Boulder Valley RE/Con: National residential market could get too hot too quickly

BOULDER — The national economy is broadly suffering, but low-cost credit and the urge for more space has made the residential market red hot across the country.

That’s the report from Lawrence Yun, the chief economist and senior vice president of research at the National Association of Realtors at BizWest’s Boulder Valley Real Estate Conference Thursday morning.

Work from home

Yun said Colorado’s job creation rate in the years after the Great Recession outpaced the rest of the nation, putting its housing market in a better position than several other states at the outset of the pandemic.

Even though Denver is the largest job-creating area in the state, Yun expects that those employees who have been working from home will take the opportunity to move along the Front Range to markets like Fort Collins, Boulder and Colorado Springs if they have the option to telecommute after the pandemic ends.

Although stay-at-home orders slowed down sales in early 2020, Yun said home sales spiked to higher points this fall than this time last year. Based on pending sales and mortgage application data, he expects this year to potentially be the most busy winter in the residential market ever.

“Whatever builders are building that can easily sell, their current activity is 40% higher than last year,” he said. “…It’s tremendous activity.”

The Federal Reserve’s programs to keep liquidity in the market is also attracting homebuyers as interest rates to finance new homes are generally below 3%, Yun said.

He also noted that office leases are declining against rising buyer interest in resort towns, pointing to a long-term belief that telecommuting will go from being a health necessity to a long-term option for employees.

“This is clearly showing that workers view that work-from-home will be a permanent feature, even post-vaccine,” he said.

Hot market lifting home prices, potentially out of reach

As people flee larger cities seeking less dense living situations amid the pandemic, Yun said home prices are outpacing gains in personal income due largely to record-low inventories of homes for sale. He said that could be alleviated by real estate investors offloading their properties, spurring construction by removing the existing federal tariff on Canadian lumber and encouraging the unemployed to seek construction jobs.

He expects similar mortgage interest rates to remain low well into 2021 but believes that won’t be a check against home prices rising out of reach for the first-time and less affluent buyers.

“For your past client that purchased their home seven years ago, they’re all smiles, but for any first-time buyer who wants to enter the market, they save up their down payment and say that down payment is meaningless, because home prices are rising too fast,” he said.

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