Last Tuesday, October 2nd, I got the opportunity to attend my first real estate conference here in Fort Collins. I met many remarkable members of the industry and community and learned so much about every aspect of real estate. The two speakers below shared an immeasurable amount of knowledge that I thought would also be very beneficial to the general public and my clients.
John Covert, Senior Director of MetroStudy's West Region
John Covert spoke about the overall Northern Colorado economy and its effects on the real estate market and developers. He showed us how purchase power is declining, labor shortages are ongoing, and material and development costs continue to rise. He also showed us that Northern Colorado is currently growing faster, with a 4.2% job growth rate, then the entire Denver Metro Area. Unemployment is a 2.6%, its lowest ever, which is great for housing development and demand for housing. Along with vacancy rates below 3%, Northern Colorado is a prime real estate market. It currently has about 2 months of supply, meaning if there was no more building, at the current absorption rate, we would sell out in 2 months. Net migration to Northern Colorado will continue to grow, correlating to increases in single family building permits (Colorado is the #1 state in permit activity). 63% and 30% of Denver and Northern Colorado building permits respectively are held by publicly traded home builders. Weld County saw a 2% increase in new home starts while Larimer County saw a 19% decrease. Berthoud and Windsor are the current up and coming communities with the highest growth rates and housing starts in Northern Colorado. The majority of housing starts have shifted to the $400,000 to $500,000 range with a dramatic decrease in the number of housing starts in the $300,000 range. Given all this information, we see that affordability and supply is the issue, not demand. Therefore, Colorado, in its entirety, is in no danger of overbuilding as things currently stand.
In conclusion, Northern Colorado starts for 2018 will likely be flat , falling short of the initial forecast made last year. However, demand remains high for housing in the region, particularly with steady in-migration fueled by such a strong local economy. The cost of housing continues to exceed household incomes in many areas, which will cap the amount of growth for more expensive products. Several factors are pushing starts down in Larimer County, including cost of housing relative to incomes, projects closing out that have not been replaced, and constraints in certain sub-markets. Single Family homes priced under $300k in Larimer County represent only 3% of annual starts, down from 10% last year. Condos are up in Larimer County, helping to fill the widening affordability gap. Weld County has yet to see much condo activity. It also remains more price sensitive than Larimer, but has seen a dramatic decline for single family starts under $300k; from a 33% share in 2Q17 to 10% in 2Q18. After growing substantially following the recession, 'public builder' market share has remained relatively steady the last couple of years, around 30% compared to 63% in the Denver Metro Area.
Patrick Phillips, Former CEO of the Urban Land Institute
Patrick Phillips, former CEO of the Urban Land Institute, then gave a fantastic national perspective that I will touch on here and elaborate in a blog on my website found below. He started with the top current real estate sub-markets being industrial, apartments, and hotels. Also, the emerging real estate markets are no longer Washington D.C., San Francisco, or Boston, but instead have shifted to Nashville, Salt Lake City, and Raleigh. He then shifted to talk about generational slices. He started with Generation Z, who is just starting to graduate college and enter the professional world. He mentions this generation is fully digital, but not nearly as overwhelmed with it as past generations. He describes this generation as serious, diligent, and hardworking. He theorizes that early traumatic experiences like 9/11 and The Global Financial Crisis of 2008 have made this generation committed to financial security and a constant drive for stability. In addition, Baby Boomers are supposed to be heading into the sunset, but instead are staying in the workforce. And Millennials are supposed to be forever urban, but housing affordability is driving them out. Believe it or not, on the national level, we are not building enough apartments and have created a "missing middle". This "middle" is housing that is affordable but not subsidized and there is a big push for Natural Occurring Affordable Housing (NOAH). In terms, of regulations, there's been a bigger push towards YIMBY (Yes In My Backyard) rather than the traditional NIMBYs. Technology in Real Estate is on the verge of a quantum leap. There is a huge focus on wireless, and 5G. The Internet of Things is continuously growing and becoming more connected. We are also seeing an emergence of a sharing economy. In forecasting demand for real estate, we are seeing a "need for less". There is a disruption in occupant normality. For example, in retail, short term rentals are becoming very popular for a showroom for a greater online presence. Sidewalk Labs, a subsidiary of Alphabet, is building a community in Toronto "from the internet up". One great quote that was shared in terms of technology was, "There are two types of technology, obsolete, and not yet introduced". Real estate has forever been behind in technology but we are beginning to see the end of obsolete real estate tech.
Shelbee Wallace was born & raised in Colorado and graduated from Colorado State University in 2018 with a BS in Finance with concentrations in Real Estate Finance and Investment Analysis.