Denver housing market leads nation for appreciation
Denver is the top market since the housing boom last decade and since 1991.
Metro Denver is leaving last decade’s housing bust in the rear view mirror faster than any other major metro area in the country, according to a new study from HSH.com.
Home prices are now 49.1 percent above the old high they reached in the first quarter of 2006. That is the biggest increase from the prior decade’s peak among any of the 100 metros tracked in a home price index run by the Federal Housing Finance Agency.
Five of the other top 10 metros making the list for the strongest appreciation above the prior peak are all in Texas: Austin, Houston, Dallas, Fort Worth and San Antonio.
What the best performing markets tend to share is that they didn’t catch up in the exaggerated home price gains seen in states like Florida, Arizona and Nevada. They also are reporting robust job gains and population growth.
“For the most part, markets that didn’t crash as hard have fared well during the recovery, as have those where job markets recovered the fastest,” said Keith Gumbinger, a vice president at HSH.com, a New Jersey firm that provides mortgage research.
Metro Denver did see foreclosures, short sales and underwater properties swell at the end of the last decade, said real estate market veteran Gary Bauer, a member of the Denver Metro Association of Realtors.
“We suffered our downfall and it had a dramatic impact,” Bauer said. But looking back, the Denver market didn’t have as far to crawl back as many other cities.
Take Las Vegas, where home prices have bounced back more than 75 percent from the bottom, a remarkable move by any measure. Still, the Las Vegas home price index remains nearly 50 percent below the exaggerated highs reached last decade.
Other housing bubble cities struggling the most to achieve their former highs include California cities of Stockton, Bakersfield, Fresno and Riverside; Fort Myers and Orlando in Florida; Tucson; Camden, N.J.; and Elgin, Ill.
Despite the passing of so many years, only 42 out of the 100 metros have surpassed the old home price index highs as of the first quarter. Allowing that a dollar today doesn’t buy as much as it did a decade ago, only one in 10 metro markets have provided any real gains from their prior peaks.
A question the report raises is whether metro Denver, given its strong home price appreciation, may find itself a decade from now where Las Vegas is today. The median price of a home sold in metro Denver last month approached $400,000.
Since the FHFA home purchase index started back in 1991, metro Denver home prices have quadrupled. No other metro, not even San Francisco, has managed that kind of long-term appreciation. Miami’s index did quadruple from 1991 to 2007, but hasn’t regained those highs after crashing. Only economic rival Austin comes close to matching Denver’s performance.
“Regular, modest gains are usually the most durable; upward spikes that outstrip incomes and job and population growth are more susceptible to correction,” Gumbinger said.
But there are significant differences between 2006 and 2016. A decade ago, easy-to-obtain mortgages and rising home prices created artificial demand for homes. Those same loose lending standards allowed builders to bring what proved to be a glut of new homes to the market, including in metro Denver.
Back in May of 2006, for example, there were 30,457 listings available for sale in the Denver market, double the historical average, according to counts from DMAR. Last month, there were only 5,463 homes available for buyers.
Demand is strong, but the supply of new homes and apartments isfalling short of population growth. And builders remain hard pressed to keep pace.
Gumbinger recommends watching for two things that could contribute to home prices rolling over — a surge in investors putting rental properties on the market and weakening job growth or job losses.
Bauer said he attended a conference recently where investors acknowledged they were sitting on a healthy gains in their rental homes. But those properties are yielding them 6 percent to 10 percent returns.
“I can sell it and make a profit, but what would I replace it with,” Bauer said investors were asking.
Helen H. Richardson, The Denver Post
Luxury home sales increased 28 percent in May, with 22 homes topping $2 million mark
The 168 high-end sales in May was flat compared to the same month last year
Luxury home sales were flat in May year-over-year in metro Denver, according to a Coldwell Banker Residential Brokerage report.
Sales of homes priced higher than $1 million rose to 168 in May rose from 131 in April, a 28.2 percent increase.
“That is a massive number of million-plus-dollar homes,” said Chris Mygatt, president and COO of Coldwell Banker Residential Brokerage.
He said the flat rate is still a positive indicator because last year’s high in May was an anomaly, and the May total was up 37 from April.
The median sale price dipped 6.3 percent from a year ago to $1,296,000. That figure is also down from April.
In May, there were 22 sales over $2 million and six sales topping $3 million. The most expensive sale was a $6.7 million five-bedroom, five-bathroom home of about 15,500 square feet in Highlands Ranch.
