Excellent 1996 for Boulder Homes

Headline, last week's Business Plus: "Boulder's Home Market Takes Slight Dip." As a literal-minded observation, the statement is accurate: home sales through May are 22 units behind last year's pace.

However, overall County sales are only 10% behind the record numbers posted during the 1992-93 boom. A thorough analysis shows Boulder itself, if anything, in a better competitive position with the rest of the County than ever.

Boulder County has three distinct markets: the mountains, the City of Boulder, and the plains to the east and north (there are, of course, sub-markets within each area, and each house is its own sub-sub-market).

The best single measure of market conditions is "absorption rate" -- the time it would take to sell the inventory of listed homes at the current rate of sale. Any market with less than a year's supply of listings is in reasonable shape; six to nine months very good; and 90 days or less a full scale boom.

The mountains are rarely a hot market, and are not now. The 248 listings on the market are a two year supply at current rates of sale. One explanation for a slower mountain market is the move-down segment: not in price, but altitude. Aging baby boomers with little kids are tired of living in the Cherokee: school, choir practice, soccer practice, practice practiceÉ.

In Boulder proper, there are roughly 425 homes listed for sale. About 800 homes will sell in 1996, so the current inventory is barely a six month supply. While those numbers show a borderline hot market, the listing inventory is actually tighter than it looks.

Boulder's supply of listings contains a disproportionate number of top end and "optimistically" priced homes -- as it almost always does. The supply of affordable and reasonably priced homes may be less than 200, close to the magic, 90-day supply.

This condition does not indicate that Boulder's prices are too high. Boulder homes have held on to every dime of the 50-60% appreciation from 1991 to 1994, and have begun to appreciate again.

Suspicious (jealous?) observers of Boulder prices have yet to figure out how real estate appreciation works. Houses don't gain value; land does. Scarce land gains value fast, and Boulder's growth control has turned land scarcity into vacuum. Optimistic sellers are not completely crazy; they are a normal Boulder market fraction fishing for the next ratchet up in the land scarcity premium, and trading time on market for price luck.

Growth control has the opposite effect on the rest of the County. Boulder's raised drawbridge has displaced growth to the east in the form of new subdivision, which means building sites are plentiful, and cheap. There are 2,300 finished lots in the County, ready to go right now.

Boulder homes routinely sell for $200 per finished, above grade square foot. East of town, builders can deliver homes for maybe $110 per foot, the difference in price entirely attributable to land cost, and the buyer gets a brand new house.

This gradient in per foot pricing is a builder's dream of Christmas.

Excepting Boulder and the mountains, there are about 1,200 active listings of resale homes in the east County. There will be about 3,600 home sales in the same area in 1996. Of those, roughly 1,600 will be new construction, which means the 1,200 resale listings will have to compete for the remaining 2,000 buyers. Not bad, but not Boulder.

In the eastern part of the County, an open-ended supply of new construction saws the top off of appreciation potential, and makes it harder to sell existing homes. Sales numbers may be down a hair in Boulder, but that quirk is due more to a shortage of listings than "too high" prices.