Well, it’s been over a month since that fateful day on September 15. The day that Lehman went bankrupt and the Credit Crisis truly went mainstream.
Since then, the DOW has dropped more than 20% and the Great Depression is a daily topic of conversation.
Within that contextual background, my gut told me that the real estate market most severely impacted would be the high end market. In Boulder, “high end” means homes $1 million and over.
My hunch- the market for Boulder luxury homes slowed dramatically in the 30 days from Sept 15 to Oct 15.
Why? The Credit Crisis and the resulting collapse on Wall Street in the stock, bond, and credit markets had a much larger impact, both financially as well as psychologically, on potential home buyers in the luxury market. High net worth folks are typically more in tune with what’s happening on Wall Street and have a lot of their assets invested in the financial markets, so when a 156 year old firm like Lehman goes under, it means something.
These same buyers also often have the luxury of simply sitting on the sidelines until the dust settles and order is restored in the financial markets. They don’t have to buy or sell a home or move, so they hold off, thereby brining the high end market to a screeching halt.
That was my hunch. But what does the data say?
Market data for the high-end Boulder market reveals a mixed message. It’s a story of The Good, The Bad, and The Ugly. First…
The Good:
Contrary to my suspicion that the high-end market came to a standstill on Sept 15, the number of homes priced above $1 million in Boulder proper that went under contract from 9/15/08 to 10/15/08 was 10, twice as many as the 5 homes that went under contract in the same period a year ago.
Wow, the high end market is on fire! Credit Crisis……Schmedit Crisis….luxury buyers remain above the fray and my hunch of a slow down is all wrong! Well, not so fast…
The Bad:
The number of million plus homes that actually closed and sold from 9/15/08 to 10/15/08 in Boulder proper was 3. That’s right….3 closes in a 30 day period. Ouch! Last year, 12 million plus homes closed in the same period. From 12 to 3, that’s a 75% reduction in transactional volume year over year.
The Ugly:
A key statistic in determining the state of a given market is the Absorption Rate. It’s a fancy term that describes how long it will take at current sales volumes to absorb all of the homes currently on the market. The actual figure is determined by dividing the number of active listings by the number of closed sales in the last month.
This is where things get ugly in the Boulder high end market. As of 10/15/08, there were 140 active single family homes listed in Boulder proper for more than $1 million. At 3 closes in the previous month, that comes out to staggeringly high 46.7 months of inventory on the market. In other words, it will take nearly 4 years to absorb today’s inventory of high priced homes.
In short, based on my own feel for the market and the actual data since Sept 15, I believe that the market for higher priced homes in Boulder and all of the other luxury markets across the Front Range are going to slow considerably through the Fall.
I would not be surprised by a 50-75% reduction in sales in Q4 of this year compared to last year for homes above $1 million. I will keep you posted with updates as new market data comes available.
