Tuesday, February 12, 2008

An Expert's View on Boulder - Lawrence Yun's Slides

by Osman Parvez
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It appears that Lawrence Yun, the Chief Economist of the National Association of Realtors has put out a presentation on local market conditions here in Boulder as well as other parts of the front range.

Here's a selection of slides from the presentation. The comments are mine.


2007 looks a little optimistic to me, but the NAR might be using different data. I expect the estimate to be a revised downward. See my index analysis for more details and a better dissection of Boulder's market.


Subprime delinquencies are at a record high. Interestingly, delinquencies were quite high midway through 2002 as well. Although subprime is a very small slice of the mortgage market, I imagine the volume of loans outstanding is much higher today though than 2002. Remember, subprime is driving 1) foreclosures and 2) the credit crunch.


If you've been reading my foreclosure updates, this slide isn't news. Our rate of foreclosure is quite high, above the US average, though not impacting all areas equally. Within the front range, Boulder County has one of the lowest foreclosure rates. Within Boulder County, foreclosures are concentrated in Longmont. In the big picture view above, foreclosures appear to be most effecting mid western states, perhaps because of poorer job markets. See my post on the migration of talent and capital (the Richard Florida study).



Clearly lower mortgage rates and easy credit fueled the rise in home prices. With the credit crunch underway, 2007 and 2008 will likely show reduced affordability. Expect that red line to start ticking upwards.


Here's something I've been saying for a long time. The front range is cheap compared with many other markets, particularly on either coast. This is why a large percentage of our clients are coming from out of state. Although most professional jobs do not pay as highly, the ratio of income to housing cost is much more favorable here than say New York or LA. Do I even need to start talking about quality of life factors?


Jobs are the #1 driver of primary real estate markets. Vacation homes, i.e. what comprises most mountain resort markets, tend to be driven by other factors (such as boomer retirements and the stock market).


We're starting to see increasing foreign visitors to our website and blog. The advantage that the low dollar gives international buyers is tremendous. This is the first quantification I've seen of that trend. However, with other economies feeling the pain of a slowdown and the increased likelihood of rate cuts by their central banks, I believe it's quite possible that the dollar's slide will slow if not bottom. In other words, this slide might be "as good as it gets" for foreign buyers taking advantage of FX.


As I said in a recent post, if you own your home or are considering buying, keep an eye on 30 year fixed mortgage rates. They could fall further and give you an opportunity to lock in serious long term savings. We can debate whether rate cuts have an impact, or whether the future is inflationary or deflationary, but clearly the short term trend is in favor of lower rates.


Net migration has been a positive factor for Colorado for a long time. The dot-com bubble collapse of 2000 also did not result in an exodus. Sizeable net positive migration is a long term trend for our state impacting... well, pretty much everything.


Interesting conclusion, though a bit rosier than one I would have made. The points Yun makes are generally solid, though FHA loan revival is clearly subject to political winds. I agree that home builder cutbacks are good for dealing with oversupply, an issue that is continuing to impact many communities, though to a lesser extent in Boulder.


Images: Lawrence Yun, Ph.D



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4 comments:

  1. Osman - Would you expect anything other than a rosy forecast from the NAR? I'm sure they chose DenverBoulder as a market to highlight due to the more favorable outlook of this region than most markets are facing.

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  2. Nar lost all respect last year when they were plugging the market with false rosy forecasts, I now use them as a contrarian indicator..

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  3. As represented in the NAR statistics, after the hyper-appreciation in the 90's in Boulder, income caught up to home prices again. Job recovery and a solid rise in wages, since the tech bust in 2001, has strengthened an already stable real estate market in Boulder. The Mayor of Louisville has guaranteed a significant economic impact not only in Boulder and Broomfield counties with the sale of the Storage Tek property, but also in the State of Colorado. How exciting..

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  4. Intrestingly, he presents mostly data concerning what he bills as favorable conditions in DENVER. Um, what's that got to do with Boulder? Yeah, it's near here, but very different. Also makes you wonder why he's not showing you the comparable stats on Boulder. I doubt the income to housing cost one looks nearly as good here. Shameless misdirection.

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