Is This a Bubble?

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by Osman Parvez

Are we looking at the start of a new real estate bubble?    The answer is...  maybe.    

Classic asset bubbles are characterized by inflated prices, high trading volumes, and speculative activity.   Prices grossly overshoot intrinsic value because they're built on the next buyer willing to pay more for a castle in the air.     It all works until the next sucker buyer balks at the lofty price tag.    At that point, it all comes crashing back to earth.    

In real estate, the last bubble included rampant house flipping, including flips before construction was completed, luxury estates built without a buyer in place, and late night television snake oil salesmen hawking get rich quick schemes.    

As I wrote extensively during the real estate bubble, Boulder wasn't particularly frothy (see label:  bubble).    The telecom downturn which followed the dot-com bubble collapse (March 2000)  turned out to have a silver lining.   Jobs leaving our region meant fewer buyers and this kept speculation levels down.    Prices did rise moderately (2001-2006) and the aftermath (2007-2011) was a haircut to the value of  moderate and higher-end homes in Boulder.    Entry level homes didn't lose much value at all and are now right back to 2006 levels.  

Take a look at the chart below.


As you can see, sales volume was up almost 30% for houses and 17% for attached dwellings in Boulder during 2012, compared to the prior year.     Although volume was up startlingly during 2012,  it also remains 21% below the peak for houses and 20% below the peak for attached dwellings.

Note that market activity for houses also seems to lead attached dwellings, with both peak and correction occurring faster for houses.  

Given our continuing record low inventory in Boulder, it's a no brainer that volume would be much, much higher if inventory improved.     At this point, there's no sign of that happening - yet.      Inventory in January was 33% and 36% below last year, for houses and attached dwellings respectively.

Buyers Don't Lose Faith

If you've been sitting on the sidelines looking for a house to buy, have faith.  As prices rise, inventory will likely rise as well.   People who bought in 2003-2006 should start to see their prices return to the level they paid and this will allow them to sell without incurring losses.    Yes, it's unfortunate that you'll also be paying more for the house.

If you're interested in learning about strategies that might kick loose unlisted houses NOW, consider attending the next Boulder Real Estate Meetup.   It's not on the calendar yet, but our next meeting will focus on buying strategies for a low-inventory market.    Click on the link below to register and stay tuned for the meetup to be scheduled.

---Like this analysis?    Subscribe to my research.       Would you like to meet me in person?    Attend a Boulder Real Estate Meetup. 

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.