Will there be a Northern Colorado housing bubble 2021?
This is a question that I am frequently asked. Articles like this one from the Denver Post seem to be published every week. But just what would a Northern Colorado housing bubble 2021 look like? A housing bubble is a temporary period of time that is characterized by high demand and low supply. This causes a boost in pricing. A housing bubble can be caused by a combination of low interest rates, economic prosperity and easy access to credit.
So, what is the concern with a housing bubble?
The concern is when speculators enter the market. This causes a boost in demand over and above “real” buyer demand. Speculators can be investors from out of the area and even fix and flippers. This causes an already tight market with limited supply to have even higher demand, pushing housing prices even higher. The price of housing, like any good in a free market is driven by the law of supply and demand. When the demand increases the price goes up. When the price of housing is going up faster than expected, many people fear that a Colorado housing bubble is about to burst and prices are going to come crashing down.
Is that the case in 2021? I would say that this is not likely. I see some major differences between 2021 and our last housing crisis.
What are the major differences?
1) Mortgage lending practices that brought down some of the major banks and mortgage companies during our last financial crisis have led to many regulatory changes. Federal regulators have new stricter requirements of borrowers and new requirements of lending intuitions. The Consumer Financial Protection Bureau was created to enforce these new regulations. Because of this the housing market is safer than it was 15 years ago.
2) In 2007 and 2008 the market in many parts of the country was flooded with foreclosure homes. This caused falling prices of homes. The pandemic has caused mass unemployment. However, the forbearance programs have allowed homeowners to postpone their monthly payments without penalties. Many of those unemployed homeowners resume their mortgage payments as they again become employed, avoiding foreclosure.
3) One of the major differences between the housing crisis and the pandemic is that homeowners today have EQUITY in their homes. This could prevent a Colorado housing bubble 2021 Equity is the difference between the current market value of your home and the amount that you owe on your mortgage. As prices have rises your equity increases too. During the housing crisis many home owners had the amount of their home value less than what they owed on the home.
No one can predict what will happen for sure but it is not likely that there is a Northern Colorado housing bubble in 2021. Low interest rates and demand have certainly driven prices up in 2021. You can always contact us for a free market analysis to find out where you stand. In the meantime hold on for the ride to see where we go for the rest of 2021.