Wednesday, August 10, 2016

The Market's Peaked. Now What? [Analyze This]

by Osman Parvez
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I've heard the question from buyers.  I've heard it from potential sellers.  Has the Boulder real estate market peaked?   Is now a good time to buy (or sell)?

I prefer to let data answer the question.  No hand waving. No Realtor happy talk.  Remember: Intelligent real estate decisions are based on a deep understanding of market conditions.   
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Inventory, Absorption, and Sales Volume
This morning, I analyzed the most recent market data for Boulder real estate.     Let's take a look at the numbers. 



The chart above shows total inventory of houses in the City of Boulder for the summer selling season for this year (black) and last year (blue).  Total inventory includes pending sales, active/backup properties, and available homes.  

I know, the chart is a little busy.  I wanted to show both timelines on the X axis.  They're not identical time periods but they're within a day of each other.  Close enough. 

Inventory was higher throughout the peak selling season this year.  Only for the last reading (taken today) shows inventory lower than 2015.  Inventory has been 3.4% higher on average than last year.  If you exclude the last data point, inventory was 4.8% higher. 




This chart shows the percentage of houses under contract over the same time period. With the exception of one week, inventory under contract has been lower than last year.   2016 was also less volatile. 




This last chart shows a running tally of the volume of sold properties during the preceding 30 days.  The 2016 selling season started off with lower sales volume before flipping into high gear in late June.   Beginning in August, it cooled slightly below sales volume in 2015.  

Conclusions
By historic measures, the 2016 peak selling season was another year of strong appreciation, limited inventory, and bidding wars for the most desirable properties.  It was also not quite as strong as the preceding year, which hints that we are nearing the end of a real estate cycle. 

The 3rd and 4th quarters are typically a slower time of year in Boulder real estate, butthere are plenty of buyers still in the market. It's possible that the fall 2016 market might be stronger than spring or summer next year.  If you're thinking about selling, you might want to accelerate your plans.  If you've had your house on the market for a while, now is a very good time to re-evaluate your marketing strategy with someone who really knows the market.

For buyers, the next few months will bring fewer fresh listings but also less competition and fewer bidding wars.  I've always been able to negotiate the biggest discounts for my buyers early in the 4th quarter by focusing on homes that were overpriced and are now being overlooked by the market.   175 Bellevue is a potential example.  It's a beautiful house with killer views, easy trail access, and adjacent to Chautauqua.  The house needs to be reconfigured to maximize the view potential of the perch and the large lot should allow plenty of opportunity to do so.  It's been on the market since February 2015 and the seller has cut the price three times, from $3.0MM to $2.2MM.   It's also owned in a trust, which suggests the owner has plenty of equity.  Now is a good time to test their willingness to negotiate.   Just make sure you have a savvy buyer's agent

note: A few years ago, the Boulder Area Real Estate Association stopped tracking inventory and sales data and resorted to a third party vendor.  The third party has not been detailed enough to provide accurate metrics so I started manually tracking my own.  The charts above are based on combined IRES and Metrolist data, the two MLS systems which cover Boulder County. 

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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.    image: djandyw

4 comments:

  1. Do you see potential to negotiate at all price levels? Or just at the $2M+ level?

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  2. Inventory is higher because an entry-level fixer-upper in Boulder proper is now a minimum 500K-600K+, and so starting in 2016 more buyers may have decided to just look for bigger and newer properties in the 3 L's instead of Boulder. I think in economics it's price elasticity. As we know at certain price points the demand is not the same. Any condo in Boulder for under 400K with high HOA fees will usually have a bidding war even if it's a dump and the $/sq foot is super high.

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  3. Mark:
    Yes. There's potential to negotiate at all price levels. Sellers often overprice, which results in buyers ignoring the property. If it makes it past the first week without going under contract, buyers now want to know what's wrong with it and the psychology of the sale favors a negotiated discount. This is why accurate and intelligent pricing is so critical for sellers (choose your broker carefully). If it's a fresh listing, priced right and a highly desirable property, the negotiation is all about making your offer more competitive without exceeding your maximum price or giving up too much in contingencies. Sellers want the strongest offer that actually closes.

    Anon: Agreed.

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    Replies
    1. Thanks Osman. I love your blog posts and your overall analysis. My take on the market is that we have to remember that Boulder and Boulder County isn't Manhattan or San Francisco and (just my opinion) a family moving to the Boulder County area these days is left with a couple of choices: a 1300-1500 sq foot ranch in Boulder proper for 600K'ish (and will probably have to offer cash if there's any competition within days of when it's listed - and I say this is true only if there's nothing wrong with it the property and it hasn't been on the market very long), a 2000+ish sq foot newer home in Superior(soil problems)/Louisville with a much better appearance (for similar price), OR a 3000ish sq foot newer home in Longmont. If you ask old-timers in Boulder they may not be aware that Longmont is changing dramatically and that there aren't gangs there anymore ( I must admit I haven't spent time in Longmont but it didn't seem that way to me). Anyway, it's just the trade-offs you have to juggle and the pros and cons of when you're a new family to the Boulder area and you have a number in your head ($$$) as to what you're willing/able to pay for a property.

      I think for the Millennial generation looking to enter home ownership, generally the only doable area left in Boulder County is Longmont - where a couple could get something pretty solid still for maybe $400K (still pricey for many Millennials I'd guess). Maybe after the baby boomer generation of homeowners in Boulder who bought in the 1980s begin to cash out due to retirement and needing retirement funds this will change (if it has not already).

      An interesting perspective would be to look into how properties in Boulder County will hold values during the next downturn. I know you've said that you don't think the next downturn will be as bad as the last one in 2006-2009 or so. I am thinking that Boulder proper will hold its value best. As you probably know, SmartAsset.com came out with that report shown by DailyCamera and Boulder REMAX about how a homeowner's chances of losing money buying in Boulder if holding 10 years is essentially zero (and I think this is just based on how well the market has appreciated since the early 90s i.e. EVERYONE made $$$). What are your thoughts about that? :) Also, if your time horizon for home ownership is 10+ years, is it still a solid move to pay the prices the market is dictating these days?

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