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05/11/2005: "Housing-bubble shield "

Article Last Updated: 12/28/2005 06:16 AM

Stable local home market seen as plus. Experts see a crash coming in some places, but the "sluggish" Denver market is viewed as sustainable.
By Margaret Jackson
Denver Post Staff Writer
DenverPost.com

Denver's real estate market continues to be stable in the midst of national talk about a bursting housing bubble, experts say.

The Denver market's growth is slow and sustainable, unlike skyrocketing markets in Phoenix and San Diego that are likely to crash as mortgage rates rise and the economy slows.

According to statistics released Tuesday, the median price of a single-family home in Denver increased 4.4 percent over the past year, to $246,613. The median price for condos increased 1.9 percent to $160,000.

"I think it says the housing market hasn't collapsed, but it's a sluggish market, particularly in terms of prices," said Tucker Hart Adams, a regional economist with U.S. Bank in Denver. "I think the parts of the country that are seeing these double-digit increases are just headed for problems down the road."

Nationally, the housing market is headed for a fifth consecutive yearly record, according to the National Association of Realtors. Existing-home sales are expected to rise 4.7 percent to 7.1 million this year, with the median price for all housing types surging an estimated 12.7 percent to $208,000.

In 2006, existing-home sales are likely to decline 3.7 percent to 6.84 million nationally, according to the association. But the median price is expected to rise 6 percent to $221,400.

Locally, the number of homes sold declined 1.9 percent to 53,005. But experts predict home values will appreciate anywhere from 4 percent to 6 percent next year.

Home prices appreciated between 10 percent and 14 percent each year from 1996 to 2000 before dropping to 2 percent through 2003, said independent real estate analyst Gary Bauer.

Another big concern is the 12.8 percent increase in inventory over last year. At the end of December, there were 23,572 active listings, a number that is expected to rise with interest rates, said Steve McGuire of Re/Max Professionals in Highlands Ranch.

The Federal Reserve recently pushed interest rates up for the 13th time this year, with two more rate hikes expected in January and March in an effort to slow the economy to keep inflation under control.

Analysts are afraid the rate increases will cause a drop in housing demand and prices, resulting in a slowdown in consumer spending.

"When your home price is going up, you feel more wealthy and spend more money," Adams said. "If prices aren't going up, even people who don't plan to sell their houses are just not going to feel as well off. They're going to save more and spend less. That's a negative for the economy in the short term."

Rising interest rates also will result in an increase in foreclosures as people who have opted for nonconventional loans are unable to make the higher payments.

"They don't have a lot of room to see interest rates go up ... or (have) anything in their lives go wrong," Adams said.

Staff writer Margaret Jackson can be reached at 303-820-1473 or mjackson@denverpost.com.