Tuesday, April 15, 2014

Boulder Market Slows, House Sales Drop 26% [Analysis]

by Osman Parvez

Here's something no other Boulder Realtor will tell you.  

The Boulder market slowed during the 4th quarter of last year and dramatically hit the brakes during the 1st quarter of 2014.   

Take a look at the following chart.


You're looking at the change in sales volume during the quarter vs. same period a year earlier for the City of Boulder.    For houses, sales volume dropped 5% during 4Q13 and then fell a whopping 26% during 1Q14.   For condos, the drop was less severe.  Volume fell 9% in 4Q13 and then 7% during 1Q14.  

As you probably already know, inventory is part of the reason why.  Take a look at the next chart. 


The chart above shows the change in inventory for houses and condos/townhomes in the City of Boulder for the month of March.    There were 25% fewer houses available for buyers to consider this past March than a year ago.    For condos, inventory is 16% lower.  

Obviously, low inventory is a big deal but it's not the only factor to consider.  Rising rates could pull a big chunk of buyers out of the market and drop demand considerably.   

Let's Talk Strategy
Buyers -  it's more important than ever to carefully evaluate whether you're paying too much for a given property.  Although market momentum is a considerable factor, it's not a given that a particular property will continue to appreciate.    The market varies tremendously by price range, location, property type, and overall desirability.   Meanwhile rates are rising which will likely cool demand and result in better selection.   Overpaying is risky.  Buy smart, get yourself a Realtor who thinks like an adviser

Sellers - the clock is ticking.   Get your property on the market as quickly as possible.   Market conditions could change very quickly and if you're trying to sell real estate that doesn't have broad market appeal, you could be left holding the bag for a long time.   Don't be fooled by the sales pitch. Choose a listing agent who gives you the straight talk

What Me, Worry?
Think it's just me that's concerned?    Guess Again.   Check out the following excerpt from management's notes on Pulte's (PHM) latest annual report (bold emphasis is mine).  Can you read between the double talk? 

"Our results in 2013 showed significant improvement in the majority of our key operating metrics in the first half of the year, while demand conditions slowed for us in the second half of the year as consumers adjusted to higher home prices and a moderate rise in mortgage interest rates. For the full year 2013, the overall improvement in market conditions, in concert with our own tactical actions, contributed to our seventh consecutive profitable quarter. Home closings, revenues, average selling price, inventory turns, gross margin, overhead leverage, and income before income taxes all improved in 2013 compared with 2012.


Our net new orders declined 10% in 2013 compared with 2012. A lower number of active communities contributed to the decline in net new orders as we maintained 14% fewer active communities in 2013 compared with 2012. The lower active community count resulted from the close-out of a number of long-term projects and is consistent with our more disciplined land investment strategy. In addition, demand slowed in the second half of 2013 in response to higher home prices and a rise in mortgage interest rates. We will continue to calibrate sales pace in each community to improve our gross margins and maximize returns on invested capital. We expect that this approach will continue to result in a moderation in our net new order volume in the short-term relative to overall growth in the U.S. homebuilding industry and relative to certain of our competitors. While we believe higher mortgage interest rates are inevitable and may have a moderating effect on demand and pricing, we believe this impact will be outweighed in the long-term by other factors driving increased sales volume as overall new home sales in the U.S. remain low compared with historical levels.

p.s. I'm adding this post to the series, What Your Agent Isn't Telling You

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