August 15, 2017 // Real Estate

Even in a Slower Market, Where's the Inventory?

We’ve been in a first-class home-price boom for almost five years. So, what’s next? It ain’t over ‘til it’s over, but reliable data going back to the 1970s show a pattern for market slowdowns—and strongly suggest that this time will be different in at least one respect.


Booms ending in ’74, ’83, ’93 and ’01 were characterized by overbuilt areas on the periphery of the Denver-Boulder metro area. Prices fell in those outlying areas, but core neighborhoods and areas closer to the mountains were stable. In each boom cycle, the amount of inventory for sale continued to grow for years after the boom ended, with inventories declining a couple of years before the next boom began.


Why the historical overbuild on the periphery? Legendary crook Willie Sutton was asked why he robbed banks. He said, “That’s where the money is.” New development in our landlocked metro area is limited by the mountains, open space, and regulation. The periphery is where the available land is, so that’s where overbuilt inventory tends to accumulate.


Locally, prices have jumped because incomes grew by about 50 percent while prices were flat from 2002 to 2013. In prior booms, the end has been cat-like: The end of the boom coincided neatly with—and did not overshoot—the end of the income boom. We also have little excess inventory today because available land is in short supply, even on the periphery.


Which leads to the weird part: the next slowdown may not bring much increase in inventory for sale.


Our local economy is terrific, and this is a great place to live. Current residents have no motivation to leave. The influx of new residents may slow because our prices and rents have risen so fast, but if there’s nobody leaving and few places to build, where will we put the newcomers?


We may be seeing something we haven’t seen before: a low-inventory price slowdown.

Meet the Author

Lou Barnes

Lou Barnes

Lou is our credit-market oracle: a new posting every Friday noon under the “Credit News” icon, written in the voice of a bond trader overdue for his martini. No fluff, no blue-sky predictions, afflicting partisans of all affiliations, real-time right-now news.

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