The last couple of months have definitely been interesting in the real estate market. Capital is flowing to markets where perceived value can be gained and desirability is high. The reality of finite resources is playing out daily in the Summit County region. As always, long term plans afford us insulation to the shorter term variables that many of us are trying to interpret. 

 

Interesting post by Glen Weinberg. Read below. 

What a year Covid has brought to Colorado real estate.  From Denver to the resort communities, inventory has plummeted while prices have soared.  What caused this huge jump in prices?  Will the inventory increase in Denver and other markets?  Where do we go from here on prices?  What will cause demand to ultimately drop in Colorado real estate?  Are prices poised for a fall?

What was in the recent Colorado Sales data?

2020 was one for the record books with prices soaring throughout Colorado.  Prices soared throughout the front range, the resort communities, and everywhere in between.

I was floored to see the changes from January 2020 to 2021 in the Denver metro area:

  • Average sales price now 689k, up 28%
  • Percent of list price received: 101%
  • Months Supply of inventory: .3, down 73%
  • More stats from the Colorado Association of Realtors

The same trends are happening in the mountain communities.  Here are some statistics from Summit County, home to Breckenridge, Keystone, Frisco, Silverthorne, and Copper Mountain

  • Average sales price now 1.3m, up 51%
  • Percent of list price received: 100%
  • Months Supply of inventory 1.3, down 68%
  • More Summit County Statistics

What caused the huge jump in prices?

  • Inventory: There is limited inventory in the desirable markets
  • Desirable areas: People have migrated from large coastal cities to Denver for quality of life and considerably less density than many other cities
  • Build Costs: Lumber alone is up 40% this year due to demand and there is a shortage of skilled labor both are adding to skyrocketing build costs
  • Limited Available land: In Denver and the resort communities there is basically nowhere left to build which further limits inventory.

Will inventory recover to more normal levels?

Unfortunately,no.  Build costs will continue to rise due to material and labor costs and basically no land availability to make a meaningful dent in the supply of house.  Furthermore, increased energy efficiency requirements that greatly increase build costs are being implemented in many counties from Denver to Summit county.  Look for inventory to remain tight for the foreseeable future.

Where do we go from here on prices?

With no inventory coming online anytime soon and demand staying constant, there is only one way for prices to go, up further.  Look for prices to continue to increase due to the severe industry constraints.  I don’t see any factors that will change the inventory or demand picture anytime soon so prices will continue their upward trajectory.

Summary

Although prices will continue to go up in the near term, over the long term we are reaching a tipping point where the prices themselves are the limiting factor of future demand.  For example, as prices continue in Summit county, at some point you eliminate demand if prices of the average home rises to 1.5m or whatever that number is.

Denver is somewhere near the tipping point as well, with an average sales price of 700k, very soon demand will be curtailed as there are less people that can afford a 700k home.  With prices rising so rapidly in Denver and the resort markets, demand will soon be curtailed as buyers get priced out which should bring these markets back to more normal rates of historical appreciation (less than 5% a year).