The closely watched Case-Shiller index released today shows that in March the Denver-area housing market was the third-best performing city of the major metropolitan areas it tracks.
Denver also boasted its biggest percentage increase in almost two years.
Denver showed a 2.6 percent year-over-year gain in March, compared with a 2.6 percent decline for the 20 metropolitan statistical areas tracked in the S&P/Case-Shiller Home Price Indices. Only Phoenix, with a 6.6 percent gain, and Minneapolis, with a 3.3 percent increase, performed better than Denver. Atlanta fared the worse, falling 17.7 percent from March 2011. The last time Denver showed a bigger percentage increase was in May 2010, when it had a 3.6 percent year-over-year gain.
“Once again, congratulations to the market,” said independent broker Gary Bauer, who prepares his own monthly report on the Denver-area market based on Metrolist. “Our current information from the local MLS shows that April was strong and all indications are that May will be a very positive month, also.”
Denver is buckling a national trend, with some cities even hitting new lows in March, according to Case-Shiller.
Bauer said that Case-Shiller confirmed what he and other local Realtors already know, but he was surprised that other markets still appear to be in a slump.
“That is somewhat of a surprise to me,” Bauer said. “Across the country, it seems as we are seeing very gentle, gradual improvements. But I think this shows that Denver was the first to go in and now is the first to come out,” of the housing downturn.
Jack O’Connor, principal of the Denver 100, said he wasn’t surprised how well Denver did compared with the other 19 MSAs.
“Denver has not had the depreciation of some other markets, and with our inventory so far down, Denver has been a stronger market than many parts of the country,” O’Connor said. “Phoenix did so well because its prices were down so much that people are finding bargains. Proportionately, Phoenix also is seeing a drop of inventory that is similar to Denver’s.”
O’Connor calculated that the entire Denver-area market only has about a 3.3-month supply, about half of what it had a year ago. And for homes below $250,000, there is only about a 1.7-month supply of unsold homes.
“I am seeing homes priced at $300,000 and below rising a half-point to a full-percent in value each month,” O’Connoer said. “That is especially true in the City and County of Denver. Denver is on fire. The suburbs, not so much. If you are in Denver and you have a home below $500,000, yes, it is very much of a seller’s market. If you in the suburbs, it might be below $400,000 before it is a seller’s market. ”
The luxury market is much softer than the overall market. “If you are $1 million, it is still pretty soft just about anywhere, with a few select submarkets such as Hilltop and Cherry Creek North,” O’Connor said. “I don’t think it is a big secret that if you are in Douglas County, you still have an ample supply of homes to choose from that are priced at least $1 million. You can get some really nice discounts at the upper end. There are suburban homes built to sell for $3 million that are now priced at $1.8 million.”
A market for the record books
Gary Lohrman, of Keller Williams-DTC, said that the Denver area housing market turned on a dime.
“It has been pretty amazing,” Lohrman said. “In my 35 years of business, I have never seen a market turn around as fast as this year. I think we have a perfect storm of pent-up demand, low inventory and low interest rates. I am actually seeing a little bit of a buyer’s frenzy, especially below $300,000.”
Recently, Lohrman had a client who liked a home on the east side of Denver that was priced at $275,000. The home had come on the market that day and the prospective buyer was following Lohrman in his car. The listing agent told Lohrman that she had already received three offers and one was above the asking price. Lohrman signaled his client to pull over and told him that he would have to out-bid someone else to get the home.
“He wanted to offer $300,000 and I told him I thought he would get it for $290,000. We submitted an offer for $290,000 and he got it.”
Lohrman said he isn’t sure how long these conditions will last. “But like I said, this kind of a rapid shift from a buyer’s market to a seller’s market, is something I have never experienced in 35 years. It’s really unknown territory. I don’t know how much depth it has. We certainly have not seen the typical increase of inventory we normally experience during the spring selling season. We’ll just have to wait and see what happens.”
Shadow market welcome
Chris Mygatt, president of Coldwell Banker Colorado Residential Real Estate, said there is so little supply that he does not fear the once-dreaded shadow market – homes held by banks that are not yet on the market.
“If home values were still eroding by 7 percent or 8 percent, we would see a big upswing of foreclosed homes and short sales, which would drive down the prices of homes,” Mygatt said. “But the reverse is true. If prices rose by 5 percent or 7 percent, we would have fewer foreclosures and short sales. We are not at that 5 percent or 7 percent range, but that is the direction we are headed.”
Appreciation is a game-changer, he said.
“Let’s say you ran into financial problems and you have already missed one mortgage payment,” Mygatt said. “If all of a sudden your neighbor sold his home for $10,000 more than before, you might say, “Honey, let’s take advantage of these market conditions and sell our home,” instead of a short-sale, in which the lender agrees to take less than the mortgage amount.
