Highlights:
Case-Shiller releases July report.
Denver home prices set record.
Denver ranks 12th of 20 MSAs.
Denver housing prices are on a roll, rising to a record level for the third consecutive month in July, according to the closely watched Case-Shiller report released today.
In May, Denver and Dallas were the first of the 20 major markets tracked by the S&P Dow Jones Indices and CoreLogic report to eclipse pre-recession price levels.
Home price appreciation in the metro area is worth emphasizing, said Lane Hornung, CEO and founder of 8z Real Estate.
“To ensure that it’s not lost in the noise, I’ll state the obvious — Denver home prices set new record high….again,” Hornung said.
Although the price appreciation is in nominal dollars, some economists and experts don’t believe it makes sense to adjust home prices for inflation on a short-term basis, because housing is such a big component of the Consumer Price Index, which measures inflation.
In any case, Denver homes prices were up almost 10 percent in July from July 2012, according to Case-Shiller.
“With a 9.7 percent year-over-year gain, appreciation continues to be strong,” Hornung said.
Although that was below the 12.4 percent average for all the cities tracked by Case-Shiller, Hornung doesn’t see such heady appreciation to continue.
What goes up, must come down
“I expect to see those year-over-year gains taper a bit in the coming months to 7 to 9 percent vs. 9 to 10 percent, as the market consolidates and holds onto the big run up in home prices we saw in the first half of the year,” Hornung said.
“That said, this deceleration in appreciation rates shouldn’t be confused with a ‘slow’ market,” he added.
“These year over year gains sit on top of increases in the prior year,” Hornung said. “The two-year appreciation rate is a healthy 15.6 percent according to Case Shiller figures.”
Thanks to the price appreciation, he noted that thousands of home owners are no longer underwater on their mortgages, he noted.
‘Bottom-line, I am predicting a strong fourth quarter market with a less pronounced seasonal slowdown than usual, even with the tragic recent floods,” Hornung said. “The fundamentals, high demand and low supply, remain in place and will continue to drive the market into the fall.”
Peter Niederman, CEO of Kentwood Real Estate, said the 9.7 percent increase show a consistency, as that is the range where Denver prices have been during the past six months.
It also marked the 19th consecutive month of the market showing year-over-year gains.
“I think that is a good thing,” Niederman said.
However, with an increased supply of homes on the market, Niederman said prices are softening, as the market enters the fall.
Housing affordability key
And while he agrees that an almost 10 percent increase has been good for homeowners who had been underwater, he doesn’t think that is sustainable or desirable, as in the long-term it hurts housing affordability.
“Frankly, a 9.7 percent, year-over-year increase is staggering, much less the 24.8 percent increase in San Francisco or the 27.5 percent increase in Las Vegas,” Niederman said.
He said a stable housing market is a three-legged stool, with housing prices, interest rates and incomes need to be “in harmony.”
The biggest fear now is that prices will rise too much, too quickly, making Denver unaffordable for a large number of people.
“I think if we had more modest price appreciation of 4 percent o 6 percent, that would be pretty darn good,” Niederman said.
He also said it would be healthy for the market if consumers bought homes for “emotional” reasons such as a place to raise families and create memories, rather than solely as an investment.
“I think too many people are trying to market-time the housing market,” he said.
Chris Mygatt, president of Coldwell Banker Residential in Colorado, said he is glad that Denver is not having the huge swings of other markets across the country.
“It is reassuring that our numbers are kind of plateauing,” Mygatt said.
“We’re not this glitzy, not this glamorous market that has these huge peaks and valleys,” Mygatt said.
The recent flooding, however, will have a huge, at least short-term impact on the residential real estate market, especially in the hard-hit northern parts of the metro area.
“With 1,800 homes completely destroyed and maybe another 18,000 damages, we have thousands of people with housing needs,” he said.
He said the flooding effect is more complicated than many realize, he said.
For example, he has one friend and colleague whose house in Lyons remains undamaged, but she and her family may be displaced for a year, because there are no roads to the home and no way to get power to it.
“We are seeing some deals fall apart and going out of contract,” said independent broker Gary Bauer.
Under Colorado law, and in many real estate contracts, if a house sustains more than 10 percent in damage, the buyer can walk away, he said.
Hornung, however, some 8z agents have recently sold homes in Boulder that sustained minor damage.
“The way they looked at it, they were getting new carpet in the basement,” Hornung said.
Boulder-based Markel Homes, meanwhile, announced today it has donated $10,000 to Donate Boulder – Community Organized Flood Relief, a campaign organized by the Living Green Network.
Donate Boulder has been overseeing local flood relief efforts and coordinating the Boulder Mudslingers, a group of more than 100 volunteers assisting in the cleanup of flood victims.
“We offer our sincerest condolences to the hundreds of fellow Coloradoans who now know, firsthand, what it means to live through a natural disaster,” said Michael Markel, president of Markel Homes. “Like thousands of Coloradoans, our employees are volunteering in the communities and participating in the recovery process. The rebuilding is under way.”
Meanwhile, the Case-Shiller report “is very exciting news,” for Denver, Bauer said.
“The market remains strong and there are still buyers out there,” Bauer said.
“As interest rates start to rise, we are starting to see that having a little bit of an impact on the market,” Bauer said.
