Kalinski: What will the ‘new normal’ look like for real estate?

The past 16 months in Boulder Valley real estate has been an incredible (and, at times, terrifying) roller coaster ride, from almost completely shut down a year ago to an ultra-competitive buyer frenzy this spring. As one of my statistics-obsessed colleagues put it, “there are lines on all of my charts where there have never been lines before.” As we head into the heart of summer, it appears that we may be settling into a new sort of “normal,” though I use that term very loosely. In the following paragraphs, we will examine some of the likely contours of this “new normal” to help would-be buyers and sellers navigate it successfully.

The single-family / attached dwelling divide

The first thing to understand is that the pandemic has shifted many people’s housing preferences such that single-family homes are now seen as even more desirable compared to attached dwellings than previously. There are many factors influencing this shift. One of the key factors is the acceleration of acceptance by employers that many previously in-office jobs can be done remotely without significant loss of performance. This trend to more remote work was already taking place, but the pandemic has accelerated it, and Colorado, being a great place to live, has been a major beneficiary of this. As more people work remotely, they realize that it would be desirable to have more space in their home, such as a dedicated office, and likewise it would be nice to have some outdoor space. Another pandemic-related factor is people’s reluctance to live in very close proximity to others given the transmissibility of COVID-19. This has caused many people who were living in condos and apartments to look for single-family houses.

These and other factors have created a marked divide between the desirability of single-family homes and attached units. This effect can be seen in the nearly 43% year-over-year appreciation of the average single-family home in Boulder County versus only 4% appreciation for attached units over the same period. To give you a more concrete appreciation of this, in May 2020, the average Boulder County single-family home sold for $746,000. In May of 2021, that figure grew to $1,065,000. The appreciation of attached dwellings from $511,000 to $532,000 over the same timeframe seems rather tame by comparison.

The bottom line for buyers is that if you are looking for a condo or townhome, this is a relatively good time for you as there is more inventory available and fewer buyers in the market. Conversely, if you are looking for a single-family home, be prepared for stiff competition and very little inventory.

Low interest rates will keep buyer demand high

Even with recent inflationary pressures (which appear mostly to be temporary products of the pandemic), the Fed has been reluctant to even discuss raising interest rates. In fact, it is likely that interest rates will remain near historic lows for at least the next year to 18 months. These low rates will likely continue to incentivize buyers to enter the market, which is another factor that will continue to support strong home values in our area.

Lack of inventory is the defining feature of the new normal

Speaking of supporting strong home values, the historic lack of inventory we have been experiencing is likely to continue as the pandemic recedes. The primary reason for this is that Boulder Valley is much closer to “build out” than it has ever been. Essentially, the city of Boulder — and to a slightly lesser extent, Boulder County — are approaching the limit of housing units that can theoretically be built under current local zoning regulations. As I’ve mentioned in previous articles, this is turning single-family homes into collector’s items. This limitation is affecting builders, who are also hamstrung by difficulties with hiring enough tradespeople and sharply increased materials costs. A secondary reason for the lack of inventory is that people are selling their homes much less frequently than they have historically. In the not-too-distant past, people were selling and moving an average of once every seven years; that figure has now increased to over a decade between moves. And in places like Boulder, more and more older residents are choosing to “age in place,” staying in their homes as long as possible, rather than downsizing or moving to retirement homes.

Conclusion

At the time of this writing, we are seeing a bit of a slowdown in buyer activity as measured by showing volume. Before the pandemic, this is about the time of year when we would expect to see the “summer slowdown,” as school has ended and people take their summer vacations. It seems like the loosening of restrictions has spurred many people to seek a sense of normalcy as they begin to take their first vacations in over a year. So perhaps we are settling into a new normal, but one that will be marked by a continued preference for single-family homes that will be in short supply.

This new normal will present good opportunities for buyers looking for attached dwellings and for sellers of single-family homes. Good luck out there.

Jay Kalinski is the owner of ReMax of Boulder and ReMax Elevate.

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