John Rebchook is a former Rocky Mountain News reporter with more than 30 years of experience in writing and communications... 
By John Rebchook, on January 21st, 2010Earlier today, I wrote a blog about the latest S&P/Case-Shiller report that shows that Denver fell far less from its peak than other markets across the country such as Las Vegas, Phoenix and Miami.
Still, many Realtors contend that doesn’t really capture what is happening in the market.
They argue that interest in homes that most people buy – those below $300,000 – is quite robust. And if it were not for the huge drop in values among the most expensive houses, the Denver-area market would be extremely strong.
“I am always afraid when someone reads an article showing an overall gain, or a peak, or a loss in the Denver metro area, they think that is what they are going to find in every neighborhood,” said Corey Wadley, a broker-owner of Denver-based Nostalgic Homes.
He said that reports looking at an overall market do not take into consideration that different market exist at different price points.
“First-time home buyers read it is a buyer’s market, and think the can throw a wet noodle at the wall and it will stick,” Wadley said. “But it is not a buyer’s market in the areas around downtown Denver under the $250,000 price point. People in the trenches can tell you that we are looking at multiple offers at these price points below $300,000 or $250,000. The overall numbers for a metro area do not really tell you much in relationship to homes people are looking to buy right now.”
He said in northwest Denver example, where Nostalgic Homes is headquartered and does two thirds of its business, home prices appreciated last year for those priced $300,000 or below. Developers of luxury spec homes – those without buyers – in northwest Denver had to drop their prices, because of extremely high carrying costs, making the market look weaker than it really was for the majority of buyers, he said.
If you removed the luxury housing market from the statistics, which has seen huge slashes in prices, the rest of the market would look pretty solid, said Jeff Bernard, principal of Bernard Real Estate Analytics and a broker with RE/MAX Alliance.
“I really believe so,” Bernard said. “The luxury housing market is experiencing a pretty amazing crash. I would think that is the only thing that would really be hurting the overall Denver residential real estate market…I don’t want to sound trite, but it really is almost a street-by-street market. There are certain aggregates than you need to look at when we start drilling down into the market. I think the $300,000 and below is a very healthy market. It is a ticking time bomb in the $750,000 to $1 million and beyond market. I would say that is really a black hole out there, although it is a small percentage of the market.”
Economist Patty Silverstein, principal of Development Research Partners, said she has not paid as much attention to the sales in price point like many Realtors have, but she believes that they are probably correct that the luxury housing market is a drag on the overall market.
“The higher-end housing market seems to have more swing to it,” she said
Bernard said the $8,000 tax credit for first-time home buyers helped the overall Denver housing market last year.
“I know that from first-hand experience,” Bernard said. “I helped my daughter buy her first home last year. She was looking in the $210,000 range and we saw the prices increases, as people bid up the prices on those homes.”
He said at the low-end, first-time buyers not only are competing against owner- occupants like themselves, but also against investors who plan to fix them and flip them, or rent them.
Bernard and Wadley said that the extension of the $8,000 tax credit to the end of April, as well as a $6,500 tax credit for some current homeowners, should drive traffic in the first few months of this year. Wadley said he is surprised by how many people who unaware of the tax credits, especially the one for existing homeowners. He said he is encouraging people to start looking now, rather than waiting until February, and risk not getting their home under contract in time to take advantage of the tax credits.
Early signs are promising, Wadley said.
“If we judge it by open house traffic, the interest out there is huge so far this year,” Wadley said.
Contact John Rebchook at JRCHOOK@gmail.com or 303-945-6865.
[...] « Dee featured in Husted’s Bar & Grilled Except for luxury homes, Denver’s housing market is robust [...]
Thanks for your posts. I've been enjoying reading them. But I have a question that I would really like you to address: Do you think that the Denver market truly is stable or are we waiting just waiting for the other proverbial shoe to drop? My concern derives from the wide use of "creative" financing in the Denver area. For example in this 2005 NY Times article: http://www.nytimes.com/2005/07/17/national/17denv... includes this observation in the final paragraphs:
"In fact, analysts say the Denver market has remained as healthy as it has because of low mortgage rates as well as creative financing, including no-money-down and interest-only loans. Interest-only loans have accounted for a high rate – 42 percent – of purchase loans over $360,000 in Denver this year, according to LoanPerformance, a mortgage data firm."
Also in the report "Understanding Mortgage Foreclosures in Denver" published by the Denver office of economic development (and available at .http://www.milehigh.com/newsdata/Studies) indicates that a significant number of home buyers in the last 5 to 7 years have used "alternative" mortgages to purchase their homes. With the reset schedule for Option Arms and Alt-A option Arms rapidly approaching (see http://www.calculatedriskblog.com/2010/01/option-... I am truly concerned that this idea that "there was no bubble in Denver" may not be true–Maybe we didn't have a bubble, but instead the wide availability of credit merely kept prices from crashing after the recession of 2001-2002. You are connected in this industry. If you have access to the number of loans that were made from 2004-2007, the types of loans, how many have already defaulted etc. it would be very valuable to your readers if you could publish them. And if you do believe that there is no shadow inventory etc, or a second wave of foreclosures (a la the report from Amherst securities that you blogged about a while back) then defend your position, and say why you think that the market is stable.
I'm not taking a position. I try to report the news as objectively as possible. I welcome input from all points of views.
I think you raise valid issues. And I do think there is a shadow market The question is how big is it, what will the impact be, and when will we see the repercussions. My observation covering business for more than 25 years at the Rocky Mountain News is that a strong economy ultimately is what is needed to right a bad market. It is amazing how the slate of bad decisions made by consumers, lenders and businesses can be wiped clean if there are more jobs and more demand for housing. Thanks for writing. I appreciate your thoughtful comments and suggestions.
John
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[...] This post was mentioned on Twitter by Todd Holmes, Realtor, Bruce Swedal. Bruce Swedal said: Except for luxury homes, Denver’s housing market is robust: The only thing hurting the Denver housing mar.. http://bit.ly/5alghS [...]
As a builder /broker since 1977 I find the vast majority of brokers don't learn the products they are trying to sell, and have adopted a one price fits all mentality. This is particularly underserving the public in the area popularly termed "luxury" homes as in that market each home is different. I've tried for 33 years to let brokers showing my homes let me be at the showing…and I've never had any broker accept. The other big shortcoming I see is the use of distressed sales as comps.. Simple logic would tell one that just because one homeowner or builder had trouble doesn't mean the rest of the homes in the same market are worth less too, yet I can't tell you how many times I see this done. As amember of HBA I talk to a lot of other builders, and the universal opinion is that their products are underserved by the brokerage commuity.
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