Do any of you feel like real estate prices are seriously inflated in Colorado as of late? (Denver: foreclosed, rent)

[Mike from back east]

More data

Zillow bought 3800 homes in the 2nd Qtr of 2021 but has stopped now since they can't get labor and material to update the homes and flip them. Meanwhile, OpenDoor is steaming full speed ahead with a pot of $9B to buy homes -- hard for regular citizen home buyers to compete against that kind of money.

[BarryK123]

There's always Nebraska, even though it's not for everyone.

[Mike from back east]

Originally Posted by BarryK123

There's always Nebraska, even though it's not for everyone.

You're so corny .... and you beat out Dave to be first to suggest it

[Therblig]

Originally Posted by Mike from back east

Zillow bought 3800 homes in the 2nd Qtr of 2021 but has stopped now since they can't get labor and material to update the homes and flip them. Meanwhile, OpenDoor is steaming full speed ahead with a pot of $9B to buy homes -- hard for regular citizen home buyers to compete against that kind of money.

The wolf is always at the door, and the financial predators always at the ready. Just like 2007-8.

And yes, this pushes things towards civil and social instability.

[davebarnes]

I really don’t care. We don’t plan to sell our house for 20 years. So, explain to me why I should care about today’s market conditions.

[memph]

In my part of Canada, an average 2000 sf 4bd house on a 1/15 acre lot in a middle class outer suburb costs $1.2m now. It would've been around $900k a couple years ago. $350k in 2000 and wages have hardly gone up since. I already thought they were inflated when such homes were going for $500k+ around 2004. I still think the prices don't make sense but never underestimate society's ability to sustain the unsubstainable.

[Colorado Rambler]

Even here in Cortez the cost of housing has easily doubled in the past few years. Landlords are demanding $2,000 a month for what amounts to a one bedroom shack. I don't see how people here can afford those sorts of prices. Cortez is not exactly a high paying job mecca. In fact, most people have never even heard of Cortez, so I don't have the faintest idea of what gives with the sudden high increase in local housing costs. I live in terror of someday losing my reasonably priced rental. If that were to happen, I guess my new home would be a campsite on public land somewhere.

[Westerner92]

Ever since the 2008 crash and subsequent bailout, the investor class has realized that financial assets are majorly inflated. The quantitative easing that's been occurring since has made that exponentially worse. The investor class has been cashing out their financial assets for tangible ones like real estate since, and that trend is picking up steam. Unlike the 2000s, the houses selling today rarely have less than 10% down if they aren't bought in cash outright.

On top of that, there has been a market failure to build enough housing for growing demand for housing in the wake of the crash. Some quick back-of-the-envelope numbers:
- Who are the customers new to the real estate market this past decade? People born in the 80s and 90s
- Average number of births per year in the US since the 80s: ~4 million
- Average number of deaths per year in the US throughout the 10s: ~2.5 million
- Average number of housing units built per year throughout the 10s: ~1.25 million



Even assuming all these new housing units are owner-occupied housing, there's still a shortfall of ~250K units per year. But little of the housing built since the last recession is owner-occupied housing. Quite a bit of it is corporate apartment blocks. Real estate is basically guaranteed to increase in price due purely to demographics and market failure to meet real demand.

Vacation home rentals have really messed with the market equilibrium as well. Real estate is switching paradigms from price based on what the median income earner can mortgage to price based on rent extraction. Rent is switching paradigms from being priced by the long-term rental market (which is more grounded to median income) to priced by the short-term rental market. Places that have been booming since the 2008 crash are where this trend is most noticeable, but it's a nationwide problem and very arguably a worldwide problem.

This is all to say that no, relative to the USD itself, real estate nationwide is not in a bubble. I'd go so far as to say most financial assets themselves are the bubble and that the investors cashing out now are hedging against a hyperinflation scenario. Demographic trends + market failure + quantitative easing = middle class dying. Real estate is increasingly becoming the longer term holder of value over currency and financial assets.

Like with most things financiers do, there's an inherent amount of speculation, but with real estate becoming more of a default holder of value, the speculation only occurs relative to other real estate markets. I think the better question to ask is whether Colorado is overvalued compared to the rest of the nation. Given the primacy of water rights here and the natural touristic draw, I don't think Colorado real estate is going anywhere. I think the places dependent on water from the lower Colorado River are highly overvalued, so Las Vegas, Phoenix, Southern California. I think coastal real estate on the Eastern Seaboard is highly inflated as well, particularly Florida. The appreciation everywhere else seems disconcertingly grounded.

Originally Posted by davebarnes

I really don’t care. We don’t plan to sell our house for 20 years. So, explain to me why I should care about today’s market conditions.

If property taxes don't ratchet down in response to appreciation, then your tax bill could easily quadruple over the next 20 years. Colorado's tax bills are quite low, though, so that's not a particularly big concern for most income earners. There's also the whole thing about legacy and wanting better for future generations. With current trends, even should your grandkids grow up well-off, they'll either have to inherit real estate or a real-estate-sized chunk of cash in order to live with the comfort you've had. I'd like to think the generation that's been in control since the 80s/90s would like to not have their legacy not be the dismantling of the largest middle class in history and replacing it with climate/class apartheid.

[Therblig]

Hmm. That's all very cogent. (I had you tagged as one of the folks smugly strutting around in their faded I GOT MINE IN 2008 t-shirts. )

I will just say, from a long historical perspective rather than an intensive financial one, that the trope of "they aren't making any more land" or any of the rest about how the demand and value of RE can somehow never go down can be disproven at many points in, oh, say, the last century. For one thing, there's that old trope "location, location, location"... and there are whole cities in the Midwest where they can't give away perfectly nice houses.

In just the way small towns were murdered by an interstate that bypassed them by a few miles, the titanic shift in industries and so forth is leaving whole regions with billions in evaporated RE value.

Ah, but boom-boom Colorado, the Front Range, the mighty southwest, you say.

To which I ask one wee, sma', simple question:

What's going to be the impact on RE values from here to LA when the water goes away? Who's going to buy a house that comes with, say, a $2k annual water bill, under very tight restrictions and with further decline in sight... or buy in a town that simply no longer has water? This is not speculation; this is fact coming in the next decade or two.

Care to guess within $10T what the RE losses will be by, say, 2040?

[TCHP]

Western water prices will eventually reach a point where technology will be able to compete with alternatives that are out of touch now. What those are, I couldn't begin to guess - pipelines, desalinization, water table injection, black water conversion, I have no idea really. As climate changes continue to evolves, so to will the methods of dealing with it and some of those may positively contribute to improving water access in more arid places. Perhaps not in my lifetime, but probably in my children's time.