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September 9, 1995
Prices
In the second half of 1995, perhaps the single most-often asked question is: "Are home prices going to go down?"
Price concerns are normal among buyers and sellers any time, but especially now: after a boom, with frequent reductions in listed prices, and misleading reports in the press.
All housing booms come to an end. Some end in a nice, polite slowdown, entering a plateau until the next boom begins at some unpredictable moment. Other booms are followed by a crash of some sort, or "correction" in the standard euphemism of Wall Street. Boulder County shows every sign of plateau; no price fall, just a pause until the next appreciation cycle. That has been Boulder's history since the 1950's: booms and plateaus, but not a single bust.
Price reductions of some listings say nothing about the overall price trend. Some sellers want to test the upside of the market with a relatively high initial price, while others set an introductory price as close to the "transaction market" as possible. Price reductions in 1995 seem to be coming entirely from the former group. Evidence? Lenders are not having appraisal trouble with the transaction prices of the homes which actually sell. There may not be much appreciation, but there is no price decline, either.
The media dutifully print monthly statistics, no matter how unreliable they may be. In April, median County prices supposedly "declined" 5.3%, but in July, "rose" by 2.6%. These reports are garbled by the constantly shifting sales mix of large versus small homes.
Changes in housing prices are determined by three factors: scarcity, migration, and income.
Scarcity has been assured by growth control, which had its tentative beginnings in the early 1960's. The classic precondition for a bust is a speculative excess of new construction, and excessive building is now almost impossible in Boulder County.
Except for a brief time in the late 1980's, migration to Colorado has been unbroken, adding about 2% per year to the State's population on top of the 1% per year excess of births over deaths. This migration shows no sign of stopping, and is not a California distortion. There have always been a lot of Californians moving here, and as always they continue to be 'way outnumbered by Nebraskans, Bostonians, Marylanders, and (heaven forbid) Texans.
Incomes have grown steadily, generally a little ahead of the rate of inflation and national income growth. Local incomes have grown 5-8% since the end of the Great Nineties Boom (the early nineties one; the 60's and 70's were two-boom decades, and the 90's look like another one). In another year, add another five percent. In another two or three years, there will be enough accumulated income to fuel an ascent from the current price plateau.
Meanwhile, listing inventories have perhaps doubled, the number of real estate sales has dropped by a third (from a hysterical pace), but there is no sign that prices have fallen or will fall from the 1994 top.
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