Thoughts on Denver Post article predicting RE party ends in 2019?

23 Replies

I'd file that away until about 2019-20 and see if it falls true. Like many other whom have predicted the future, including but not limited to the Mayans end of the world campaign, it gets people excited and talking about it. Too often the times come and go without the prediction being correct. 

Lower prices wouldn't hurt our market - it is expensive, 10% year over year increases for going on almost 5 years can't go forever. Long term buy and hold - values don't matter much if you aren't planning to sell.

Invest Wisely.

@Will Waterman thank you for sharing!

Thanks for the article, I have been waiting on this sort of info to come out. I am no analyst but what we have seen in the past is the hotter the market climbs the harder it falls. So this would be no surprise but probably just a matter of time. What's interesting is how specific this analysis is though. If it does prove to be accurate on a neighborhood level I am definitely going to be following these guys.  As investors though we just need to incorporate this into our long term strategy and make it work in our favor if/when it does happen. 

When I first read this, I rolled my eyes and did the proverbial waste basket shot with it.

It's essentially an advertising piece for the firm that wrote the software.  

All it does is talk about the predictions, but it says nothing about the data behind the predictions and that's what makes this a junk article.

They may as well have picked Q3 2019 out of their a** as anywhere else.  

My favorite quote is this:

"Rael contends that the ongoing shortage of homes and continued migration to metro Denver will support double-digit price gains through this year and into early 2018 but that the upward trend can’t last forever."

There is absolutely no data in this article.  Only emotion and speculation and these people may as well have created something that throws a dart.

If you can't back your prediction up with data, trends and solid economic theory, then you're just spewing as much garbage as the guy on the street corner predicting the end of the world.  

So many people read these kinds of articles and it just feeds into their need for confirmation bias.  Ah Ha!  Exactly what I thought!  See?  Now there's a newspaper article to back it up!  And yet, there's nothing in here to back up a truck with, much less an opinion.

I agree with them completely and I've said it before (and been slammed by folks here for saying it).  Denver metro doesn't have the jobs to support the market - and they say the exact same thing in the article.  About the only "large" company moving into Denver is BP (British Petroleum) from Houston.  The trend has been for the last 10 years of larger companies moving out - because of the high cost of living.  Combine that with the drop in price of oil and industry consolidation, and folks are working the lower paying jobs instead of the jobs needed to sustain higher housing prices.  It's a no-brainer - prices will fall in the next 5 years.

:giggle: They were saying the same things about Silicon Valley in the '70s - - and while there were some MINOR fluctuation, the Sky Never Fell In - - and if you look currently and read how difficult members are finding the Bay Area today, it's still has not.

To see RE markets 'collapse', we would need 10x 2008 problems, major foreclosures(HUGE RE inventroies), major job losses in multiple industries, and basically, a second incarnation of the  Great Depression.

@Will Waterman - Thanks for sharing the article. Historically markets go up and down. What is important is your game plan if things go south due to personal or economic reasons. Unfortunately in the investment world there is no win- win, it's a zero sum game.

Happy Investing

Vivek

@Will Waterman so people have been building models for the stock market as well. The thing about the models is they predict the past perfectly but no one has got one that does the future perfectly or even close enough to make someone wealthy. I personally don't see their prediction coming true apart from some massive global event not considered in their model. People don't take a 20% hair cut and sell their home just to buy a bigger house. They just don't sell. The only ones that sell are the ones that have to and there are about 6x buyers to sellers based on historic data. Right now the loans are being well underwritten so apart from massive job loss, I don't see why people would have to sell. It's not like 10 years ago when people couldn't afford the houses they were living in, the people today can afford the houses. I have seen no indication that supply is going to sky rocket from a glut of new homes. I just don't see where the inventory is going to come from that will result in the over supply. Of course there is no data shared so I can't confirm or dispute the underlying assumption there. 

I do see a significant oversupply of class A apartments. I think you could see a 20% fall in rents for properties that compete for those tenants.

Of course if legislature changes the construction defects laws we could see a bunch of condos in the market. It would take about 2 years for those to hit the market in which case we should be able to see it coming and that makes the 2019 dead line a bit premature. 

Thanks for sharing the article @Will Waterman . As stated by others on the thread what goes up must come down, at some point. Predicting that some point is fools gold. How many people have waited it out on the sidelines for the last couple years while prices have continued to climb? Additionally the article states that Sunnyside will increase while Green Valley Ranch will decline. This seems fairly consistent with previous real estate cycles, good locations are able to weather the storm while areas that have risen mainly due to lack of inventory/high prices in the desirable locations will do poorly.

Q: How do you drum up hype for your new product?

A: Write this article

Opinions are all over the place but I think most people agree...A slow down in growth seems almost inevitable given affordability concerns, but also probably a sign of a healthier more sustainable market. Large price drops? Maybe, maybe not.  

Whatever happens, areas that are fundamentally desirable will be hit less than areas that are simply desirable because A/B class areas have no vacancy. 

Honorable mentions: Construction Defects Law

My own thoughts ...

