Why Boulder Area Real Estate Rocks
A short story of cycles, Green Space, and the blessings of a flat market
©Paul W. Dart, RE/MAX of Boulder, Inc. 2013
Boulder Bucks the National Housing Trend (Again)
According to The Wall Street Journal, Forbes On-Line, The New York Times and others, the Boulder Area real estate market is currently one of the strongest real estate markets in the nation. The economic underpinnings of local economic factors and data from credible sources indicate that the current housing market in the Boulder area is in perhaps the most stable condition it has been in since the last great growth cycle of the 1990’s, and definitely running counter to the current national housing cycle. It’s not the first time our market has acted contrary to the national trend. Or the second.
“Open Space”: A Boulder County Property Owner’s Best Friend.
To understand why the Boulder area housing market has consistently out performed almost every other county in Colorado you have to go back to an election that occurred a half a century ago. In 1958 voters said “yes” to a tax designed to acquire “Green Space” lands throughout the county, which later became “Open Space”.
Then in 1976 the city severely limited the number of new building permits issued each year. Boulder County quickly followed with a combination of restrictive growth ordinances and codes carefully crafted to limit growth. In the a blink of an eye Boulder staked a claim to preserving the beautiful vistas and feel of this area, but limited the amount of land available to develop and what you could build on it.
Then in 1971, Senate Bill 35 passed effectively eliminating the subdivision of land between cities. The dye was cast, and today the land available to build on in Boulder County is limited to scattered infill sites on which the county has further tightened their restrictive growth ordinances.
So while the land here is plentiful and bucolic, the effect of these actions is to create an acute shortage of land on which to expand the stock of housing.
And that is one of the most important factors influencing solid appreciation of real estate over time. (See Why Real Estate Appreciates)
The Boulder Housing Market: A Story of Cycles.
The economic story in this area is all about cycles. Colorado’s economy is driven by agriculture, mining and tourism. We tend to do well in times of inflation when the national economy is in recession. So it was in 1970 through 1983 when Boulder ran counter to the national trend. The sustained boom was largely fueled by an incoming migration running 2% of the Colorado population per year. That’s a lot of new people.
The energy bust and Savings and Loan scandal of 1983 combined to bring that to a screeching halt. In-migration of people turned to out-migration and for the next eight years our market was flat.
From 1983 through 1990 the nation was again in recession, but during that time incomes here were increasing at a couple of a percent above the rate of inflation and income available for people to buy housing accumulated. Home sales were down and housing inventory was at a low. Then low mortgage interest rates were triggered by the recession. (Keep both of these in mind later when we talk about the current Boulder area real estate stats.)
The catalyst to our next contra-national cycle was a pick-up in people moving into the state (incoming migration) as we began to expand as a technology center. Measured against housing prices that hadn’t changed significantly in eight years that new buying power kicked-off a very healthy four year rise in prices starting in 1991. Because all the economic factors were authentic, when the cycle came to an end, the new housing prices were also authentic; and so held and remained stable. Equilibrium was reached in the mid 1990’s and the market again flattened.
The Boulder Area Technology Bubble.
Soon after however, the monster High-Tech Gigasaurus rumbled on to the Front Range. Housing prices started to rise as people moved into the area. We woke up one day to the headline that the Boulder-Longmont corridor had the highest concentration of high tech workers per capita in the nation. Housing inventory ran short, prices were forced up, and cities in the east part of the county (Erie, Longmont and Broomfield) annexed huge tracts of land for new home builders to soak up the buyers.
But this cycle had not begun with all of the economic factors in harmony. Incoming migration and the new incomes had forced the growth; the equation was not in balance. Not enough time had passed for authentic income support for housing to accumulate to support another period of rapidly rising prices.
In 2001 the infamous tech bubble burst and 100,000 jobs in the greater metro area vanished, 40% of those in Boulder County alone. Just weeks later the shocking events of Sept. 11th followed, fueling further insecurity. Prices had over-shot real value and the housing market lurched to a halt. The greatest effect was felt at the upper end of the market as the highest price ranges collapsed in the ranges below starting a domino effect that finally came to a stop just around $850,000. The rest of the housing market flattened out.
When a Flat Housing Market is a Blessing.
In the ensuing eight years as the dust settled in the greater Boulder area housing market, several housing markets in the nation took-off, notably most of the metropolitan areas of Florida, Los Angeles, Las Vegas and Phoenix. This market however seemed stuck in the Doldrums.
The new home developments in the east part of the county struggled to keep their heads above water and several eventually disappeared from view. The million-plus dollar market slowed its price slide but struggled to make up any new ground. Some price ranges and neighborhoods even showed some modest growth, but on the whole the market was stable: not appreciating and not falling.
In 2004 the number of houses on the market here peaked and began to decline. Then in mid-2007 the national economy tipped over after a wild binge of consuming huge quantities of sub-prime loans chopped up into little pieces and securitized into investments. Like pork left out on a summer day, it was only a matter of time before the whole mess turned toxic, poisoning the entire investment system. We well know the resulting debacle. But the worst effects of the “Great Recession” were buffered here by the underlying strength of the local market. On the whole, prices here decline just four tenths of one percent.
The Current Market.
In the face of declining inventory of available properties on the market here since 2004 to the lowest levels seen in this decade, in January 2012 the tide turned and buyers came out in force. It began as a “hyper-local” effect in particular price ranges in some neighborhoods in towns across the county and is now spreading to even include the hardest hit segment of the market, high end properties. In markets including Louisville and Superior over 50% of the available homes are under contract. Even the hardest hit areas like Longmont are seeing vastly improving sales numbers.
Rich Wobbekind from the Leeds School of Business at C.U. is forecasting 43,000+ jobs in the Colorado economy in 2013 with the majority of those centered on the Front Range. Many will be filled by people bringing their families from other states. Economists call that “incoming migration” and that, in combination with this area’s excellent financial underpinnings, is what sparks a housing boom.