Building prices, residents needing more room and traders impacting metro Denver housing costs

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DENVER – What is happening in Colorado and in many places across the country is a story as old as time.

“The homebuyers just went nuts,” says Dr. Eric Holt, Assistant Professor at the Burns School of Real Estate and Construction at Daniel’s College of Business at the University of Denver.

“Agents say, ‘Give me your best offer. Period. End of story, ‘”said Lori Abbey of The Abbey Collection at Compass Realty.

It is a classic economic question of supply and demand.

“You just have to be smarter and have an agent with you who knows,” says Joy Dysart of HomeSmart Realty.

Let’s start with Matt Burks, the regional site manager for Oakwood Homes, which is currently on a huge project in Green Valley Ranch East, to deconstruct that 360 degree housing market.

“The wood problem really started in September 2020,” said Burks.

This is one of the biggest problems for Oakwood and other home builders; a 75% increase in timber prices due to supply chain disruptions, mainly from Canada.

“When the borders closed there, we couldn’t bring anything to our facility or to the sites,” said Burks.

And it’s not just wood.

Builders slow production due to a perfect storm that includes skyrocketing commodity prices, a decline in available land, and a shortage of skilled labor.

“Pretty much every trading partner we have has a shortage somewhere,” said Burks. “Well, that was a real fight.”

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

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

“One of the main companies that make a lot of vinyl products, the electricity company, just turned off its electricity,” Holt said. “It’s almost as if everyone is closed, including the factories.”

Holt says the shortage of dock workers in the ports is also holding back imported products such as many household appliances.

“Now there is a huge backlog of ships in ports trying to clear out,” said Holt. “Supply chains have just been hosed down the line.”

Then there is the buying frenzy.

“People just take out loans and find that right now it’s a good idea to buy a better house,” said Dr. Kishore Kulkarni, distinguished economics professor and author at the Metropolitan State University of Denver.

Kulkarni says average Coloradans needed more outside of home during the pandemic.

“When your house is bigger, it’s a lot easier to work from home,” said Kulkarni. “More space for children to study and for adults to work.”

Kulkarni also said that low interest rates are hurting the market.

“With an interest rate of 2% or 3%, it’s like free money,” said Kulkarni. “And you should grab it.”

“That’s true,” said Dysart. “The good thing is – the interest rates are so low, historically low.”

But getting the perfect house is very difficult right now.

“If the price is right, it will be in two to three days and ask more,” said Dysart.

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

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

Complicating matters even further – a flood of investors watching 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 greater Denver real estate for years. He says more and more people are seeing the value here.

“The prices are inflated, but I think you can see the value if you buy this property and hold it for three, five, ten years,” said Williams.

His business model is simple: Rent within limits and keep real estate full.

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

“It shows what Denver has become,” said Williams. “If people live here, want to play here and benefit from everything – that is Denver’s advantage because jobs are being added and the airport is now getting pretty big.”

Abbey recently met with a few Northern California investor clients who wanted to buy dozens of homes here as an investment.

“And they pay the retail value plus 10-15%,” Abbey said. “You pay 20% too much for the house the way the market is going and you made up for it in four months. Nobody cares.”

Dysart confirms that she sees it too. As an example, she uses a current $ 1.8 million list.

“Every appearance for this listing was someone from elsewhere,” said Dysart. “They were from California, New Jersey, New York. You think that’s a bargain. “

The listing eventually went to a Kansas City executive who plans to work from Colorado while her job stays more than 600 miles away.

“And that happens in Colorado because we have a great lifestyle here,” said Dysart.

Abbey says there is another interesting trend in investing.

“I have customers who are using their 401ks,” said Abbey. “They invest in residential real estate because the percentage return is so much higher than on the stock market; and it’s much more stable. “

Investors and those with large wallets also forego valuations. They are willing to pay the difference in cash because they are sure that they will get the money back.

“These investors come in, they put cash,” Dysart said. “You are discarding the trump card.”

It certainly has an impact on the everyday coloradans.

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

Hall just sold his one bedroom apartment near Centennial Airport.

“I think it was in the market at 8:30 am and by 9:00 am I had these automated texts on my phone for demonstrations starting at 9:30 am that day,” Hall said. “It was non-stop. It was crazy. “

The buyers give him a month and a half free rent while he waits to close a larger upstairs apartment that wasn’t even listed.

“It’s almost like having 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,” said Burks.

Both Burks and Holt say there’s a silver lining here.

Whether you are looking for a new profession or are in the career orientation phase as a young person – construction and craft professions such as electricians are in constant demand.

“People don’t know how great 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 built a community, ‘”said Burks.

“We train students to either come and work in the field, not as craftsmen but as managers,” said Holt. “After all, many of them want to own their own businesses. It’s great business. It’s a phenomenal career. “

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