November 20, 2018

Categories Real Estate

The Local Market and the ‘S’ Word

Is the metro housing market entering its usual fall taper, or are we on the cusp of a full-fledged slowdown? The “s” word conjures memories of 2002 to 2012—a period of dot-com busts, subprime mortgages, foreclosures, recession, and hard times.

 
Thankfully, we’re not replaying the 2000’s because of two protective factors that stand out above all others: we do not have an overbuild of new homes, and new borrowers have had to really qualify for their loans. The fact is, slowdowns are a normal part of a market’s ebb and flow. And while slowdowns generate press, they’re not a big deal unless they create a downward spiral of distressed sales fueled by weak owners. Not this time, not here.

 
Every housing market is a complex organism—an aggregation of micro-neighborhoods and prices. Prices may cool off where you are, but still be red hot on the other side of the park. But no matter how fragmented our local metro area is, the Front Range as a whole is subject to three common influences that contribute to the current slowdown. Two of them are dominant.

 
First, the supply of available land is extremely limited compared to years past, when annexation and subdivision development ran far ahead of demand.

 
Second, people keep moving here, creating further demand for limited inventory on limited land.

 
The third influence may also be in play: local incomes are growing slowly but staying slightly ahead of inflation. According to many analysts, the roughly 50 percent rise in metro prices since 2013 has outpaced gains in income. True enough, but incomes here rose a lot while prices were flat from 2002 to 2012. Gains in home prices since 2013 now just about match all of the income gains since 2002.

 
So, yes, we’ve entered a slowdown, the length and degree depending on the local economy, which looks as good as ever.

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Meet the author

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.
Lou Barnes

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