Friday, February 03, 2006

Is the Sky Falling in Boulder?

by Osman Parvez


After traveling it always seems to take a few extra days to catch up on the work that piled up while I was away (hence the scarcity of blog posts).

In the meanwhile, I've noticed more than a few doom and gloom news items about the real estate market. These pieces include a roundup of realtor or gadflyesque blogs on the bubble and another about buyers fleeing to Mexico. From the over-hyped sound of it, real estate is falling off a cliff and investors in particular are desperate to get out. Given that real estate isn't one consolidated market, but rather made up of local or regional markets with very different fundamentals, it's clearly time to dig a bit deeper.

Is the Sky Falling in Boulder? Should you panic?
As noted before, one thing to keep in mind is that the markets which saw the greatest speculative appreciation during the great real estate bull market are now most likely to see price corrections. In markets where the bubble is deflating (or popping, if you prefer) the most obvious evidence is rising inventories and slowing sales. As inventories build, prices eventually fall as sellers become more realistic.

Is this happening now in Boulder Real Estate?

Start by considering the volume of Home Sales in Boulder. Take a look at the chart below (click on it for a larger view). Here are sales from the 4th quarter and first month of this year (the best available data). Keep in mind that sales data from January '06 is still preliminary.



For single family homes sold in 2005 compared to 2004, on a monthly basis there was exactly the same sales volume for October and November and greater sales volume in December. January sales in '05 saw a dip, but preliminary January '06 sales were up substantially from both '04 and '05.

What about that rising Home Inventory we keep hearing about? As the chart below indicates, it's not happening in Boulder.



Remember, there is a seasonal sales pattern in Boulder real estate for home inventory to build during the winter months. This year has been no exception, inventory levels have risen since December as expected. Now compare month/month from previous years, and with the exception of January we see lower inventory the past four months than in 2004 and 2005. The inventory of homes here in Boulder Colorado have not been rising.

Finally, let's look at Days on Market. This is the time from listing a home to when a seller accepts an offer for its purchase. Be careful using average DOM because there are often homes, having been mispriced or for other significant reasons, that sit on the market for extremely long periods. To avoid skew, the better statistic is median DOM. See the chart below.



As you can see in the chart, with DOM the data is inconclusive. No obvious trend emerges, and I hesistate to analyze it further. The prelimary median DOM for January '06 showed a dramatic drop from the previous three years. November '05 was also better than the previous year, but December showed a slight increase. One might say given the sensationalized news, it's actually surprising that taken together, nov 05 through Jan'06 were relatively stable.

Conclusion? Sales volume, inventory levels, and days on market for our favorite real estate market - Boulder, Colorado - indicate a healthy market. We aren't seeing inventory levels rise, we aren't seeing a slow down in sales, and days on market seems to be surprisingly stable.

Oh, one more thing. If you want to see overvalued real estate, check out this blog. It's called America's Most Overvalued Real Estate Markets.

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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.   We strongly recommend conducting rigorous due diligence and obtaining professional advice before buying or selling real estate. 

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