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05/11/2006: "Mile High Bankruptcies and Foreclosures"

Rocky Mountain News

Sometimes less is best in forecast for economy
January 21, 2006

Rob Reuteman

I do a fair amount of homework each January prior to speaking at the annual Vectra Bank Colorado Economic Forecast Breakfast, which was Thursday. I go over much of our economic coverage for the past year, condense it and regurgitate it. Some of it is worth sharing, such as:

There is reason to be optimistic about Colorado's two worst economic indicators - bankruptcies and foreclosures. In 2003, we led the nation for the rate of increase in bankruptcies. In 2004, we were second, behind New York, with almost 28,000. Last year there were nearly 48,000 bankruptcy filings in Colorado as of late December, a 54 percent increase over the previous year. The final tally for the year is not out yet.

What's good about that? The new federal bankruptcy law went into effect in mid-October. For the first time, it forces people who file to pay back their creditors to some extent. Many people wanted to file before the law went into effect. On Oct. 15, the last filing date before the federal law took effect the following Monday, 3,400 people filed in Denver's bankruptcy court. There were lines around the block, and we ran pictures of them. For the entire month of November, only 130 people filed. In December, the tally appears to be fewer than 400, and that's good news.

With foreclosures, the emerging picture is similar: It's still bad, but the rate at which it's getting worse is slowing down. Last year, there were 14,400 home foreclosures in Colorado. That's the second-worst year ever here and ranks us fifth in the nation. The worst year for foreclosures is still 1988 - more than 17,000 Coloradans lost their homes as the savings and loan industry collapsed.

The silver lining? In 2002, foreclosures posted a 55 percent increase over '01. In 2003, they posted a 44 percent increase over '02. In '04, the increase over 2003 was 31 percent. See the trend here?

Last year's 14,000-plus foreclosures were only 16 percent more than 2004, nearly half the rate of increase from the year before. Patty Silverstein, president of Development Research Partners and another speaker at the Vectra Bank breakfast, predicts 15,000 home foreclosures this year, a 7.1 percent increase over last year. We appear to be getting there, folks.

Speaking of residential real estate, in a better light: The median price of a Denver-area home rose 4.4 percent last year, to $246,600. The appreciation rate in Denver has stayed within a 4 percent to 6 percent range since 2002. That's a far cry from the 15 percent annual appreciation local homeowners enjoyed in 1999 and 2000. But rate of appreciation means we don't need to worry about any real estate bubble bursting here. Look at Phoenix, which Silverstein said had a 55 percent rate of appreciation last year. That cannot sustain itself. She rattled off slightly smaller rates for Tucson, Las Vegas, San Diego and several cities in Florida. Those folks ought to worry. We don't need to. The National Association of Realtors forecasts a 7 percent rate of appreciation for homes along the Front Range for the next two years. A bit worrisome is the current resale inventory in Denver of about 23,600 houses, up 13 percent from 21,000 at the end of 2004. Houses stayed on the market an average of 90 days last year, only five days more than the year before.

The third breakfast speaker was Jeff Thredgold, Vectra Bank's chief economist and a wonderfully entertaining and opinionated speaker - for an economist. A few of his musings are worth passing along:

• The Dow will hit 12,000 this year. It finished down 213.32 to close at 10,667.39 on Friday. Thredgold credits "the quality of U.S. companies, which have gone from downsizing to right-sizing. The growth in corporate earnings has been incredible in the past three years."

He also cites baby boomers. "We've all read about how the 74 million-strong generation is beginning to retire, with one reaching the age of 60 every eight seconds," he said. "They have not saved aggressively for retirement. In the next few years they will begin playing catchup to get to where they need to be."

His final reason: "Fear and greed are still the two main motivating factors for investors. After the stock market tanked five years ago, the aggressive money went into real estate. As the real estate market cools because of rising interest rates and the threat of a bursting bubble, the money will move back into the stock market."

• Energy prices will stabilize over the next few years, Thredgold thinks, with oil settling in somewhere between $48 and $52 a barrel. "It may hit $80 a barrel before we get there, but that's where it will end up," he said. "The Saudis don't want businesses and consumers switching to hybrids or clean-coal technology. The Saudis don't want us to have that conversation."

Business editor Rob Reuteman can be reached at 303-892-5177 or reutemanr@RockyMountainNews.com.

Copyright 2006, Rocky Mountain News.