The biggest question I get is are we at the top of the market and will it fall again like it did in 2008 through 2011. While no one can guarantee the future, here is my educated opinion. If you go back to the late 80â€™s and early 90â€™s Colorado was recovering from a huge downturn. We saw a huge recovery, some of which was based on a shaky foundation of poor lending. Even at the worst of what we saw in 2008 â€“ 2011 we never saw prices go down to the levels of the late 80â€™s and early 90â€™s. There was a baseline of real value supporting prices enough to keep them from going that low. I feel we have a similar protection with this market. While we will inevitably see a downturn at some point, the underlining factors such as the quality of the loans, the diversity of the Colorado economy, the limited amount of housing available versus the future demand just from new household formations are just some of the factors that will keep us in better shape than what we saw in the most recent recession.
Our market has such a lack of housing inventory it is significantly constraining home sales. I believe there is pent up demand waiting for more houses, especially resale homes to become available. So even if we see an uptick in inventory there will be demand for it. Iâ€™m actually hopeful we will begin to see an increase in entry level homes in the next couple of years based on two major developments in the construction defects issues that have stymied the building of townhomes and condominiums for years. Also, on a national scale, builders are talking about focusing more on the $350,000 price point versus the $500,000 and up market in which they are currently very active.
The market has a lot of supporting factors. The millennials, long accused of never wanting to buy a home, are entering the market at high numbers. That trend will only increase as they age, experience increases in income and net worth and start/ grow their families. Baby boomers are very active as well. Whether itâ€™s buying that luxury home theyâ€™ve always wanted, downsizing, investing in rental properties or purchasing second homes, theirs is also a robust market segment. There are Gen Z buyers entering the market as well. Inventory levels increased in June and price are still appreciating at a reasonable pace.
The next most frequent question I get is â€œwhere are the best buys in this market?â€ If you want to buy locally, use the investment/ rental calculation form I have provided before to determine where you can buy and still cash flow well. (Feel free to let me know if you want me to send you a copy) There are still some areas where the rent will more than cover the costs of ownership. I recently reviewed one in an area where prices have been at all time highs for a while, the rental numbers are so strong it had a positive cash flow projection of over $500 per month. Not only is that great income, it is also giving you protection for a downturn because you have a 25% cushion in the rental rate in the event of a market downturn.
What I donâ€™t hear as much as I think I should is â€œis there anywhere outside Colorado I should be looking?â€ With the incredible appreciation we have here, it is a wonderful time to look outside Colorado for bargains. One client doing just that as I write this article is a fun story. They have always wanted a place in Hawaii. When we sat down and reviewed what was available to them in Hawaii using the equity they have gained on their Colorado property it was obvious there is an opportunity to achieve their dream.