On the other hand, Dave Pike, of Coldwell Banker in Lakewood, said that he has recently had some clients who decided to buy before rates went higher.
“I’ve had some people who were on the fence, recently buy homes to take advantage of what are still low rates by historical standards,” Pike said.
Consumer confidence is driving the demand for Denver-area housing, he said.
“It’s the Peyton Manning factor,” he said, alluding to the quarterback for the Denver Broncos, who so far is having a spectacular season.
Pike also is seeing an increase of people relocating to Denver from out-of-state.
“Mostly, they have been in the software, IT business,” Pike said.
“I’ve seen a number of people moving from New York,” he said.
“They are making lifestyle decisions,” he said.
Despite the rising inventory levels, the market could use more homes on the market.
“The truth is, there aren’t enough home buying choices out there to excite the casual buyer,” Pike said.
Consumers may have more homes to choose from next spring, he said.
“I’ve had a number of people approach me recently about what they need to do to list their homes next spring,” Pike said.
“I usually don’t start getting those calls until November,” he said.
National snapshot
Meanwhile, on a national level, home prices are “holding their 12 percentannual rate of gain established by the two Composite indices in April,” says David M. Blitzer, chairman of the Index Committee at S&P Dow Jones Indices.
“The Southwest continues to lead the housing recovery,” Blitzer said, with Las Vegas home prices are up 27.5 percent year-over-year; in California, San Francisco, Los Angeles and San Diego are up 24.8 percent, 20.8 percent and 20.4 percent, respectively.
Unlike Denver, however, they all remain far below their peak levels.
“Since April 2013, all 20 cities are up month to month; however, the monthly rates of price gains have declined,” Blitzer said.
“More cities are experiencing slow gains each month than the previous month, suggesting that the rate of increase may have peaked.
“Following the increase in mortgage rates beginning last May, applications for mortgages have dropped, suggesting that rising interest rates are affecting housing. The Fed’s announcement last week that QE3 bond buying will continue for the time being may have only a limited, though favorable, impact on housing.”
Metropolitan Area
Change from January 2000
June to July Change
1-Year Change
Atlanta
11.54%
2.2%
18.5%
Boston
67.02%
1.4%
6.3%
Charlotte
24.22%
0.7%
7.6%
Chicago
25.69%
3.2%
7.8%
Cleveland
6.28%
0.5%
3.9%
Dallas
31.47%
1.3%
8.5%
DENVER
45.63%
1.6%
9.7%
Detroit
-9.2%
2.7%
16.9%
Las Vegas
20.58%
2.8%
27.5%
Los Angeles
106.33%
2.1%
20.8%
Miami
69.07%
1.2%
13.7%
Minneapolis
3.91%
1.8%
9.5%
New York
57.28%
1.5%
3.5%
Phoenix
39.36%
1.5%
18.9%
Portland
57.26%
1.6%
12.2%
San Diego
88.33%
2.0%
20.4%
San Francisco
76.87%
2.2%
24.8%
Seattle
59.50%
1.9%
12.5%
Tampa
51.17%
2.3%
12.6%
Washington, D.C.
102.97%
1.4%
6.0%
Composite 10
76.52%
1.9%
12l3%
Composite 20
62.49%
1.8%
12.4%
Month
Ranking
YOY Change
January 2010
6
2.6%
February
5
3.6%
March
7
4.1%
April
8
4.4%
May
8
3.6%
June
9
1.8%
July
11
-0.1%
August
11
-1.2%
September
9
-3.1%
October
7
-1.8%
November
6
-2.5%
December
7
-2.4%
January 2011
6
-2.3%
February
5
-2.6%
March
7
-3.8%
April
6
-4.1%
May
5
-3.3%
June
3
-2.5%
July
4
-2.1%
August
3
-1.6%
September
5
-1.5%
October
4
-0.9%
November
3
-0.2%
December
2
-0.4%
January 2012
3
0.2%
February
4
0.5%
March
3
2.6%
April
4
2.8%
May
3
3.7%
June
4
4.0%
July
4
5.4%
August
5
5.5%
September
6
6.7%
October
7
6.9%
November
8
7.8%
December
10
8.5%
January 2013
10
9.2%
February
10
9.9%
March
13
9.8%
April
13
9.9%
May
13
9.7%
June
12
9.4%
July
12
9.7%
Have a story idea or real estate tip? Contact John Rebchook at JRCHOOK@gmail.com. InsideRealEstateNews.com is sponsored by Universal Lending, Land Title Guarantee and 8z Real Estate. To read more articles by John Rebchook, subscribe to the Colorado Real Estate Journal.
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Case-Shiller: Denver No. 2
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Home permits up 28%, but flooding demand coming
Case-Shiller: Denver home prices at record levels
Case-Shiller: Denver No.5
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John Rebchook has more than 30 years of experience in writing and communications. As the Real Estate Editor for the Rocky Mountain News, he wrote about residential and commercial real estate for 26 years. He has won numerous awards for business stories and columns that he wrote, both as an individual and part of teams. In addition to real estate, he also covered economic development, banking and financing, the airlines, and cable TV for the Rocky. In addition, he was one of the original freelance writers for GlobeSt.com, covering commercial real estate for the Internet publication.!
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