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Construction costs, residents needing more space and investors impacting metro Denver housing prices

Market still seeing wild appreciation
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Posted at 9:19 PM, Jun 11, 2021
and last updated 2021-06-12 01:00:38-04

DENVER -- What’s happening in Colorado and in many places throughout the country is a tale as old as time.

“Homebuyers just went nuts,” said Dr. Eric Holt, an assistant professor at the Burns School of Real Estate and Construction in the Daniel’s College of Business at the University of Denver.

“Realtors are saying, ‘Give me your best offer. Period. End of story,'” said Lori Abbey with The Abbey Collection at Compass Realty.

It’s a classic economics issue of supply and demand.

“You’ve just got to be smarter and you need to have an agent with you that knows the ropes,” said Joy Dysart with HomeSmart Realty.

Let’s start deconstructing this housing market 360 with Matt Burks, regional construction manager of Oakwood Homes, which has a huge project right now in Green Valley Ranch East.

“The lumber issue really started in September 2020,” Burks said.

That’s one of the biggest issues for Oakwood and other home builders; a 75% spike in lumber prices because of supply chain disruptions, mainly from Canada.

“When the borders kind of shut down there, we couldn’t get stuff to our facility and out to the sites,” Burks said.

And it’s not just lumber.

Homebuilders are slowing production because of a perfect storm of sorts, which includes skyrocketing commodity prices, a decrease in available land and a shortage of skilled labor.

“Pretty much every trade partner we have has a shortage somewhere,” Burks said. “So, that’s been a real struggle.”

“This is the most unprecedented time we’ve seen right now, both in real estate and in construction,” Holt said.

Holt says the winter storms in Texas also disrupted supply chains, particularly for home siding.

“One of the main companies that produces a lot of vinyl products, the power company, just cut their power,” Holt said. “It’s almost as if everybody’s shut down, including the factories.”

Holt says a lack of dock workers at the ports are also holding up imported products, like many home appliances.

“Now there’s a huge backlog of ships in ports trying to unload,” Holt said. “Supply chains just got hosed up across the board.”

Then, there’s the home buying frenzy.

“People are just borrowing and finding that buying a better house is a good idea right now,” said Dr. Kishore Kulkarni, distinguished professor of economics and author at Metropolitan State University of Denver.

Kulkarni says average Coloradans found themselves needing more out of home during the pandemic.

“If you’re house is bigger, it is much easier to work from home,” Kulkarni said. “More room for kids to study and adults to work.”

Kulkarni also said low interest rates are impacting the market.

“With a 2% or 3% interest rates, this is like free money,” Kulkarni said. “And you should grab it.”

“That is true,” said Dysart. “The good part is – interest rates are so low, historically low.”

But getting that perfect house is very difficult right now.

“If it’s priced right, it will go in two to three days and over asking,” Dysart said.

Dysart estimates most homes are barely on the market for a day.

“We’re at about a 24-hour window here on inventory,” Dysart said. “If it’s priced right, it’s gone. And that is a sad situation here for buyers.”

Making matters even more complicated – a flood of investors eyeing metro Denver and the Front Range.

“Really, people see the appreciation that can happen in Denver,” said real estate investor David Williams. Williams has been investing in real estate in metro Denver for years. He says more and more people are seeing the value here.

“Prices are inflated, but I think you can see the value when you buy and hold that property for three, five, ten years,” Williams said.

His business model is simple: Keep rents reasonable and properties full.

“I like to price my renters a little bit lower than market, so I know I’m going to have a long-term renter,” said Williams, who is a fan of the hot market.

“It shows what Denver’s become,” Williams said. “If people want to live here, play here and benefit from everything – it’s Denver’s benefit because jobs are coming in and the airport’s getting pretty big now.”

Abbey recently met with a couple of investor clients from northern California looking to buy dozens of homes here as investments.

“And they are fine paying retail value, plus 10 to 15%,” Abbey said. “You overpay 20% on the house, the way the market is going right now, you’ve made that back up in four months. Nobody cares.”

Dysart confirms she’s seeing it, too. She uses a recent $1.8 million listing as an example.

“Every showing for that listing was someone from somewhere else,” Dysart said. “They were from California, New Jersey, New York. They think that’s a bargain.”

The listing ultimately went to an executive from Kansas City who plans to work from Colorado while keeping her job more than 600 miles away.

“And it’s happening in Colorado because we have a great lifestyle here,” Dysart said.

Abbey says there’s also another interesting trend in investing.

“I’ve got clients that are using their 401ks,” Abbey said. “They’re investing in housing because the percentage gain is so much higher than it would be in the stock market; and it’s much more stable.”

Investors and those with deep pockets are waiving appraisals, as well. They are willing to pay cash for the difference because they’re confident they’ll make the money back.

“These investors come in, they put down cash,” Dysart said. “They put down the trump card.”

It is certainly having an impact on everyday Coloradans.

“As predicted, it was sold in three days,” said seller John David Hall.

Hall just sold his one-bedroom condo near Centennial Airport.

“I think it was on (the market) at 8:30 a.m. and by 9 o’clock, I had these automated texts on my phone for showings starting at 9:30 a.m. that day,” Hall said. “It was non-stop. It was crazy.”

The buyers are giving him free rent for a month-and-half while he waits to close on a larger unit upstairs, which wasn’t even listed.

“It’s almost as if you have to know someone who lives here to get in,” Hall said.

And that brings us back to Oakwood Homes.

“We can’t keep a house right now,” Burks said.

Both Burks and Holt say there is a silver-lining here.

If you’re looking for a new career, or you’re a young person trying to decide what to do – construction and skilled trades, like electricians, are in constant demand.

“People don’t realize how awesome it is – where you can look up and down the street and say, ‘I built all those houses. I know all those people. I know those families. We built a community,’” Burks said.

“We’re training students to either come and work in the field, not as trades, but as managers,” Holt said. “A lot of them eventually want to own their own companies. It’s a great business. It’s a phenomenal career.”

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