Investors: Boulder Real Estate Vs. The Rest of the Country

There’s a lot of sensationalism in the media and it’s going to keep going on for a while I’m sure, but there’s something interesting I’m seeing lately. There’s a high demand for Boulder real estate and investors are maintaining interest at an ever growing pace yet people still grind away at the rumor mill that there’s a housing market bust. This all makes for great media but not excellent information based in reality. As Lawrence Yun put it: “Sensational, yes; accurate, no.”

Some people are considering the question: “How much have real estate investors lost due to the housing market bust?”

First of all, locally speaking, there isn’t a ‘bust’ as far as we’ve seen. Some price adjustments are apparent but for the most part, I’m seeing these adjustments in the form of price reductions on homes that are currently for sale and that have been for sale for a while. These homes have typically entered the market at a higher-than-market price and the sellers and their agents are working diligently to adjust price to find the market. (Perhaps where they should have been in the first place). It’s a common situation as sellers look to ride the crest of a wave of seemingly endless and aggressive double digit appreciation that Boulder and other areas around the state and nation saw in previous years. Locally, some sellers have just arrived at the proverbial lilly pond on the 29th day.

Buyers keep asking me about the future and I still wish I had a working crystal ball. My advice to most folks is if you are thinking of buying a home and keeping it for a few years you’re probably making a good decision. It’s often when we speculate on the short term that we get surprised sometimes. Buy a home for the right reasons and if you’re an investor, consult your own business plan and see if the numbers match your business model and investment goals and risks.

If you’re considering buying a home as a primary residence, pick the home first by deciding what works for you in terms of the type of house, area you like, and how it supports your lifestyle choices. The appreciation and tax benefits usually follow naturally. Prices are steady right now in our area and it’s a great time to buy. It’s a fine time to sell also unless you just bought your home a short while ago but that’s the typical scenario in most market cycles. It’s time that works in our favor as a homeowner. Consider the following article from Mr. Yun if you’re a data minded individual.

And, in terms of real estate investors losing money consider this from a national perspective:

An article published by leading Economist and research expert Lawrence Yun states:

An investor who bought a property in Las Vegas five years ago would be ahead by $150,000 today. The gain would be $200,000 in Miami, and $54,000 on average in the United States as a whole.

Only people who bought in a few markets that experienced extreme overheating during the boom and who are trying to sell quickly face a potential loss. And that loss on average would be 1 percent to 2 percent.

Lenders and hedge funds with large exposure to subprime loans have lost big. Investors in homebuilder stocks also have lost.

But real estate investors who plan to hold for a reasonable period of time are doing fine.

To be sure, buyers who entered the market during the height of the boom might see a modest retreat in appreciation as a loss. That’s the nature of the human mind. A gain of $190,000 in Miami will feel like a loss if two years ago their property could have fetched a gain of $200,000.

Yes, there is pain out there. Foreclosures are rising and construction workers are getting laid off. Income of the typical real estate professional has been falling as transaction volume slows.

But consumers who are in housing for the long term are poised to come out well ahead. That $10,000 they invested as a down payment on their typically priced home for the typical 5 percent annual appreciation will net them $110,000 over 10 years. That’s what the power of leveraging means to them.

That same $10,000 invested in stocks appreciating 10 percent annually will return $23,600. No wonder the Federal Reserve Board consistently finds a staggering difference in average net worth between home owners and renters: $184,400 vs. $4,000.

You can always check the market updates in my blog for historical review. While it’s not intended to be comprehensive, it’s sometimes informative.

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