The Denver-area housing market staged a 6.9 percent year-over-year gain in October, according to the closely followed Case-Shiller report release today.
For the second consecutive month, Denver’s gain was the largest in more than a decade. October’s gain was slightly higher than the 6.7 percent year-over-year increase in September. The last time the metro area showed a larger year-over-year percentage gain was in November 2001, when prices rose by 7.6 percent, according to the S&P/Case-Shiller Home Prices Indices, which tracks 20 major metropolitan areas across the U.S.
October marked the 10th consecutive month of year-over-year gains for the metro area. In other words, every month this year tracked so far by Case-Shiller was an improvement over the same month in 2011.
Denver beat the 4.3 percent average gain for the 20 composite cities and the 3.4 percent increase for 10 of them, which includes Denver.
Phoenix was again No. 1, rising 21.7 percent. Detroit also showed a double-digit gain, rising 10 percent. Overall, Denver ranked seventh of the 20 metropolitan statistical areas. The last time Denver was in seventh place was in March 2011. However, that month it showed a year-over-year loss of 3.8 percent.
Meanwhile, long-term, the “index value” for homes in the Denver area stood at 134.03 in October, which means that houses on average have risen 34 percent since January 2000. The last time the index value was higher in Denver was in October 2007, when it stood at 136.04 percent.
“The Case Shiller data is consistent with what we are seeing in the market — price increases and appreciation solidly in the 5 percent to 10 percent range. These gains are widespread, occurring across almost all price ranges and geographies,” said Lane Hornung, CEO and president 8z Real Estate.
“The seasonally adjusted Case Shiller numbers, which show month over month increases this fall, confirm that our market is much more active than is typical at this time of year. Look for more good data from Case Shiller in the months ahead,” Hornung said.
Independent broker Gary Bauer said the Case-Shiller report is “super” news for the Denver-area housing market.
“I think, again, this report shows the strength of our market,” Bauer said.
He said he is not discouraged that Denver was not in the top three or top five markets.
Neither is Peter Niederman, CEO of the Kentwood Co.
Niederman pointed out that it is good for the national housing market and the overall U.S. economy, that other formerly depressed markets are rebounding. Because they had such big drops, it is easier for those markets to show big percentage gains as increase demand from investors and consumers drive up prices.
“Several months ago, you asked me if I was concerned that it looked like we would drop out of the top five markets and if you remember, I said that was OK,” Niederman said. “My point is that we need all markets to recover for a sustainable recovery, not just one or two MSAs or one region.”
He noted in October, only two markets, New York City and Chicago, were down, on a year-over-year basis, falling, respectively, 1.2 percent and 1.3 percent.
“It is interesting two of the biggest markets were down,” Niederman said. “But 18 of the 20 MSAs in positive territory is not bad. Actually, that is very good.”
That is exactly right, Bauer said.
“We are not going to be in the top three or four markets, because we never experienced these tremendous peaks and tremendous loss of value,” Bauer said. “Because we never fell as much, we don’t have the capacity to see these tremendous percentage gains of other markets.”
Bauer, who releases his own monthly report on the Denver-area housing market based on Metrolist data, expects a strong December.
“The last, quick survey I ran, showed activity was extremely strong,” Bauer said. “I think it is going to continue right to the end of the year.”
Bauer said in addition to brokers, others in the industry such as lenders, title insurance companies, appraisers and inspectors, are much busier than they usually are at this time of the year.
“My understanding is they are doing everything they can do try to close sales by the end of the year, including extending hours,” Bauer said. “They know some of the activity will carry over until next year, but they are pushing to get everything closed by next Monday.”
Nationally, the market wasn’t quite as robust in October as was in September, at least on a month-to-month basis. Typically, for seasonal reasons, activity slows in the fall and winter.
“The October monthly numbers were weaker than September as 12 cities saw prices drop compared to seven the month before.” said David M. Blitzer, Chairman of the Index Committee at S&P Dow Jones Indices. “The five which turned down in October but not in September, were Atlanta, Dallas, Miami, Minneapolis and Seattle. Among all 20 cities, Chicago was the weakest with prices dropping 1.5 percent, followed by Boston where prices fell 1.4 percent. Las Vegas saw the strongest one-month gain with prices up 2.8 percent.”
Denver was flat from September, showing no change.
“Annual rates of change in home prices are a better indicator of the performance of the housing market than the month-over-month changes because home prices tend to be lower in fall and winter than in spring and summer,” Blitzer continued. “Both the 10- and 20-City Composites and 19 of 20 cities recorded higher annual returns in October 2012 than in September. The impact of the seasons can also be seen in the seasonally adjusted data where only three cities declined month-to-month. The 10-City Composite annual rate of 3.4 percent in October was lower than the 20-City Composite annual figure of 4.3 percent because the two weaker cities – Chicago and New York – have higher weights in the 10-City Composite.
“Looking over this report, and considering other data on housing starts and sales, it is clear that the housing recovery is gathering strength,” Blitzer said. “Higher year-over-year price gains plus strong performances in the southwest and California, regions that suffered during the housing bust, confirm that housing is now contributing to the economy. Last week’s final revision to third quarter GDP growth showed that housing represented 10 percent of the growth while accounting for less than 3 percent of GDP.
“One indication of the rebound is the gains from the bottom,” Blitzer said. The largest rebound is 24.2 percent in Detroit even though prices there are still about 20 percent lower than 12 years ago. San Francisco and Phoenix have also rebounded from recent lows by 22.5 percent and 22.1 percent with prices comfortably higher than 12 years ago. The smallest recoveries are seen in Boston and New York, two cities in the northeast which suffered smaller losses in the housing bust than the Sunbelt or California.”
Valerie White, a senior director at U.S. Public Finance at Standard & Poor;s Rating Service, was bullish on the national housing market in 2013.
“We expect housing to remain a bright spot in 2013, as long as the U.S. avoids the fiscal cliff and growth continues,” White wrote in a recent blog. “We forecast U.S. national home prices to increase 5 percent. However, tight lending remains a key concern for housing demand because the limited availability of credit could weigh on borrowers.”
She also believes more homeowners may take advantage of historically low rates and refinance next year.
“An improved outlook for housing, along with higher home prices, could increase the availability of mortgage credit and ease lending constraints, allowing borrowers with lower quality credit histories to refinance,” according to White. “More than 1.3 million borrowers have moved from negative to positive home equity in 2012, because of rising home prices. Homeowners with positive equity are able to refinance, taking advantage of the current very low interest rate environment.
“With more affordable mortgage payments, and some equity in their homes, consumers are less likely to default, which we view as positive for housing supply fundamentals. On the demand side, the rise in household formation over the past year is also positive for housing demand, in our view.”
Niederman said one of the biggest concerns is if Congress tinkers a lot with the mortgage interest deduction as a way to help address the national deficit.
“That could have a very dramatic impact on consumers buying homes,” Niederman said. “It is yet to be determined on a go-forward basis. We don’t know yet how it will play out and how the government will treat it. Will they do it in phases? Will they put a cap on deductions? Will it be based on a price point? We just don’t know what will happen, but it is an important metric to monitor.”
He said he understands that some sacrifices will need to be made to reduce government debt.
“I think all of us know and expect, one way or another, we are all going to be paying more in taxes,” Niederman said. “It doesn’t really matter if you are a Democrat or a Republican. We know we have to do something about our government debt and get a grip on this fiscal problem, so the country can prosper going forward.”
Niederman said the health of the housing market always comes down to two factors.
“I don’t want to sound like a broken record, but it really comes down to consumer confidence and the job market.”
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%
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.