Inventory Shortage and How Long It Will Last – Part Two

RE/MAX of Boulder continues to keep the Boulder community and future homebuyers and sellers updated with the latest information regarding the real estate market. RE/MAX of Boulder’s Duane Duggan, with the Boulder Property Network team and host of the RE/MAX of Boulder Podcast, shares his thoughts about current market trends and Colorado’s inventory shortage.

Part 2 of a two-part series in which Duane explains further reasons for the very low inventory of homes in our market. What began as the top 10 reasons for Boulder County’s very limited inventory is now up to 16 reasons. Here are reasons 9 through 16:

9. Better employment numbers

The job market has significantly improved over the last few years, which has brought out a lot more buyers into the market. “When you consider market factors, the employment level is even more important than interest rates,” says Duggan, “because even if the interest rate is zero, if you don’t have a job, you cannot make the payment.” As employment numbers increase we are seeing “less renting and more buying,” which has created higher demand in the marketplace.

10. Low interest rates have allowed more buyers over the last two years to buy homes.

As employment numbers continue to rise, we have also witnessed a significant drop in interest rates. “The low interest rates are just incredible,” says Duggan. “Interest rates for the last couple of years have been at a low that has been unprecedented in the marketplace, and obviously the lower the interest rate the more buyers can afford to buy a home, in turn putting more pressure on existing inventory.”

11. The flood

Another factor that has contributed to the market’s low inventory is the flood that took place in September 2013. The Boulder County flood caused many homes to be destroyed and took several homes off the market, which displaced residents and quickly absorbed all available rentals and lower priced homes. “By the end of the first day, all of the rentals had been taken and the only ones that were left were rentals that were available, but were also flooded,” explains Duggan. “So if you think of all the homes it took off the market because they were destroyed, plus the homes that came off the market as people bought or rented other homes in order to have a place to sleep, it just made it tighter in the inventory world, especially in Northern Colorado, specifically in north Denver and all the way up to Fort Collins,” Duggan continues. Although the flood took place almost two years ago, there are a number of residents who are just now rebuilding after concluding the insurance process.

12. Mass purchase of “first time homes” by investor groups.
    Investor groups have purchased large groups of bank-owned properties for use as rentals, and are taking them off the market for owner-occupied users.
13. Marijuana

Another local factor in our marketplace has been the legalization of recreational marijuana. Colorado’s recent legalization of recreational marijuana has “given strengths to the market,” comments Duggan, “but then again, not everyone agrees with that point of view.” Undeniably, recent changes in legislation have produced a high demand for existing inventory. “Marijuana laws have filled up commercial properties for grow rooms, filled up retail properties for dispensaries. We do have quite a few that either through talking with their REALTOR® or lender, have indicated that they have moved to Colorado specifically for the current marijuana laws,” Duggan explains. “So when you get people moving here for non-job related issues, it again produces a demand for the existing inventory.”

14. Construction Defect Law

The Construction Defect Law has also had a significant impact on our current marketplace. “When you look at all the new properties that are being built that appear to look like condos in the Boulder area, they are actually apartments at the moment,” Duggan explains, “and that is largely because developers want to avoid being sued by the Homeowners Association.” In Duggan’s opinion, with the Construction Defect Law a lot of these builders have not been building condominiums but they have built them as rentals. “In theory there could be a big glut of condos on the market about seven years down the road when the Construction Defect Law expires,” says Duggan.

15. Waiting for stepped up basis upon first spouse to die.

Before the 1997 Taxpayer Relief Act, you could find yourself facing significant capital gains taxes on the sale of your house unless you upgrade to a more expensive house. With the passage of the Act, however, individuals can exclude up to $250,000 of capital gains from taxation, while married couples can exclude up to $500,000. “I believe this is another thing that is causing a shortage of inventory” says Duggan. “So again, if you’re waiting for an event, like someone to die…that could take awhile, which would keep that property from coming on to the market.”

16. Seller that doesn’t need to sell — why sell now, wait a year and it will sell for more.

In other words, another reason for low inventory is due to appreciation over time. “One of the most interesting things I have seen recently about why someone may not want to sell their home is that if you don’t sell now it might be worth a lot more in a year or two,” Duggan explains. “As long as the appreciation keeps happening, which we’ve seen now for the last couple years, this would make sense for a lot of sellers and that’s just one more reason why another house doesn’t come on the market.”

With all these factors in mind, “It is kind of brutal out there,” Duggan admits, “but all this information will hopefully help our audience make well-informed decisions as they enter into the marketplace.”

       To read Part 1 of the Inventory Shortage, visit: www.BoulderPropertyNetwork.com or contact Duane Duggan at BoulderPropertyNetwork@BoulderCo.com

About Duane Duggan: Duane Duggan has been a Realtor® for RE/MAX of Boulder in Colorado since 1982 and has facilitated over 2,500 transactions over his career, the vast majority from repeat and referred clients. He has been awarded two of the highest honors bestowed by RE/MAX International: the Lifetime Achievement Award and the Circle of Legends Award. Living the life of a Realtor and being immersed in real estate led to the inception of his book, REALTOR® for Life. Also see his video podcasts about real estate topics on RE/MAX of Boulder’s YouTube channel.