Will the Boulder Housing Bubble Burst?

The Local housing market is the most stable in the US
 According to the rest of the state, residents of Boulder, Colorado, live inside a bubble. Within an invisible force field created by public open space and mountains, lives a people known for liberal attitudes, advanced degrees, healthy lifestyles and outdoor casual fashion. But lately, as home prices climb at a pitch as steep as our iconic Flatirons, friends have been asking me if we are in a housing bubble that’s about to burst.
The short answer is no. Last summer, Boulder’s housing market was named the most stable in the country, according to SmartAsset.com, which looked at price trends over the past 25 years. “Over the past 25 years, home prices have grown an average of 4% a year in Boulder and are approaching a price level nearly quadruple that of 1990,” the article said. Even during the foreclosure crisis and Great Recession, our prices never declined more than 5%.

Instead of the roller coaster ride other housing markets have seen, our home price index trajectory looks more like an alpine ascent with a gradual uphill, a plateau/small dip during the recession and a really steep pitch over the past two years. (The HPI is a weighted, repeat-sales index, meaning that it measures average price changes in repeat sales or refinances on the same properties.)


This steep climb in home prices is leaving many buyers (and their agents) feeling out of breath. The inventory of homes for sale has decreased even as the number of closings and eager buyers has increased, meaning that almost every new listing sparks a feeding frenzy followed by a bidding war.
Within city limits, the median house price has increased by 15% to $788,000 in the first three quarters of 2015, and the average sales price is over $955,000. But 2015 may end up being known as the “year of the condo and townhome” in Boulder as the median price is on track to increase over 20% from 2014, reaching over $340,000. As more homebuyers and cash investors are squeezed out of the house market, they are turning to lower-priced condos and townhomes.

 Median Sales Price of Detached Single-Family Homes:

Median Sales Price of Condos and Townhomes:


The question is, can this steep incline in sales prices continue – is it sustainable? As long as cash keeps flowing into Boulder, prices will keep climbing. With Google moving 1,500 employees into its new Boulder campus in 2017, and another 300,000 square feet of new office space coming on-line over the next two years, demand for housing will increase, if anything. And with almost no new homes being built for sale within our bubble, the supply will remain limited.

Once the new employees are settled and when mortgage interest rates start increasing, then I think the housing market will calm down into a more gradual upward increase (but prices won’t drop significantly). And while this blog has focused on the City of Boulder, surrounding communities are seeing similar sale price increases. Rather than bursting, the Boulder housing bubble is merely expanding to encompass Louisville, Gunbarrel, Superior, and beyond.

Inspect the Sewer Line, Every Time

My kids joke that I’m obsessed with sewer lines. So on a recent vacation, I threatened to take them to the Paris Sewer Museum (yes, it exists) instead of the Louvre.

Why this obsession? Because I recommend a camera scope of the sewer line as a standard inspection for every buyer I represent.  And about 70% of the time the scope reveals some sort of problem, from minor root intrusion to major breaks.

If you think this is a gross subject for a blog, then you should see my sewer line DVD collection. Glamorous, no. Important, yes. 

In Boulder, most of the older lines are clay, which is susceptible to cracking, settling, and root intrusions. Even newer PVC lines can have low spots or "bellies" that cause slow drains or backups. Sellers are often blissfully unaware of any issues with their home’s waste line, until a buyer scopes it.

Repairing or replacing a pipe that is 6 to 15 feet underground is expensive, running anywhere from $2,500 to $25,000. Excavation is most often required, which can destroy landscaping and be impossible if the ground is frozen. 

When buyers discover a problem during their inspection period, they can cancel the contract and get their earnest money returned, negotiate a price reduction or closing credit, or ask the seller to complete a repair prior to closing. The cost to hire a plumber or inspector to run a camera down the line is $100 - $200. I’d say that’s a good investment.

Most technicians will also “locate” the line by going outside with a detector that can find the camera through the ground and then marking the spot on the surface with chalk or tape.  The detector can also reveal how deep underground the line runs. It can tell a buyer if, for example, the sewer line passes through a neighbor’s property.

On a recent transaction, the buyer discovered exactly that. To make matters worse, the neighbor’s sewer line then tied into the line before it met the City main in the alley. The triple whammy was that the line appeared to run UNDER the neighbor’s house. The bad news kept coming: without a City main in the street out front, the house was landlocked and couldn't tie into the City main without running through a neighbor's land.

Unfortunately, I was representing the seller who had been blissfully unaware of all these facts. She had bought the home a decade prior, before camera scopes had become popular with buyers.

With no legal easement and no shared sewer line maintenance agreement with the neighbor in place, this discovery scared the buyer away. After six weeks of fruitless negotiations with the neighbors and spending over $1,500 in legal fees, my client finally sold her home to a different buyer for $31,000 less than the original buyer had offered. Another expensive lesson learned.

Now I know way more than a normal person should, not only about sewer lines in general, but also about sewer lines that serve more than one house. Although it is a violation of current building code, shared sewer lines are fairly common in older parts of Boulder, along with Lafayette, and Longmont, where large, multi-building estates were later subdivided into smaller parcels. They are more or less “grandfathered” in by Boulder’s code unless there is a way to tie in directly to a City main line.  So, they’re not really a problem … until there’s a problem.

Ideally, there will be a recorded maintenance agreement between the owners of all the homes that are tied into the common sewer line answering these questions: What can and can’t be flushed down the toilet? What happens if a backup occurs? Who pays for the repair and how are the costs split? What if the line needs replacing – will the neighbors separate their lines? If a backup occurs in one house do all the owners share cleanup costs?

After this listing sold, I said I never wanted to utter the phrase "shared sewer line" again, yet here I am writing a blog about it. I figured that I might as well share what I learned about shared sewer lines.

It's a Seller's Market on the Hill!

University Hill, Boulder, Real Estate Market Snapshot

There’s good news all around for the real estate market in Boulder’s University Hill neighborhood as we roll into 2015 ... unless you are a buyer trying to find a home here.  I can’t remember a time when it was more of a seller’s market.

Last year, there was a significant drop in the number of homes sold in the neighborhood – only 22 homes sold compared with 33 in 2013. Meanwhile, the median sales price increased by 13% to $871,000, and homes sold very close to their list price. Sales prices ranged from just under $480,000 for a tiny two-bedroom house on 18^th St near Baseline to over $1.6 million for a historic Tudor on the corner of 11^th and Cascade Avenue that had been on and off the market since 2012.

In terms of low inventory and climbing home values, the Hill is trending in the same direction as Boulder, only steeper. Last year, Boulder saw a 13% decline in the number of homes sold and an 8% increase in median sales price.

2015 promises even more price increases as we have high buyer demand and a low inventory of homes for sale. You may see and hear about new developments in Boulder, but most of them are rental apartments and commercial projects with very little in the way of new homes for sale.  Thankfully, there are new home developments in outlying areas like Lafayette, Longmont and Superior adding inventory. But I predict the housing shortage will not ease in Boulder anytime soon.

If it’s such a seller’s market, you might ask, then why aren’t more people selling? The simple answer is that they don’t want to be left homeless. Unless they are moving out of the area, home sellers face the same challenges as other buyers as they try to find a replacement home. Rest assured that I have developed some unique strategies to help get buyers into homes. Feel free to contact me with any questions or for a free market analysis of your home!

University Hill Home Sales	2013	2014	% change
# of homes sold	33	22	-33%
Median $ per sq ft	$323	$323	0%
Median sales price	$767,500	$871,000	13%
Discount off of list price	-3.04%	-2.46%	-19%
Average days on market	60.50	68.00	12%

2014 Home Sales on University Hill