They're right about one thing: a decline of affordability may precipitate a decline in home prices.

However, even the concept of "affordability" has many "moving parts". Not the least of which is the availability of lending. If lending, lending guidelines or both tighten, the demand for home loans will slow, stagnate or, perhaps, even decline.

Home prices, however, will still be primarily governed by supply and demand.

In essence, then, the article is suggesting that a serious decline in employment, wages and salaries, or both may be in the offing. Recent estimates of housing supply have us in a nation-wide housing shortage until sometime in the middle of the 2021 to 2030 decade.

There are two factors in a precarious balance in this country: the supply of housing for sale and the availability of lending. The existing balance is probably THE sole factor keeping home prices from launching into inter-stellar space.

The ONLY way to dampen home prices is to dampen the demand, and that would (further) devastate the economy.

... unless, of course, Yellowstone blows. Then, all bets are off. :-) 

Interesting points raised in the comments section include:

  • the strength and diversity of the region's economy
  • Great Recession of '08 barely made a dent in metro Denver housing prices and they recovered quickly
  • the disparity in prices between CO and the states where the influx of people keep coming from is too high

With regards to Fort Collins specifically, I would be tempted to add: the continuing expansion of CSU.

Out of State company telling us what is going to happen in two years... If you want numbers, go to one of Lon Welsh's classes at Your Castle or First Alliance. Unless something catastrophic happens to the US/World, I'm bullish for the next 5 years at least. 

Just want to put my $.02. Remember, Colorado is one of the States that voted for the $15/hr minimum wage increase. This doesn't go fully into effect until 2020. That means the low end consumers will have more money then ever before at that time. This will push up prices all around the board. I feel the areas with more low income buyers, will pick up do to them having more money. This will cause more inflation, but we can go rounds about that. 

@Robert Herrera ,

That's an urban legend. Experience consistently shows that where wages go up employment goes up and the economy thrives.

Why? Well, my thoughts are that people can't spend money they don't have. So, the economy languishes waiting for "the rich" to stop hoarding cash and pump it into jobs and the economy which, of course, never happens. So, blight takes over, property values plummet and the population moves out. Areas of The State of Michigan are probably the premier example along with West-Central Illinois.

The State of Minnesota is probably the premier example of where increased wages have fed a growing economy and strong employment figures.

@David Dachtera we are both saying the same thing. They will have more money, and it has to come from somewhere. More money means more spending. More spending, more demand. More demand less supply... less supply higher prices.

http://www.denverpost.com/2016/11/12/colorado-rising-minimum-wage/

Business owners looking to slash hrs and Lower the Headcount... aka layoffs.

@Robert Herrera ,

Indeed. Business owners - mostly the uneducated ones, though in too many cases, the business school graduates - think they can cut their way to profitability. Doesn't take an MBA to know that it doesn't work. You don't grow a business by reducing it's ability to produce saleable products / services.

... but that's OK. The attrition will leave room for savvy business people who can take up the slack and succeed where the others must ultimately fail.

Our local economist from Grand Valley State University predicts a national slow down by 2019 but does not see that affecting the West Michigan real estate market (especially the Grand Rapids area) for many years to come due to pent up demand and the significant deficit of existing housing on all fronts and continued job growth.  To quote what he told our audience at our annual conference (probably not verbatim), "real estate investors will be the ones inviting their neighbors to their house for the parties..."

My take is in a world of bleed to lead journalism this one is outright, outload laughable. The 4700 block of Argonne will go down by 1/3 in 2022? It’s like a parody of real news, like an SNL Weekend Update punchline it’s so ridiculous. But super-specific completely-actionable predictions are exactly what the public wants (much to their discredit) so it’s what is given to them when you have to sell advertising. I’m glad I’m not a journalist and am held accountable for what I say.

Regarding the minimum wage comments. Good point. It will be interesting to see. Wages must increase across the board for home prices to keep increasing. All things equal, if the cost of money were to remain the same and prices keep increasing, At some point there is a threshold in which people can afford or are actually willing to pay. 

But back to the minimum wage increases. Depending on how this plays out, if the wages increase but small businesses can make up the differences via tax cuts, then we may see a situation where the lower end has a bit more to spend. But, it will be spend on rent. At that low end of the rung people cannot rarely make enough to afford to buy. Maybe a second income of a spouse will just put them over the hump.

On the other hand, the minimum wages increase could create inflation and and cause layoffs and employers to automate and not hire as many, ex. Seattle and LA right now, although they took an immediate increase in minimum wage. So who knows.

We live on the outskirts of Boulder. In our neighborhood as of late, we are seeing homes in certain price ranges on the market longer. We have watched some homes that have sat and as soon as they dropped the price significantly, bam, they sell. So we may be seeing pockets where prices are hitting a threshold and people are simply saying "I'm not paying it". 

This is a great article. I agree with Jared and Ed, the imbalance between income and market is outrageous. I like to know what different individuals foresee it put concepts in perspective and helps with strategizing if need be. 

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