Construction Costs, Residents Needing More Space, and Investors Affecting Housing Prices in the Denver Metro
DENVER – What happens in Colorado and many parts of the country is a story as old as time.
âHome buyers have gone crazy,â said Dr. Eric Holt, assistant professor in the Burns School of Real Estate and Construction at Daniel’s College of Business at the University of Denver.
âRealtors say, ‘Give me your best deal. Period. End of story, âsaid Lori Abbey of The Abbey Collection at Compass Realty.
It is a classic economic question of supply and demand.
âYou just have to be smarter and you have to have an agent with you who knows the ropes,â said Joy Dysart of HomeSmart Realty.
Let’s start deconstructing this 360 housing market with Matt Burks, Regional Construction Manager for Oakwood Homes, who has a huge project right now in Green Valley Ranch East.
âThe softwood lumber problem really started in September 2020,â Burks said.
This is one of the biggest issues for Oakwood and other home builders; a 75% increase in lumber prices due to supply chain disruptions, primarily from Canada.
âWhen the borders kind of closed there, we couldn’t get things through our facilities and to the sites,â Burks said.
And it’s not just softwood lumber.
Homebuilders are slowing production due to some kind of perfect storm, which includes soaring commodity prices, dwindling land availability, and a shortage of skilled labor.
âAlmost all of our trading partners have a shortage somewhere,â Burks said. âSo it was a real struggle. “
âThis is the most unprecedented time we’ve seen right now, both in real estate and in construction,â said Holt.
Holt says winter storms in Texas have also disrupted supply chains, especially for house siding.
âOne of the major companies that make a lot of vinyl products, the utility company, just cut their power,â Holt said. “It’s almost like everyone is closed, including the factories.”
Holt says a lack of dockworkers at the ports is also delaying imported goods, like many household appliances.
âNow there is a huge backlog of ships in the ports trying to unload,â Holt said. “Supply chains have just been watered at all levels.”
Then there is the home buying frenzy.
âPeople just borrow and find buying a better home a good idea right now,â said Dr. Kishore Kulkarni, a distinguished professor of economics and author at Metropolitan State University in Denver.
Kulkarni says average Coloradians needed more out of their homes during the pandemic.
âIf your house is bigger, it’s a lot easier to work from home,â Kulkarni said. âMore room for children to study and adults to work.
Kulkarni also said that low interest rates are having an impact on the market.
âWith interest rates of 2% or 3%, it’s like free money,â Kulkarni said. “And you should catch it.”
‘That’s right,’ Dysart said. âThe good part is that interest rates are so low, historically low. “
But getting that perfect house is very difficult right now.
âIf the price is right, it will be fine in two to three days and more to ask,â Dysart said.
Dysart estimates that most homes are barely on the market for a day.
âWe’re about a 24 hour window here on inventory,â Dysart said. âIf the price is right, let’s go. And it’s a sad situation here for buyers.
Make it even more complicated – a flood of investors are eyeing the Denver Metro and Front Range.
âReally, people are seeing the appreciation that can happen in Denver,â said real estate investor David Williams. Williams has been investing in real estate in the Denver subway for years. He says more and more people see the value here.
âThe prices are inflated, but I think you can see the value when you buy and hold this property for three, five, ten years,â Williams said.
Its business model is simple: maintain reasonable rents and full properties.
âI like to price my tenants a little lower than the market so I know I’m going to have a long term tenant,â said Williams, who is a fan of the hot market.
âIt shows what Denver has become,â said Williams. “If people want to live here, play here and enjoy it all – that’s Denver’s advantage because the jobs are coming in and the airport is getting pretty big now.”
Abbey recently met with a few investor clients in Northern California who are looking to buy dozens of homes here as an investment.
âAnd they pay retail value well, plus 10-15%,â Abbey said. âYou pay over 20% on the house, the way the market is going right now, you got that back in four months. Nobody cares.”
Dysart confirms that she sees it too. She uses a recent list of $ 1.8 million as an example.
âEvery exhibit for this list was someone from somewhere else,â Dysart said. âThey were from California, New Jersey, New York. They think it’s a good deal.
The list was ultimately attributed to a Kansas City executive who plans to work from Colorado while keeping his job over 600 miles away.
âAnd this is happening in Colorado because we have a great lifestyle here,â Dysart said.
Abbey says there is another interesting trend in investing as well.
âI have clients who use their 401k,â Abbey said. âThey invest in housing because the payout percentage is so much higher than it would be on the stock market; and it’s much more stable.
Investors and those with deep pockets are also forgoing valuations. They are willing to pay cash for the difference because they are confident they can get the money back.
âThese investors come in, they deposit money,â Dysart said. “They deposited the trump.”
This certainly has an impact on the daily life of the Coloradans.
âAs expected, it sold out in three days,â said seller John David Hall.
Hall just sold their one bedroom condo near Centennial Airport.
âI think it was on (the market) at 8:30 am and at 9 am I had these automated texts on my phone for the showings starting at 9:30 am that day,â Hall said. âIt was nonstop. It was crazy.”
Buyers are offering her free rent for a month and a half while waiting to close a larger unit upstairs, which was not even listed.
âIt’s almost like you have to know someone who lives here to get in,â Hall said.
And that brings us back to Oakwood Homes.
âWe can’t keep a house right now,â Burks said.
Burks and Holt both say there’s a silver lining here.
Whether you are looking for a new career or are a young person trying to decide what to do, construction and skilled trades, like electricians, are in constant demand.
âPeople don’t realize how awesome it is – where you can look up and down the street and say, ‘I built all these houses. I know all of these people. I know these families. We have built a community, âsaid Burks.
âWe train students to come and work in the field, not as trades, but as managers,â Holt said. âA lot of them eventually want to own their own businesses. It’s a big business. It’s a phenomenal career.
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