Am I buying at the top of the Colorado real estate market? Are home prices going to crash? Can this real estate bubble last? These are common questions on the minds of a lot of people right now.
These are all valid concerns — we’ve all seen the activity in the market — how fast prices are going up, the multiple offer situation increase creating bidding wars, and more. Host and current President of Windermere Colorado Professionals, Eric Thompson, is happy to report (in short) with a confident “no” to those — especially buyers — who are asking if this is the top of the Colorado real estate market. Read on to find out why:
It All Comes Down to Supply & Demand
Let’s unpack what this means for the current Colorado real estate market.
Supply – On the supply side (this is true for up and down the Front Range) the number of residential properties for sale (compared to one year ago) is essentially 70% below the number it was last year. Meaning we have 70% fewer houses on the market for sale right now and is 1/10 the long-term average. A big reason for this is new home construction lagging behind market demand and population growth. Another reason is due to COVID — people simply didn’t want to list for a variety of concerns.
Demand – There’s really just one thing that drives demand and influence on housing: jobs. When employment is growing and we’re in a healthy economic market, we typically see an 18-month lag between job growth and its influence on real estate. What we see today, is an economy that has bounced back from COVID very quickly. A year ago (April 2020) unemployment in Colorado spiked to 12%. Today, just a year later (April 2021) it’s half of that, sitting just above 6%.
Work-from-home (WFH) culture is also a new interesting variable for demand to consider. As we begin to enter into a post-pandemic world, people are now far less attached to their place of work’s physical address in terms of where they can live. Companies are much more flexible about remote work which allows people to live wherever they want to — and guess where people want to live? In Colorado.
Those of us in the real estate industry has noticed an uptick in working with transplant or out-of-state buyers who are seeking to move to Colorado now that they aren’t tethered to their jobs. This is also adding to demand in the Colorado real estate market.
Now, let’s forecast what the current supply and demand mean for the future of the Colorado real estate market.
Supply – On behalf of our Colorado real estate professionals, I/we can tell you that we do not see anything in the near term that is going to significantly change the inventory situation. So, what would it take? It would take a massive amount of new construction, and we just don’t see that based on the land availability and building materials inventory needed to create an ideal environment for new housing projects.
Demand – Do we see anything on the horizon that would cause demand to diminish? Not at all. The great economic vitality and quality of life that makes Colorado so attractive to buyers has proven to be a permanent motivator.
For prices to crash, we would need to see a drastic change in either supply or demand
Take 2008 for example. The housing market bubble burst was caused by a significant economic downturn affecting the demand side, paired with an influx in new construction that impacted the supply side of things. Right now, we don’t have anything close to that happening to cause concern of a real estate market crash.
Decades of Data is the Determining Factor
The past 40 years of reporting tell us a lot. What we can tell you is our markets long-term have averaged about 6% per year appreciation. This means that year-over-year throughout the last 40 years, research shows a 6% average annual price increase. For perspective, the last time we saw a price decrease was in 2008 — and even then during a great recession, price depreciation saw a nominal 2% decrease rate.
Research shows steady growth for the Colorado real estate market. What can’t last, however, is the pace. Double-digit appreciation rates will slow down, but prices will not decrease.
The top of the Colorado real estate market will be the day you sell your home — and based on homeowner surveys, people usually list their homes for sale after 10 years. We believe it’s important to think in the long term and it’s not effective to focus on what may happen in the next month. More importantly, think about what’s going to happen over the course of your homeownership. When we look at it from that perspective — knowing how our market performs, the fundamentals that are here today, and new variables coming into play like the WFH dynamic — we confidently believe what’s best for buyers today is to hang in there, even if it means making multiple offers.
Using the metaphor of a train, the Colorado real estate market is going to keep moving no matter what and the best thing for buyers to do is get on board and stay on until they find the perfect stop.
Topics covered in this article are based on a recent episode from the Colorado Living Podcast — hosted by Eric Thompson and produced by Windermere Local — your hub for real, raw, and authentic insights on the Colorado real estate market. Check out the full episode on ‘Is This the Top of the Market?’ at the link HERE or using the player below.
About Colorado Living Podcast
The Colorado Living Podcast features authentic, behind-the-scenes conversations about real estate from Colorado’s top real estate professionals. For more information, visit coloradolivingblog.com/colorado-living-podcast and listen to the Colorado Living Blog Podcast on Breaker, Google Podcasts, Pocket Casts, Radio Public and Spotify.