After a year like this for home prices, everyone asks, “What’s next?”
History may provide answers.
Housing along the Front Range since the 1970s has had three states: flat, up, and bubble-bust. The most common has been flat, with each flat period followed by an up state proportional to the length of the flat period. The longer the flat, the bigger the up.
Bubble busts in Colorado have been rare and have had unique characteristics: Declining values in a bust have typically been on the eastern edge of developed areas, and moving farther east each time. It’s to the east where builders typically overbuild and have to liquidate. The busts have been short, the exception being the 1980s when more people moved out of Colorado than in. Busts also have followed periods of over-aggressive lending.
As wild as 2021 seems, it has made an odd sort of sense. Prices were flat from 2002 to 2013, the longest flat period on record. We’ve enjoyed healthy but not crazy gains in value since 2013, when bad loans and foreclosures were worked off. And then 18 months ago, things went nuts with COVID-19: workers went home, felt cramped, and wanted bigger homes. Across Boulder County in 2021, the rate of price appreciation for detached versus attached homes was as high as 600 percent (Louisville, Boulder) to merely double (Longmont). Combine a pandemic-driven spike in demand for detached homes with low inventory, a good economy, well-paid tech employees working from home, and... ka-BOOM.
Purchasing power accumulates in flat spots, and the following boom runs out of gas when the accumulation has been spent. Bubbles form when prices outpace the accumulation of income. Looking ahead, price gains should begin to slow, but detached supply is permanently scarce. Our future market will be different than the last 50 years, with more constant demand, interrupted only by events outside Colorado.