Many things struck me about this chart. The consistency of our periods of major appreciation in both slope and length of time. The fact that the intervening periods really didn’t see major depreciation. The fact that we really didn’t see any sustained major depreciation for any period going back to 1978 in Boulder County. The fact that most of our periods of stronger appreciation last about 48 months.
One of the things I keep hearing lately is how unprecedented our current market strength is. While the buyer frenzy for the few properties on the market may be unprecedented, the appreciation rates we’re currently seeing match nicely with the periods of appreciation we saw from 1978-1982, 1990-1994, and 1997-2001. I was very surprised how well the green lines in the chart above matched the length and slope of the three preceding periods of strong appreciation. All of these 48 month periods saw appreciation that rose between 51.8%-54.1%. This is interesting as our current period of appreciation started in 2013 and so far, values have gone up 32.9%. This tells me we can still expect about 19-20% more appreciation in home values before the cycle ends. This also tells me we’re likely to see strong appreciation into early 2017 assuming the same 48 month pattern holds true for this uptick in the market.
The lack of any real downturns in the chart was also interesting. There were two times when you could have lost money if you bought at the very peak of the market and then had to sell within the next 3 years: Q2 1982 when we saw a 9.7% downturn and Q1 2009 when we saw a 3.4% downturn. One time, Q2 1987, if you bought and had to sell within the next year you would have lost 1.43%. Other than those times, it’s been hard to point to any time in the chart where values have dropped dramatically. In fact, if you bought a property and held it for six years or more, there has never been a time in this dataset that you would have lost money.
So what will it mean when this current cycle ends? I don’t think that means we’ll see depreciation, just a lessening in the rate of appreciation that will lead to a flatter period of still positive but small appreciation rates. I’ve heard many times before that the longer the flat period, the greater the rise at the start of the next cycle. Since our upturns have been very consistent without regard to the previous flat period, I’m not sure I believe in that assessment. I think the consistency in the upturns has more to do with equity appreciation and wage gains. The purchasing power of the buyers builds up until there is a breakout, but can only be sustained for so long before that buying power has to be recharged.
The one thing that could throw this whole analysis out the window is the potentially changing nature of our market. Has our market fundamentally changed? If it has, an analysis comparing the current market to past patterns is doomed. Buyers have definitely become more informed through the use of the internet, but I don’t think that has fundamentally changed the way the market appreciates. The one change that I see that probably has started to fundamentally change our market and will continue to change it is the build-out of Boulder County. All of the past appreciation periods occurred in times when more homes could be built, a new home relief valve on accumulating demand. We’re not built-out yet, but that day is on the horizon and assuming Boulder County remains the desirable place that it is now, this change will be dramatic and will finalize the supply side of the equation forever.
Mike Malec
RE/MAX of Boulder
(303) 588-5716
Mike@ColoradoHomesAndRealEstate.com