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04/21/2005: "Just some news on the Denver Real Estate front - priced below market?"

Index shows where homes are overpriced

October 23, 2005

BY KENNETH HARNEY


WASHINGTON -- Homeowners don't like to hear the bad news that they paid too much for their house. Or that their neighborhood is 20% overvalued and prone to downward adjustment.


But a group of economists who are in the business of assessing financial risk have come up with a new statistical tool they say detects real estate price bloat.


It's called the Valuation Index and it was released for the first time Oct. 18 by PMI Group of Walnut Creek, Calif., one of the largest insurers of home mortgages.


PMI stands to pay out millions of dollars in claims if property values decline in overheated markets and insured mortgages go into default. The losses would be even steeper in areas where homes were overvalued at the time the mortgage was insured.


The index tracks historical home price appreciation patterns in dozens of areas around the country, then examines the extent of deviation from the historical norms visible at present in any given market. The index has identified a handful of metropolitan areas where home prices actually are undervalued -- Denver prices, for instance, are 4.2% below where they should be by the norms of several decades, and Detroit prices are 10.3% below. (Editor highlighted)

See the whole report at http://www.pmigroup.com/lenders/media_lenders/pmi_eret05v3s.pdf




Prices stabilize in Denver
Catherine Reagor and Glen Creno
The Arizona Republic
Oct. 23, 2005 12:00 AM

After a few years of small price gains, Denver's relatively affordable housing market is now a draw for businesses and residents, similar to what Phoenix has seen.

Denver's housing market peaked with the dot-com frenzy in the late 1990s. Investors snatched up downtown lofts, historic homes and mini-mansions in Denver's suburbs. But after the 9/11 terrorist attacks and the tech bubble burst, Denver's job market sank, pulling some of the area's housing market down with it.

Steve Blank of Re/Max Alliance said there were 14,000 Denver homes for sale in 2000 and prices had climbed by 20 percent. The market hit bottom in 2003 when there were 28,000 houses for sale. Now there are about 25,000.

"Denver home prices haven't jumped since 2000," Blank said. "Our housing market has been behind the rest of the country since then, but that's about to change."

Denver's job market was flat last year, but economists say it will soon see growth and that could buoy housing. The median price of a Denver home dropped to $250,000 in September from August's record $255,000.

Monthly housing price gains have started to slow in metro Phoenix. In the spring, prices were climbing 6 percent a month. Last month, Valley home prices climbed 1.6 percent. But no one is calling for the area's home prices to fall or incomes to soar, so housing affordability is a growing problem.



Rocky Mountain News

Steven R. Nickerson © News

Tucker Hart Adams listens to the audience ask questions.

Airing out the housing picture
Economist Adams, real estate expert Rinner offer differing views on state of the market

By James Paton, Rocky Mountain News
October 20, 2005

Strolling up to her parked car on a recent afternoon, Tucker Hart Adams ran into a man handing out fliers touting Nouveau Riche, an organization that boldly claims to make real estate investing easy.

For the Colorado economist, the pitch that real estate can deliver impressive returns for years to come is more evidence of a housing bubble.

Slogans such as "Bubbles are for bathtubs," and other sayings scoffing at the notion the housing market is poised to slide are a good indication prices have peaked, Adams said Wednesday, addressing a group hosted by the Denver Association of Business Economists.

"Do we have a bubble like California, Florida or (Washington) D.C., where they have seen appreciation rates of 15, 20, 25 percent a year?" Adams asked. "No, of course not. (Editor Highlighted)

"Does that mean we don't have a problem?" she added. "No."

As interest rates rise, debt-laden consumers eventually will find they cannot pay their bills. Many people, she said, have relied on "crazy" mortgage products that make it simpler to buy homes with little or no money up front or provide low payments.

"There is a fundamentally troubling situation," Adams said. "We are living beyond our means in a way that will not go on forever."

As more consumers face their day of reckoning, prices will come down, she said. Builders have added more homes across the Colorado landscape than the state's meager population growth will justify, she said.

"We're not getting population growth because we're not getting job growth," Adams said.

Adams was joined in the discussion by Michael Rinner of The Genesis Group, who offered a less pessimistic outlook and preferred to see the regional housing market as a "balloon," not a "bubble."

Bubbles inevitably burst. Balloons slowly let air out.

The local housing expert believes a gradual and healthy slowdown is a likely scenario, and he put up a slide of a colorful hot-air balloon, which he said eventually makes a "soft landing" after a nice ride.

"A bubble to me implies rapid price appreciation that cannot be sustained," he said.

In the first quarter 2005, the metro Denver region ranked 89 out of 100 in home-price appreciation, with values increasing 3.3 percent, Rinner said.

That's hardly proof, he said, of an out-of-control market.

"Denver is not a highly speculative market," he explained. (Editor Highlighted)

That doesn't suggest that Denver and Colorado are worry-free.

Rinner explained that supply and demand in metro Denver are out of whack, with the former part of the equation exceeding the latter by 24,590 units at midyear 2005.

But by late 2007 or early 2008, he expects supply and demand to balance out, a healthy sign.

The Genesis Group projects housing prices will rise from 3 percent to 5 percent annually in the next few years.

Bubble or balloon, the good times are gone, even if many people refuse to believe it, the experts said. Adams said she and her colleagues are the first to worry about irrational trends and tend to predict prices will stop rising long before they do.

"When cab drivers start giving real estate investment advice, property investment clubs mushroom and Web sites appear telling you how to get rich flipping condos, a bubble is in its late stages," Adams wrote in her recently released 2006 U.S. Bank economic outlook.


Tucker Hart Adams, economist

• As interest rates rise, more people will be unable to pay their bills.

• Homes are being built at a rate that population growth in Colorado cannot justify.

• Many borrowers have taken out mortgages by using "crazy" products, such as interest-only loans.


Michael Rinner, The Genesis Group

• In the first quarter of the year, metro Denver saw home prices rise by 3.3 percent, ranking 89 out of 100 regions in the country. The modest appreciation suggests a possible "soft landing." Housing prices must increase rapidly for a bubble to exist, he said.

• Housing supply and demand are out of whack in Denver but should balance out by late 2007 or early 2008.

• Home prices in metro Denver should be increasing at a rate of 5 percent by 2008.



patonj@RockyMountainNews.com or 303-892-2544

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