Full House: Tight market deals many would-be homebuyers out

Housing prices across the metro area and Northern Colorado have shot through the roof in the past couple of years and industry experts say that trend is likely to continue in the near future.

The housing market in Colorado has experienced the perfect storm of events the past couple of years that have made it nearly impossible for new homes to be built and has clamped down on the resale market as well.

John Covert, Colorado-New Mexico regional director for Metrostudy, said Colorado has one of the tightest real estate markets in the country, in large part because there is “plenty of demand out there for housing, not just new housing.”

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Metrostudy tracks data in the 11-county metropolitan area, including Boulder, Broomfield, Larimer and Weld counties.

“The resale market is incredibly strong,” Covert said. “There’s some of the lowest levels of active home listings we’ve ever seen in the city. Home prices are as high as ever, and our home-price appreciation is the highest in the country. Rental and vacancy rates are well below 5 percent.”

The new-home market, which typically helps alleviate the crunch in the resale-home market, also has been very tight, with very little inventory available for buyers, Covert said.

“By and large, the whole housing industry is really tight right now in Denver,” he said. “That’s being pushed by strong economic growth.”

The area added 50,000 jobs in the past 12 months, and total employment is at an all-time high, he said. There are many people moving into Colorado because of its desirability and good climate and the unemployment rate for Denver-Boulder is about 4 percent.

“Those things are pushing strong consumer confidence, consumer spending and demand for housing,” Covert said. All of these things should mean that the homebuilding industry is flourishing in the state, he said, but home lots are hard to find and there’s a tight supply of trade labor to build new homes.

New home starts up in Weld County

It now takes about 10 months to build a new home in Colorado, double what it was a few years ago. That’s because it takes longer to draw the necessary permits from government agencies that are overwhelmed, and weather and labor issues compound the estimated time to build.

Areas seeing the most new-home growth are Erie, Broomfield and the Tri-Towns of Frederick, Firestone and Dacono. Greeley’s home market also is making a resurgence.

In his latest research, Covert said, Weld County saw a 56 percent increase in home starts over the past 12 months, ending in the second quarter of this year. A year ago, Weld County ranked fifth among Colorado counties for the number of new housing starts, 1,382. This year, it ranks second with 2,157 home starts, just slightly behind El Paso County.

Part of Weld County’s attraction is that it has “capacity to build, an available lot supply and some new master-planned communities,” he said.

There also are lower price points in the area, meaning that first-time home buyers aren’t completely priced out of the market. Weld County still has great connectivity to Colorado’s major employment hubs that other submarkets don’t have, he added, because people who buy homes there can still commute to Fort Collins, Denver, Boulder and Broomfield fairly easily.

Many factors behind low inventory

D.B. Wilson, managing broker for Re/Max of Boulder, specializes in Boulder and Broomfield counties. He chalks up the housing crunch to the dot-com bubble in 2000 and 2001, when the area experienced a recession when the rest of the country was hitting its stride. At that point, the area was overbuilt, with new developments going up in Firestone, Frederick, Erie and Broomfield. Building stopped in about 2003, when a lot of foreclosures happened.

When the national housing market crashed, Boulder and the surrounding areas were just coming out of their downturn.

At that time, banks weren’t lending to homebuilders so “literally, when we were ready to get going with home building, there was a modest amount that was going on,” said Wilson. Jobs were coming into the area and “we lost very little in the overall scheme of things in property values,” he said.

First-time homebuyers especially are hard hit because hardly anybody is building condos or townhomes. A recent Colorado construction-defects law has scared off multi-family builders who fear they will get sued based on a handful of tenants’ concerns about the quality of their building construction.

“It’s not just builders who are hesitant,” said Dave Pettigrew, a broker/partner with Ascent Real Estate Professionals in Fort Collins. “Insurance companies don’t want to insure something with unfair liabilities.”

Sellers aren’t too anxious to sell right now because if they sell first, they can’t find a new home to replace their old one, Pettigrew said. That contributes to the tight housing market in the metro area and Northern Colorado, he said. 

Buying a home is such an “emotional time,” said Wilson. People find a home they love and can see their family in, but when they go to make an offer, there are six to 10 other people bidding on the same home.

“There’s a lot of losers in that situation. There are some people who can get caught up in the emotion and overpay,” he said. So everyone is a loser – the families who didn’t get the home of their dreams and the family who won the bid but spent far more than they should have for the home.

“You do that three or four times or 12 times, you get beat out on a property that many times it takes a toll,” Wilson said.

When Wilson ran the numbers on available housing inventory in Boulder County in August, 1,056 properties were available. Now, nearly half of those are under contract, he said, so only about 550 properties are for sale in the area.

“It’s better than it’s been,” Wilson said. “If you have the ability to move now, you might want to come back to the market. There is more inventory coming on right now.”

But as far as new construction goes, “I just don’t think in Boulder County there are enough places that development can happen,” he added.

Pettigrew agreed that new construction isn’t keeping pace with demand.

“New construction used to be 25 to 30 percent of total sales,” he said. “In the last few years it has been as low as 10 to 15 percent. Right now we are struggling at 15 to 20 percent, A lot of homes never got built. We’re behind in trying to catch up. Those combined to make a slow market and limited inventory.”

Mortgage rates are low and rents are high, which is fueling the number of buyers flooding the market looking for a good deal.

“There are still a lot of investors out there who will close quickly, pay cash and eliminate the need for an appraisal,” he said. That makes it a very competitive market.

Prices up across Northern Colorado

The average home price in Boulder County jumped 9.6 percent to date. In the city of Boulder, prices rose 18.4 percent from a year ago to an average single-family detached home price of $958,915. In Larimer County, home prices rose 17.6 percent to date; in Weld County, they rose 12.8 percent, Pettigrew said.

“We just sold a very nice home in west Greeley for $330,000. I guarantee it would be $400,000 to $450,000 in Fort Collins,” he said. “It is tight. All areas are tight. The only difference in Greeley and Weld is there are more homes to sell and an increase in sales.”

From January to July this year, the average selling price for a single family detached home in Louisville was $553,014. In Lafayette it was $476,691; in Longmont $333,936; Loveland is $310,870; Fort Collins is $373,242; Greeley is $234,071 and Windsor is $333,862, according to data compiled by Ascent Real Estate Professionals.

He added that in most areas, the “only real inventory created is by someone dying or moving to another county or state. The only inventory is new construction and people leaving town – and there are not many people leaving town. There are more people coming in. It is difficult to make that up in new construction. We’ve been struggling over the last six years.”

Pettigrew said he has never seen a real estate market this hot. He doesn’t believe Colorado will experience a housing balloon such as that in California or Arizona, where prices double for three or four years and then start dropping back to where they were.

“I don’t know how anyone survives in that market,” he said. “They never know where the top is or the bottom is. I really think we are undergoing more of a correction than any kind of balloon and I think people need to get used to the new pricing levels.”