Tuesday, October 11, 2016

The Coming Boulder Market Turn [Analyze This]

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My recent blog posts have emphasized end-of-season bargains that are now on the Boulder market (courtesy of overzealous sellers and brokers who use wishful thinking prices to attract clients). I've already helped several clients negotiate exceptional deals in the 4th Quarter by targeting stale, overpriced listings. I'm currently on the hunt for others (including investments for my own portfolio).

What about next year? Should you keep your powder dry and hope for a correction? Should you sell now before the downturn begins?

The answer depends on the characteristics of the property (price, location, property type) and your personal investment objectives, including your tolerance for risk/return. Real estate is seasonal and cyclical. It's also very local.  

In Boulder, the last market correction began in '06 and reached bottom in '09. Fueled by "can you fog a mirror?" underwriting and cheap rates, the collapse was especially brutal in bubble markets like Phoenix, Las Vegas, and Miami. Some would like you to believe that Boulder was immune. I've even heard a few brokers say "Boulder real estate never goes down" but that's simply not the case.  

During the last downturn, Boulder experienced a top down market correction. Sales at the high end slowed and inventory expanded past a 2 year supply, briefly pushing prices down by 40% in some segments (including downtown Boulder). Adjacent luxury markets like Niwot saw inventory reach nearly a 3 year supply. Meanwhile, the entry level held strong. It didn't correct until the very end of the cycle, a small period of roughly only a few months during early 2009, and prices barely dipped (about 5%). In the rear view mirror, those were buying opportunities but at the time, nearly everyone was playing it safe.

In my crystal ball, the next cyclical turn will be far less severe. For one thing, banks no longer issue liar loans and buyers in markets like Boulder are almost always putting down +20% or paying cash. Boulder buyers have a lot of skin in the game and tremendous ability to wait out downturns. To point, during the last downturn, Boulder County had one of the lowest foreclosure rates in the country and the City of Boulder had only a handful. When the market turns, Boulder is likely to skip sideways.

Primary home markets are closely tied to employment, mortgage rates, and overall economic conditions but Boulder also benefits from reliable employers like recession-proof CU and the federal labs. Assuming City Council doesn't screw up the Boulder brand, our quality of life will likely continue to draw a nearly endless line of well heeled buyers from all over the world. 

Whether you pull the trigger now or hold off until next year depends on your answer to the first questions I ask new clients: What are your investment objectives? We then develop a strategy for how to finance your plan, maximize return and manage risk relative to your specific situation. It might make sense to focus on select locations and asset types in growth markets like Longmont. Maybe it would be better to buy the blue chip of Boulder real estate assets; the entry level in prime Boulder locations. It could be time to sell or I might just convince you to hold off, as I did with several potential sellers this past year. As one of my finance professors liked to say back in the day, "the answer depends."
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Additional Resources: This morning, Manish Singh, head of investments at Crossbridge Capital, was on Bloomberg discussing possible monetary policy from the Federal Reserve and how it may impact U.S. economic growth. His views are noteworthy for their reasonableness and rationality, especially on the laughable idea of multiple rate hikes coming next year. 






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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. 

4 comments:

  1. Do you think an entry-level ranch in Boulder will ever go below $500K even in a huge downturn in the housing market? I'm thinking not.

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    1. 17% price reduction? They barely dipped 5% during the worst real estate downturn in 20+ years (maybe longer). Martin Acres ranches are the most liquid, most recession proof houses in Boulder. If you have a decent one (preferably with a full basement) to sell, please call me. I'm in the market.

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  2. Alas, Boulder CC (led by the development oriented city manager) is putting the Boulder brand at risk. And I can't understand what they think they are accomplishin. What the city needs is single family and townhouse homes for working and taxpaying middle income families...not efficiency units and co-ops thst will appeal mostly to students. Let the university supply student housing and there would be an amazing supply of single family homes on the market and thousands fewer in commuters every day.

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    1. But even if you let the university supply the housing, it wouldn't be nearly enough relief to put a dent in the demand for single family homes in Boulder. All new construction in Boulder is probably going to be high-density stuff. So expect to pay at least 500K-600K for any single family fixer-upper structure in Boulder.

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