“If this trend continues, pretty soon people will be able to ride the wave back up and almost over night, we will be saying good-bye to the shadow market,” Mygatt said.
Peter Niederman, CEO of Kentwood Real Estate, also doesn’t fear a wave of shadow inventory
“No, not at all,” Niederman said. “We have been hearing about the shadow market for probably three years now. At one point, the conventional wisdom was that a third of our sales were distressed properties, either foreclosures or short sales. What that did was bring down values for the entire market. Those REOs and short-sales put pressure on an already painful market. Now, we should be fortunate to have some shadow inventory. We would welcome it. We could use the inventory.”
The shadow market also isn’t something Scott Webber, president and owner of Fuller Sotheby’s International Realty, is worried about.
“The shadow market is more of something I have heard about than seen,” Webber said.
Webber said that today’s Case-Shiller report is “great news” and continues to cement Denver as a place where people want to live.
“The state of Colorado and Denver are emerging as destination locations,” Webber said. “Everywhere I go, when I tell them I live in Colorado, you can see them light up. Colorado is either a place where they would want to live or are working to live here.”
He said the relocation activity is the strongest he has seen in years. He has noticed a lot of people relocating here from California, the Midwest and the East Coast.
Webber said demand for housing is moving up the food chain.
“We are now sometimes seeing people bid on houses up to $1.5 million or $1.75 million,” Webber said. “Six months ago, we never saw multiple bids for homes over $600,000. The luxury market is still the most sluggish, but it is always the last to come back. We are moving in that direction.”
While he said that the Case-Shiller report is “exciting,” he said the market may not continue to climb in a straight line.
“I would have to say I am cautiously optimistic,” Webber said. “We still live in a fragile world and it would not take that much to set us back. But this latest surge we are seeing has been sustained longer than any other we have seen in the past four years.”
New lows for 5 cities
Nationally, much of the country did not perform nearly as well as Denver.
“While there has been improvement in some regions, housing prices have not turned,” says David M. Blitzer, Chairman of the Index Committee at S&P Indices. “This month’s report saw all three composites and five cities hit new lows. However, with last month’s report nine cities hit new lows. Further, about half as many cities, seven, experienced falling prices this month compared to 16 last time.
“The National Composite fell by 2.0% in the first quarter alone, and is down 35.1% from its 2nd quarter 2006 peak, in addition to recording a new record low. The 10- and 20-City Composite mimic these results; also down about 35% from their relative peaks and hit new lows.
“There are some better numbers: Only three cities – Atlanta, Chicago and Detroit – saw annual rates of change worsen in March. The other 17 cities and both composites saw improvement in this statistic, even though most are still showing a negative trend. Moreover, there are now seven cities – Charlotte, Dallas, Denver, Detroit, Miami, Minneapolis and Phoenix – where the annual rates of change are positive. This is what we need for a sustained recovery; monthly increases coupled with improving annual rates of change. Once we see this on a broader level we will be able to say the market has turned around.
“The regions showed mixed results for March. Twelve of the cities saw average home prices rise in March over February, seven saw prices fall and one – Las Vegas – was flat. The Composites were largely unchanged with the 10-City down only 0.1% and the 20-City unchanged. After close to six consecutive months of price declines across most cities, this is relatively good news. We just need to see it happen in more of the cities and for many months in a row. Since we are entering a seasonal buying period, it becomes very important to look at both monthly and annual rates of change in home prices in order to understand the broader trend going forward.”
MSA Change from January 2000 October-November (non-seasonly adjusted) 1-Year Change from November
Atlanta -3.32% 0.1% 7.6%
Boston 53.74% -0.9% 2.3%
Charlotte 15.41% -0.3% 5.1%
Chicago 13.35% -1.3% 0.8%
Cleveland 0.68% -0.8% 1.8%
Dallas 20.55% -0.1% 5.7%
DENVER 34.50% 0.4% 7.8%
Detroit -19.67% -0.3% 11.9%
Las Vegas 0.56% 0.4% 10.0%
Los Angeles 75.58% 0.4% 7.7%
Miami 51.13% 0.8% 9.9%
Minneapolis 26.41% 1.0% 11.1%
New York 62.86% -1.1% -1.2%
Phoenix 24.16% 1.4% 22.8%
Portland 42.13% -0.2% 6.7%
San Diego 63.58% 0.9% 6.7%
San Francisco 46.23% 1.4% 12.7%
Seattle 42.53% 0.5% 7.4%
Tampa 33.77% -0.2% 6.8%
Washington, D.C. 89.11% -0.6% 4.4%
Composite-10 58.28% -0.2% 4.5%
Composite-20 45.82% -0.1% 5.5%
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