge. In the long run, it tends to hold real value and float with inflation, unlike dollars in the bank. Capital is also more mobile than ever before. 

Now, let's focus your attention on one particular chart in the series. It's the one that depicts median townhome/condo $/SQFT sale prices in Denver over an 11 year period.  At the end of that chart, the best fit curve shows a slight flattening. To me, this looks like the calm before the storm - an opportunity perhaps. Covid isn't going to last forever. We have another six to twelve months to go, if you believe the health experts. Some changes will be enduring, but others may fizzle or reverse - including the flight from dense, urban cities. 

To be clear, I'm not telling you to go out and buy every real estate asset you can find. I'm telling you that broad market indicators and social trends are flashing green for real estate in Denver and Boulder.  Satellite markets, like Longmont, Louisville, Superior, Westminster, and Arvada should also see the impact. 

Remember: If you're going to play the bubble game, it's far better to get IN and OUT, early. 2021 is likely to be a wild ride.  

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: Lee Junda

Please Note

This document contains forward-looking statements. You are strongly cautioned that investment results are subject to business, economic and other uncertainties. There are no guarantees associated with any forecast and the opinions stated here are subject to change at any time. Always consult your financial advisor before making an investment decision.