Is Colorado Real Estate in a Bubble?

Real estate specialists define the market in Colorado as being at a long term, unsustainable level, by many accounts. However, it seems that they agree that it is only considered over-valued and does not signal a bubble.

There are some particular characteristics that influence the real estate market in the Centennial State, and population growth is probably the most obvious one. People are interested in relocating to Colorado due to the quality of life here and good jobs and career opportunities in many industries.

In this context, no depreciation is expected anytime soon, and if there will be, it would not be drastic.

Prices and potential rising rates are the things that scary people the most, in a hot real estate market – and these concerns are perfectly normal. However, when it comes to Colorado, the lack of inventory reduces a housing bubble pop and here is why:

Colorado housing prices are appreciating in value at very high rates (some of the highest in the US). Bubble prices of 2007 have been exceeded and continue to climb. This rise is mostly based on lack of available supply to keep up with the current demand. This is particularly true in the case of working class price levels. Bidding wars are frequent and they drive prices higher. Housing markets in Denver, Colorado Springs and Boulder – they are all short supplied.

homes for sale in Southlands

Realtors showing homes for sale in Southlands confirm that interest rates are historically low which can drive prices up, because people can now afford more expensive homes. However, in this context, rising interest rates are a big concern. If there will be a full 1% rise, people would pay about $350 more per $100,000 financed on a 30-year loan. Such a situation would definitely slow the pace of current home price increases, but a full 1% is unlikely to happen overnight.

Colorado is also quite short in rental property supply, which pushes people toward buying.

Concerns about a housing bubble forming in Colorado started ever since the onset of the current pandemic. The virus scared prospective buyers out of the marketplace in the spring, but the situation rapidly improved. Some were concerned that this is only a foreshadowing of a crash that will happen later, but real estate specialists say that this rumor is only based on fear, not fact.

Actually, it seems that there are more indicators pointing toward recovery rather than relapse, fixed mortgage rates and regulated lending practices being the most important.

The supply and demand is expected to remain imbalanced, as it has been for years, which means that buyers will compete for a small inventory of homes, which will keep driving prices upwards. For this situation to improve, it would be necessary a six-month supply of inventory (in Denver Metro, currently there is a 0.8-month supply of available housing options).

The future can be unpredictable, however it is unlikely that Colorado will experience a bursting housing bubble anytime soon, because the demand for homes for sale in Southlands will keep prices within a healthy range.