COVID is not as over as we had hoped. Anxiety has returned for some, but economic harm is overseas and not here, so…the Great Single-Family Home Race is still on!
Markets for condos and townhouses are also good, but the heat is on detached houses. COVID and remote work have added urgency, but there is more to the story. The longer single-family markets stay in auction mode, with some values rising 25 percent year over year, the clearer it becomes that COVID was just the last straw that turned a pre-existing shortage into a riot.
The heart of the shortage is the exhaustion of developable land in most metro areas, which is where the jobs and people are going. From Fort Collins to Castle Rock, there is little land west of I-25 except patches for infill development, often with micro-lots. Lumber got expensive for a while, but land is the shortage. Many attached homes have plenty of space, and can be renovated, but not expanded. Detached homes? We can push out the back, pop the top, or scrape, or sell that opportunity to future owners. Old and tired tract homes on fine sites make good buys.
These auctions are difficult for buyers with small down payments competing with cash and unable to cover the gap caused by a low appraisal. The national media describe these conditions as uniformly bad, excessive, or crazy, and suggest that there’s a bubble to burst. But housing bubbles involve over-building and easy credit, which is not the case today.
The all-pain view misses the extraordinary good news for the economy: the demand itself. Today’s demand is real, based on good jobs and incomes, and disciplined households that save. And it misses the most dominant characteristic: IT jobs, lucrative and flourishing in metros.