With the sharp decline in housing inventory for Denver and the Northern Front Range, including Longmont, Colorado, many first-time homebuyers have been priced out of the market. As I’ve walked the neighborhoods, I’ve heard several explanations offered about the current market conditions, from interest rates to a net increase in population.

According to Manfred Chemek of Manhelm Global Investment Advisors, Colorado is seeing a net inflow of 16,000 residents each month on average. This is expected to continue, but does it explain the current market pricing?

This increasing number of residents need homes, yet the building industry is unable to keep the pace of development for new homes high enough to satisfy the demand. According to the article there are “No entry level housing options.” The report paints a grim picture of Boulder County affordability, especially for entry-level buyers, with few housing options priced below $250,000.

There is one other possible explanation I keep hearing and I don’t think my sources are just blowing smoke.

Colorado is a great place to live for many reasons including the great outdoors, a strong jobs climate and friendly people. Colorado is also one of the few states permitting recreational use of marijuana and has a strong medical marijuana industry. And these businesses are growing, earning large amounts of income by fulfilling and selling a highly regulated federally designated schedule 1 controlled substance.

However, the controlled designation means those in the marijuana trade may not use federally regulated resources such as banking to store their earnings. Since these businesses can’t just deposit their money in a bank account or credit union, what are their options?

The theory is these business owners are buying real estate, perhaps many of the affordable housing units. This creates both a legitimate use for their cash, and an opportunity for growers to either earn more cash through rentals (which is U.S. bankable income) or house a growing facility, whether in a residence or a property with an outbuilding such as a shop or greenhouse to expand their sales. The eventual sale of the property, regardless of its use, would also become federally approved for deposit.

In response, some may cry foul. It doesn’t seem fair. However, every market has its challenges and if this is the true explanation for the lack of inventory this is Colorado’s. Only time will tell the long-term effects of our current market. Meanwhile, I continue to do everything I can to help my buyers and sellers get into the home or investment they most want.

Would you make a comment below on your experiences with the current market? Which of these explanations do you think is most realistic?

image source: http://www.dea.gov/photos/marijuana/marijuana031904_fig1.jpg