RE Conference: Are we in a real estate bubble? Not even close, experts say
BOULDER — A new home in Longmont’s West Grange neighborhood sold for $769,000 in May, only to have the owner flip the house six months later for $965,000.
A home in Superior’s Rock Creek neighborhood that sold for $825,000 in July 2019 fetched $1,285,000 in July 2020.
In Boulder’s Frasier Meadows neighborhood, a home listed for $1,995,000 sold for $2,750,000 in July.
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Those sales were reported by Lynn Ryan, broker associate with Re/Max of Boulder, and Daphne Queen, broker/owner of 8z Real Estate, during a panel discussion last week at the Boulder Valley Real Estate Conference at the University of Colorado Boulder’s Stadium Club at Folsom Field.
The two were part of a panel discussion dubbed “Are we in a bubble?” Other participants included Lou Barnes, senior mortgage loan officer with Premier Mortgage Group, and Brian Lewandowski, executive director of the Business Research Division at CU’s Leeds School of Business.
The panel was moderated by Duane Duggan, broker associate with Re/Max of Boulder.
Participants pointed to a variety of factors that point to a continued strong real estate market, including a dearth of housing supply and strong demand.
“We’re not in a bubble. We’re in a boom,” Ryan said. “The prices were climbing before we got to this point. The supply and demand before — when we were in a bubble — we had too much supply and not enough demand. The home builders in the U.S. housing supply right now are at a shortage of 5.2 million homes, so that’s 10 years of underbuilding. We’ve got a long way to go to catch up on that.
“I feel very confident to say that our market is going to keep going strong until 2025, and then I might sell everything,” she joked.
Queen said the COVID-19 pandemic has changed how people examine and purchase real estate, with some buying sight-unseen. And with a shift toward remote work, the region is attracting buyers from other, more-expensive parts of the country, with some opting for Louisville, Lafayette, Longmont, Erie or Superior, she said.
“When you have people who can live anywhere, and now everyone’s working from home, you’ve got these … the ‘L’ towns [Lafayette, Longmont and Louisville], they’re going to start rising, which they already have,” Queen said.
Barnes said the current real estate market does not meet the definition of a bubble.
“We call them bubbles because of what comes afterward, the collapse that follows, that feeds on itself,” Barnes said. “Any real estate market can go soft on Tuesday. It can go soft in a neighborhood, or for a housing type. But a true bubble is a downward spiral.”
Barnes said that bubbles have two characteristics:
- A big supply of bad credit, which creates weak households, often with little equity.
- Overbuilding, which leads to builder liquidation when an economy goes soft.
Neither of those two factors currently exist, Barnes said, adding, “This isn’t a bubble.”
He said inflationary pressures could lead to higher interest rates, which in turn would hurt the real estate market. That danger lessens if inflation cools, obviating the need for the Federal Reserve to hike interest rates dramatically.
Lewandowski said expectations are that the U.S. economy will grow by 5.4% to 5.5% in 2021, the best real growth in four decades.
“The expectations for 2022 are about 4% growth, which would be the best growth nationally that we’ve had in two decades,” he added.
While the U.S. lost 22 million jobs during the first two months of the pandemic-generated recession, the economy has added back 18 million jobs, with Colorado close to pre-pandemic employment levels.
He said that personal income actually went up nationally during the recession, partly aided by federal and state transfer payments, including stimulus and unemployment compensation.
Savings rates also are high, along with proprietor income and corporate dividends.
But concerns do exist. CU economists regularly survey business leaders, who report “consistent” concerns about supply chains, inflation, workforce availability and COVID-19 variants.
“These are the worries that people have,” he said.
He said Colorado has built more homes in 2021 than it has in many years, but the level of home building still pales in comparison with prior decades.
“We think that 2021 will end up being the best year for residential building in Colorado in the last 15 years,” he said. “But go back to the late ’90s and early 2000s, and we were building more homes than we are right now.”
Lewandowski pointed to several economic factors that point to strength in the state’s economy, including declines in bankruptcies and foreclosures, a surge in new-business filings and increasing building permits.
“When we take a look at the overall basket of economic metrics, I’m still optimistic … despite some of these headwinds and some of these concerns, I’m still optimistic about where we are right now and where we’re going over the next couple of years.”
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