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05/13/2005: "Colorado Real Estate Bubble a myth?"
Thibodeau has some good points which I have to agree with. Colorado porperty prices have not been skyrocketing like the rest of the country. If the calm rise in prices is inidicative of our purchasing habits, this may bode well in a downturn recognizing that Colorado is well priced, and people here will not panic in a dowtnurn as they did not speculate ridiculously during the upturn..
Article Last Updated: 12/26/2005 02:05 AM
Real estate prof pricks housing-bubble theory CU's Thomas Thibodeau says Colorado's housing prices are based on sound economics. Others point to a high rate of risky mortgages.
By Aldo Svaldi
Denver Post Staff Writer
DenverPost.com
Boulder - Several top economists argue that Colorado's residential real estate market is stretched thin and vulnerable to falling prices. But a University of Colorado professor says they're wrong.
Taking what is an increasingly contrarian position, Thomas Thibodeau, the university's first full-time real estate professor, says Colorado's housing market should remain fairly insulated against big price drops.
"Prices today in Colorado are based on sound economics," he says. "There is no speculative bubble."
Inflation, not speculation, can explain most of the gains in Colorado home prices the past decade, Thibodeau says.
Colorado last enjoyed double-digit gains in sale prices of existing homes in 2000 and 2001. Since then, the state has lagged the rest of the country when it comes to real estate appreciation.
Still, prices are rising locally. And rising construction costs, up about 4.6 percent in the past year, can explain most of those gains, says Thibodeau, who from 1983 through 2004 was on the real estate faculty at the Cox School of Business at Southern Methodist University.
Costs for land, building materials and construction labor are running ahead of overall inflation, he says.
From a longer-term perspective, several trends work in real estate's favor despite rising interest rates, Thibodeau says.
Investors who favored stocks the previous decade are putting a larger share of their net worth into real estate, including second homes and investment properties.
More single people are buying homes.
The state should create 52,100 jobs next year, according to a forecast for 2006 from CU. That job creation will support the housing market.
"That takes care of a lot of vacancies," says Thibodeau, who received a doctorate in economics and a master's degree in statistics from the State University of New York at Stony Brook in 1980.
After completing his doctorate, Thibodeau became a research associate in the Housing Division of the Urban Institute in Washington, D.C.
Some of the state's top economists disagree with Thibodeau's conclusions. While home prices may not be as overstretched, consumers in the state are, they say.
Colorado borrowers are among the most heavy users of interest-only and adjustable- rate mortgages in the country, believers in a real estate bubble say. Those loans are considered higher-risk products that leave borrowers more vulnerable to defaults and foreclosures.
Already, foreclosures in the Denver area are approaching levels last seen during the real estate bust of the late 1980s.
"We have just as many problems," said Tucker Hart Adams, a regional economist with U.S. Bank. "We are just as likely to lose that house."
And despite a huge drop in new people moving to the state and tepid job growth, homebuilders have continued to build, said Bill Kendall of the Center for Business and Economic Forecasting in Denver.
Colorado's nonfarm payrolls remain below the highs reached in the summer of 2001, and net migration to the state has dropped from 68,400 in 2001 to around 27,000 this year.
Despite that, builders added 210,000 homes to the state's housing stock in that period, Kendall said. That can't be explained unless speculative buyers snapped up investment properties and second homes.
Thibodeau acknowledges that home prices could fall in some overheated markets, especially if interest rates rise.
He just doesn't see Colorado in that category.
Thibodeau doesn't see how a state economy creating more than 50,000 jobs can occur at the same time as a housing crash.
When housing markets in Texas and Colorado struggled in the late 1980s, he says, both states were economically weak because of a slumping energy industry.
Staff writer Aldo Svaldi can be reached at 303-820-1410 or asvaldi@denverpost.com.
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