Neighborhood Inscope

Thoughts on the Denver Housing Bubble

By Dr Denver H. Bubble

Tue Jul 17 2018

Joe Rubino from \argues here housing bubbles have three predictable stages. The first stage is the longest and is driven by excesses liquidity from either the central bank or foreign demand. This liquidity results in a large number of people looking to buy houses with the excess cash they have in their hands. Sellers usually have the peak prices from another mania in mind and are not willing to sell at anything less than that amount. "Demand initially outstrips supply, causing home prices to rise, slowly at first and then explosively as increasingly-desperate buyers become willing to pay any price while mortgage lenders, seduced by fat fees and confident that they can securitize and offload any kind of dicey mortgage, lower their standards to include pretty much the whole of society."

 The second stage is when sellers reading headlines that prices are above what they could have gotten in the last mania, beginning to list their houses. Supply jumps. We agree with Joe here. We have seen supply jump in the metro Denver area by 25% in May '18 and 15% in June '18 with prices flat lining up only 1% each month. A recent CNBC article stated that "the supply of homes for sale in the second quarter of 2018, the all-important spring market, rose at three times the rate of the same period in 2017, according to Trulia, a real estate listing and research company." The flood of housing supply that appears on stage two pushes changes in the dynamic of the market. "Deals get done at the asking price instead of way above, then at a little below, then a lot below. Instead of being snapped up the day they’re listed, houses begin to languish on the market for weeks, then months. Would-be sellers, who have already mentally cashed their monster peak-bubble-price checks, start to panic. They cut their asking prices preemptively, trying to get ahead of the decline, which causes “comps” to plunge, forcing subsequent sellers to cut even further."

 Joe poses the question on what we all want to know. How far are we from the stage three climax? We both agree it is too soon to tell with only one-quarter of data on hand. We will be on the lookout for further signs of supply hitting the market and prices starting to slowly increase, level off, or outright decline.