This is no housing bubble, and no end is in sight
by Jay Kalinski , broker/owner of Re/Max of Boulder
With home prices at all-time highs nearly everywhere in Boulder and Broomfield counties, I am often asked if we are in the midst of another housing bubble. The short answer is “No.”
There are myriad reasons for this, but they generally boil down to the fact that demand for housing far outstrips the available supply, and that the reasons for this are structural and not likely to change in this decade.
Local market statistics show the huge demand for housing in our area. For example, average sale-price-to-list-price ratios for single-family homes in Louisville, Lafayette, Longmont and Superior were all more than 100 percent; for attached dwellings, every market in Boulder and Broomfield counties averaged more than 100 percent.
The largest factors driving the voracious demand for local housing are people, economics and quality of life.
People. During the Great Recession, the number of household formations dropped dramatically, but now that economic conditions are better, people are choosing to move out of their parents’ basements and find a home of their own. In addition to those who already were here and biding their time to buy, last year the population on the Front Range increased by approximately 80,000. State demographer Elizabeth Garner predicts similar growth in the next year. On top of this, our populace is highly educated. Forbes ranked Boulder as having the highest-educated workforce in the country, with 58.5 percent college-degree attainment and 28.7 percent graduate-degree attainment.
Economics. Colorado has been creating from 50,000 to 100,000 jobs per year and Boulder’s unemployment rate stands at 2.5 percent, meaning almost everyone looking for a job can find one here. Moreover, the cost to rent a home is higher in our area on a monthly basis than it is to purchase a home. Add to this that the National Association of Realtors’ chief economist, Lawrence Yun, predicts that in 2016 the net worth of a homeowner will be 45 times greater than that of a renter, and it is clear that our educated populace understands the value of home ownership.
Quality of life. Boulder is at the top of so many quality-of-life lists that it is difficult to keep track of them all. Contributing to this, Boulder County has preserved more than 45,000 acres of open space land.
Like high demand, lack of supply also is borne out in the statistics, with all-time low inventory of homes on the market and record low months’ worth of inventory of available housing at the end of 2015. The factors keeping supply low are more complicated, but among the biggest are geography, builder capacity, restrictive-growth policies and an incentive for owners not to sell (yet).
In addition to the natural restriction of building lots created by the mountain in western Boulder County, the open space that contributes to our high quality of life also means that the land available for home building is truly finite. Relatedly, Boulder is famous (or infamous) for its restrictive growth policies, including zoning restrictions, limits on the number of residential permits issued, height limits on both residential and commercial buildings, etc., which makes it challenging to build new housing.
Builders simply are unable to keep pace with the growing demand for housing in the Boulder Valley. In addition to the paucity of vacant developable lots in the area and aforementioned building restrictions, builders also have had a difficult time hiring skilled tradespeople, many of whom left the area during the Great Recession or found employment in other sectors. These factors mean that builders likely won’t be able to catch up with demand for years.
Many current homeowners believe that home values will continue to rise, so they have an incentive to wait to sell for as long as possible, which decreases supply and, like a self-fulfilling prophesy, keeps prices climbing.
When one considers the structural factors keeping demand for housing high and supply low, with no apparent relief coming on either side, home values have only one way to go: up.
Jay Kalinski is broker/owner of Re/Max of Boulder