Denver saw the most million-dollar sales with 51. Boulder followed with 35, and Cherry Hills Village posted 11.
The number of luxury homes sold in 2016 is forecast to beat last year’s figure by 12 percent, based on tracking so far this year, Mygatt said.
The luxury market holds consistently with the rest of the market, he said.
Luxury home sales make up about the top 5 percent to 6 percent of units sold in Denver metro. It’s a small segment of the overall market but an important indicator because of the volume of business done within that price point.
Homes came off the market faster than they did a year ago, down to 84 days from 90 days a year ago. Time on the market is a driver analysts watch very carefully, because it’s a indicator of demand.
Properties in the luxury market sit longer than the Denver average of about 33 days because luxury homebuyers are more selective and transactions take longer, Mygatt said.
National Association of Realtors economist looks at the future of real estate in Summit
While there’s no crystal ball for the future of housing, Lawrence Yun’s predictions might be the next best thing. The National Association of Realtors chief economist and senior vice president of research shared his forecast for Summit County on Wednesday, with job growth as a positive indicator for the market, while low inventory and rising prices weighing in as negatives.
One of the major factors is Denver’s recent booming growth, which he says shows no sign of slowing.
“There are way too many buyers going after far too few properties. Denver and Seattle are just going wild,” he said. “Whatever happens in Denver will come over here.”
With Denver’s population rising exponentially, Summit County is also seeing a larger pool of buyers. However, local housing inventory is still at historic lows, with limited construction in Summit.
“Why is there low inventory in Summit County?” Yun asked. “Because builders are not building.”
Part of the reason behind that, he added, stemmed from state policies that don’t encourage builders to construct. While he forecasted inventory would climb a little bit in the future, it was not by much.
“They will be slowly vamping up production,” he said.
Like many industries in Summit, real estate is seasonal — to an extent. During the winter months, many homeowners will hold onto their properties for short- or long-term rentals but will be ready to put their homes on the market come spring.
This year, however, the market is not seeing the same springtime inventory surge.
“We seem to see listings come, but they’re almost being sold as quickly on the market,“ Summit Association of Realtors board president Tom Harmon said. “Back when I started, it was normal to see 1,700 to 2,000 units on the market. Last time I looked, inventory was almost to 600.”
Resort communities are also faced with a unique problem: limited space. As Summit nears 93 to 94 percent build-out, available land for new properties is shrinking. With Denver at seventh in the nation for population growth, that will likely make for a larger pool of prospective buyers in Summit.
“Those people are going to look to the mountains for recreation,” Harmon added.
What’s driving so many prospective homebuyers to Denver? According to Yun, the key is the cost of living, with increasing costs in San Francisco driving tech workers elsewhere.
“People just can’t afford to live in San Francisco,” he said. “Compared to the prices they were paying, (Denver) is very affordable.”
Of course, Colorado locals would have a different perspective, as they see prices rising. Home costs in the metro area are at a new high, while rural Colorado is not quite back at peak levels.
“Denver has reached a new high, but Summit County has not,” he said. “Hopefully, we will get a delayed reaction from what’s happening in Denver in Summit County.”
Summit’s proximity to the metro area is certainly an advantage in this aspect, compared with other resort towns further west.
Another factor feeding into sales is the local job market. The state as a whole is above average, Yun said, though Denver is doing well. Despite fluctuations due to seasonality, for Summit, the overall trend for new jobs is steadily increasing.
THE BIG PICTURE
On a national scale, he said ownership is at a 30-year low even though mortgage rates are said to be the best in a generation.
“We are selling more homes — but to people who are switching homes or buying vacation homes,” Yun said.
First-time homebuyers are currently at 30 percent, with potential purchases by younger buyers holding back due to student debt. He said while most millennials expressed interest in owning a home in the future, with the need to pay off debts most are delaying ownership by about five years.
The national economy is also a factor, with lifetime wealth near an all-time high, but a steadily decreasing median income.
He said this discrepancy is “raising economic anxiety,” as evidenced in the discourse surrounding the current election.
“Ever since the recession we are just growing slowly,” he said.
He added consumers overall have less confidence than before with the consistency of sub-par economic conditions.
In sum, his outlook for home sales in the next year was more positive than negative, with several factors adding into the mix. With more buyers coming in with good credit, increased job creation and better housing equity, 2017 is looking favorable. However, a predicted increase in mortgage rates and rising prices may pose a challenge in the future.
Elise Reuter firstname.lastname@example.org