With the economy in a (possible) recession, the housing market shifting, interest rates acting volatile, and the myriad social, medical, and political issues impacting our daily lives, there is no doubt that these are strange and confusing times. With regard to the current real estate market, Gary Keller, the founder of Keller Williams, admitted that it is “the most confusing [he’s] ever seen,” and pointed to “mixed signals” that make it hard to understand and strategize. Given all this uncertainty and confusion, what is a would-be seller or buyer to do? Well, things may become clearer when we take a step back and contemplate a few simple truths about people and our real estate market. We might even find that there are opportunities to be had for the savvy buyer.
Some truths about people:
1. We human beings are herd animals. When one part of the herd panics, everyone seems to panic, regardless of whether the cause was real or largely imagined. The simple fact that the herd is panicking doesn’t really tell you much about the underlying situation. For example, interest rates are still much lower than historic averages, and buyers finally have more inventory to choose from, but as soon as rates increased buyers vanished en masse faster than the Rockies’ playoff hopes. That fact speaks more about human nature than the underlying fundamentals of the real estate market, which are still quite strong.
2. When uncertainty increases, people become more risk averse. Deciding to buy or sell a home, which is most people’s largest investment, definitely involves risk. As such, in turbulent times such as these, it is natural for sellers and buyers to become more hesitant. Sellers may want to ask a little more for their home because they’re not sure what the future holds and would, therefore, like a little more financial cushion. Buyers, on the other hand, may evaluate homes with a keener eye for detail and price. And this is exactly what we have seen play out over the summer, as available housing inventory has risen, the percent of for-sale homes under contract has fallen, and buyer showings and new mortgage applications have dropped.
3. People’s lives go on regardless of most macro events. That is, on an individual and family level, people continue to live their lives; they marry, divorce, have kids, move, etc. This is still the case even in a recession. Many of these life events necessitate a change in housing, and accordingly, people continue to buy and sell housing. Sometimes this fact is obscured by the headlines.
Some truths about our real estate market:
1. Boulder Valley is a highly desirable place to live. We are fortunate to live in a place of great natural beauty, with plentiful sunshine, a plethora of recreational opportunities, a diverse and robust economy, great schools, and on and on. These features that contribute to a high quality of life are likely to endure, making our area a fantastic place to invest in housing. In fact, Smartasset ranks Boulder as the second-best market in the country for growth and stability, calculating a mere 1% chance of a drop in home values of 5% or more.
2. We have a serious housing shortage. We have a dearth of affordable and workforce housing in our area, and there is precious little land left to be developed in Boulder County. In fact, even if we could build new homes at a fast pace, it would take over a decade to build enough new homes to meet current demand.
Conclusion: So, what does all of this mean? Taken together, it means opportunity for buyers; well, at least for buyers who can qualify. The two truths about our market show that investing in housing here has been, and likely will continue to be, a wise financial decision. The truths about people indicate that while some buyers may panic and get out of the market, those who remain will finally have more inventory to choose from, less competition, and a pause in appreciation. Thus, buyers with the fortitude to stay in the game may finally be able to get into the market and reap future rewards. Plus, when interest rates come back down in a couple of years (once the Fed has finally tamed inflation), buyers can refinance their mortgages and be in an even better position.
Jay Kalinski is the owner of ReMax of Boulder and ReMax Elevate.