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01/31/2005: "Home price growth lags"

Rocky Mountain News


Denver drops to 35th costliest metro area in U.S., report shows

By John Rebchook, Rocky Mountain News
November 16, 2005

Four years ago, the Denver-area housing market was one of the most expensive in the United States.

Only the metropolitan areas of San Francisco, San Diego and Orange County, Calif., Seattle, Honolulu, Boston and New York City could boast higher prices.

A year ago, Denver was No. 29.

But a third-quarter report released Tuesday by the National Association of Realtors shows that with a median, or middle, price of $253,500, Denver has dropped to the 35th most expensive out of 147 metropolitan areas.

The reason: Home prices in Denver have been appreciating about a fifth as fast as the nation and about one-eighth as fast as the top 20 percent of the market, according to the Realtors' data.

During the third quarter, the median appreciation nationwide was 14.7 percent, according to the trade group. Exact comparable data for Denver wasn't available because the organization doesn't have the median price of homes in the Denver area from the third quarter of 2004.

However, in the second quarter, the Denver area showed year-over- year appreciation of 3 percent, compared with 13 percent for the entire nation, the association said. Those numbers would be relatively unchanged in the third quarter, NAR spokesman Walter Molony said.

Tom Clark, executive vice president of the Metro Denver Economic Development Corp., said the relative affordability of homes in the Denver area is "good news for our ability to attract new jobs to the region. (Blog emphasis) And the question no one ever asks is, what is the monthly mortgage payment for a median-priced home?"

He said Colorado's low property tax rates on residential buildings also make it competitive.

Clark said his group only resumed actively recruiting out-of-state companies this year, in large part because Denver's housing became so expensive in the late 1990s compared with other parts of the country. By contrast, Denver's affordable housing prices from the mid-1980s to the early 1990s were a huge selling point, he said.

Clark noted that home prices rarely drop.

"The term we use is that our prices are rising at a declining rate," Clark said.

Prices in Denver have been known to fall, however. A report by Local Market Monitor shows that a house priced at $96,700 in 1986 was priced at $91,600 in 1989, a 5.3 percent loss.

But Denver's housing prices may take off in 2006 (Blog emphasis) while most of the rest of the nation drops off dramatically, Lawrence Yun, the Realtor group's senior economist for forecasting, said in a phone interview Tuesday. That would be welcome news for homeowners but doesn't bode well for prospective buyers and companies considering moving here.

"I wouldn't be surprised if the Denver region sees appreciation close to 10 percent in 2006, while nationally we're anticipating a 5.5 percent appreciation rate," Yun said.

He said Denver's housing market is like an underpriced value stock, while most other major housing markets have been acting like growth stocks.

"I think Denver is accelerating," Yun said. "The Denver market has been relatively underperforming compared to the rest of the country over the past two or three years. The major reason for this has been significant job losses, particularly in the high-tech area. The most recent data show good job creation numbers, and I think the trend will continue. In fact, I believe that Denver will be one of the few markets to show price appreciation accelerating in 2006, while the rest of the nation is going to be in a soft-landing mode."

But local economist Tucker Hart Adams, nicknamed the "Duchess of Doom," isn't buying it.

"I hope he is right, but I think Denver will be lucky to get 3 percent" appreciation next year, she said. "I don't see anything that is driving up demand. We're not getting any population growth, and our job growth is still very modest. As I talk to Realtors in the metro area, they are very subdued. They say things have really slowed down, buyers aren't getting the prices they want, and homes are sitting on the market longer."

And she said home builders continue to construct homes, adding to the supply. Adams said the only thing that would drive up prices in the short term would be speculators.

Pat Hamill, president of Oakwood Homes, said at a University of Denver real estate forum last week that speculators have left the market.

In addition, rising mortgage rates will mean even more foreclosures, and those homes will compete with the overall market, driving down prices, Adams said.

Clark is also skeptical that the Denver housing market will appreciate by 10 percent next year.

"I think the bloom is off this double-digit rate growth nationally," Clark said. "Some markets are going to really crater. I expect that our market will be much more in line with the national rate of appreciation."

Most-expensive housing markets

• 1. San Francisco- Oakland- Fremont, Calif. $721,900

• 2. Anaheim, Calif. $710,700

• 3. Honolulu $615,000

• 4. Bridgeport-Stamford- Norwalk, Conn. $476,900

• 5. Nassau-Suffolk, N.Y. $471,000

• 35. Denver $253,500

Source:third-quarter report of medianprices from the National Association of Realtors



rebchookj@RockyMountainNews.com or 303-892-5207

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