Wednesday, December 09, 2015

When Will Boulder Homes Exceed $1MM? [Analyze This]

by Osman Parvez
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By now, you've seen the article in the Denver Post about $1MM home prices in Boulder. It created quite a buzz. You might have also seen the response in the Daily Camera, with some of my colleagues refuting the claim. 

Neither article does a good job of exploring historical home price growth in Boulder nor forecasting prices into the future.  

Let's dig into it. 




The chart above chart shows median sold prices for arms-length house transactions between June 1 and August 31 (i.e. "summer") within the city proper. Affordable housing, town homes, and condos are excluded.     

Why summer? Because real estate is seasonal and summer is when when the most homes are sold each year. Sales during other seasons contain more outlying data. The year 2015 also isn't over yet. You're looking at clean data from a highly relevant time period. 

The median sold price in Boulder this summer was $782,854, an increase of 13.1% from last year. The YOY increase for 2014 was 5.0%. For 2013, it was 11.3%. In short, we've seen very aggressive growth during the past few years but perhaps not as steep as many believe. 

When will prices actually reach $1MM? Take a look at the following chart. 



Remember, nobody has a crystal ball but we can make reasonable projections. Take the average annual growth over the past three years (9.8%) and project it into the future (red bars). Based on this rate of growth, the median sale price for houses in Boulder will exceed $1MM in the summer of 2018. 

Of course, prices are extremely unlikely to grow 9.8% precisely and this growth rate is a little too bullish. In my opinion, annual growth will fall closer to 6% on average for the next few years with some years seeing very low single digit appreciation and some experiencing low double digits. More conservative modeling pushes out the year we cross the $1MM threshold to 2020 or beyond.  

None of that should make you feel better if you've been sitting on the sidelines waiting for things to cool off. I also have even more bad news for you.   



This chart shows seasonal peak inventory for Boulder houses going back to 2004, a full twelve years of data. This past summer, inventory peaked in June at 238 houses, 14.7% below last year and 61.4% below the cyclical high water mark in June 2009.   

You should also know that sales volume dropped 9.3% during the summer compared to the previous year (find another Realtor talking about that!). This was not due to a lack of buyer interest. The problem is a lack of availability. I'm looking at you, City Council. Maybe it's time to stop rubber stamping 100% rental housing developments.     

As of this writing, 44.4% of listed Boulder houses are under contract. This suggests about a 2 month supply. Most analysts believe a 6 month supply of houses is a normal and healthy market.   

Maybe you haven't noticed -but it's DECEMBER. This is normally the slowest time of year for real estate. What do you think the market will look like when spring rolls around? 

Low supply and high demand = what? You got it. Expect higher prices ahead.    



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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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