Demand Outpaces Supply, It's Not Just Boulder

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by Osman Parvez

Bloomberg is reporting that home prices climbed by the most in six years during November, on a year over year basis.    Here's the video:



 Now, let's take a look at the article:

The S&P/Case-Shiller index of property values increased 5.5 percent from November 2011, the biggest year-over-year gain since August 2006, a report showed today in New York. The median projection of 30 economists surveyed by Bloomberg called for a 5.6 percent advance.

As I wrote repeatedly during the last bubble, there is no national housing market.    Every region and city's housing market is affected by local dynamics.   The most important things to watch are the interplay of supply and demand at various price levels (tranches).    You should also slice the data into traditional detached dwellings (houses) and attached dwellings (condos and town homes).     See the Silver Fern Report for details on the Boulder market.

Don't forget, prices are a lagging indicator. 

Mortgage rates near a record low are propelling demand for real estate that’s outpacing the available supply, a sign prices will keep strengthening. Home-equity gains and an improving job market may help to put a floor under Americans’ confidence and spending, the biggest part of the economy, cushioning the hit from a higher payroll tax that began in January.

It's not just super low mortgage rates.  Here in Boulder, chickens are also coming home to roost from delayed purchase decisions and five years of rising rent.    The job market improving increases professional mobility and take a guess where those people are moving.    The answer is to markets with a high cultural creativity, clusters of capital, talent, and strong job markets.   Sound familiar?

“With inventory of both new and existing homes still very low, prices will likely continue to rise,” Ian Shepherdson, chief economist at Pantheon Macroeconomics Advisors Inc. in White Plains, New York, said in a note to clients. “Each successive price increase adds more weight to the idea that the housing market is recovering, and nothing pulls people into the market faster than the thought that prices will rise further.

 Boulder can't add substantive new inventory without invading our beautiful open space.   Since that will never happen (thankfully), the only way for inventory to substantially increase is for current home owners to move up or out.     I don't see that happening in the immediate future, but if prices increase for two years or more, it will.      Investors will liquidate entry level rentals and owners will move up, improving the market at the mid range and higher (finally!).

Consumer confidence slumped more than forecast in January, reaching the lowest level in more than a year, as higher payroll taxes took a bigger bite out of Americans’ paychecks, another report today showed.

A nice contrarian indicator and good reminder that the recovery might be bumpy.     For more contrarian thoughts, see Shiller's essay in the NYT:   A New Housing Boom? Don't Count On It. . 

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Please note:  My goal is to provide exceptional service to our clients. The ideas and strategies in this blog post are the opinion of the writer at the time of publication. Careful and complete due diligence is strongly advised before buying or selling real estate or other investments. Consult with your professional advisers before making financial decisions. This article is not intended as legal, tax, or investment advice. Silver Fern Homes will not be held liable for investment choices derived from this article.