Wednesday, March 19, 2014

The Boulder Market - Bubblicious?

by Osman Parvez

For the past year or so, I've had many private conversations about whether the Boulder real estate market is moving into a period of strong and sustainable appreciation or whether we're looking at a new real estate bubble.


I hate to say it but the consensus among clients and colleagues is that it's starting to look a little bubbly out there.   Last year saw double digit appreciation for traditional houses and nearly double digit for condos in Boulder.   This year, market activity appears to be even frothier with bidding wars for every entry level house - including those in poor condition or in compromised locations. 

The Hallmarks of a Bubble
Remember, asset bubbles tend to have similar characteristics. In my professional experience, the hallmarks include speculative buying and selling with short holding periods and oversized gains.  Typically trading volume is elevated.    

We're seeing both in the Boulder market.  The flippers are back and the only thing keeping sold volume down is an artificially constrained supply.   

Here's the thing. Demand for Boulder housing has outstripped supply for many years, except for a 3-4 year period during the downturn of the last real estate cycle.   Supply may be set to explode across the rest of the Front Range in the near future, but not here in Boulder due to regulations limiting development (and frankly, a lack of land). 

Meanwhile, bubbles are potentially brewing in many other cities and the smart money may already be moving out.    From The Coming Real Estate Bubble (hat tip to Brian N.):  

"The bidding wars, which were common enough when we were looking, are now frantic: People are waiving inspections and practically any other contingency the bank will let them get away with, and also paying 20 percent to 50 percent above the asking price. 

and

Now, I thought we all agreed that in 2008, prices were too high, and there was a big bubble. What are we to think of even higher prices in 2014, when the economy has been staggering along on life support for six years?


I can tell a story about these cities in which they’re somehow special and the money will just keep rolling in. But I can also tell a story in which people are paying more than they should for houses in my neighborhood on the assumption that today’s $750,000 house will be tomorrow’s $1.5 million retirement fund, even though incomes in DC can’t really support an entire city’s worth of seven-figure homes."

What's Your Decision?
Whether you're buying or selling, it's a tough call.   During the last bubble, the Boulder market did exceptionally well.   Those who bought in poor locations or near the top of the bubble suffered significantly but everyone else seemed to survive with their skin intact.    

Sit on the sidelines with a smug grin and (if the future resembles the past), you might miss out on the strongest part of the appreciation curve during this cycle.    OR, jump in now but choose real estate poorly and when the downturn comes, suffer the consequences.    

Just remember one thing.  "You only find out who is swimming naked when the tide goes out."  - Warren Buffett.      

My job is to help you make a smarter real estate decision.  For a confidential conversation about your unique situation, call me.   303.746.6896. 

Edit (3/20):   I'm adding this post to the series What Your Agent Isn't Telling You

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