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2014 could be a good year for Denver housing

Highlights:

  • Barron’s projects a good year for Denver homes in 2014.
  • Analysis forecasts a gain on par with 49 other cities.
  • Lane Hornung expects appreciation to be a bit less.
Lane Hornung

Lane Hornung

The Denver-area home market boasted a great year in 2013, as it was one of the first metropolitan areas in the U.S. where home prices surpassed pre-recession prices.

And next year may even better, if one analyst’s crystal ball is correct.

Denver is projected to experience an overall increase of 9 percent in 2014, according to an analysis of the 50 biggest metropolitan markets by Ingo Winzer, founder of Local Market Monitor.

That is a rosier projection than many local Realtors are expecting in 2014 and is far better than what Zillow has forecasted for the Denver-area housing market.

Winzer’s analysis was published in last Saturday’s Barron’s in an article titled Betting on the House, which contended the national housing comeback could very well last longer than some naysayers suspect, even with an expected bump in mortgage rates.

Winzer based his predictions based on several metrics, including projected income, unemployment, population growth and permit activity for new homes in each market.

Denver ranked No. 22 out of the 50 MSAs. That is 21 are projected to outperform Denver and 28 that will not.

The 9 percent appreciation in Denver is also the average for all 50 MSAs over the next 12 months.He forecast a 9 percent and an 8 percent growth rate for the next 24 and 36 months, respectively, giving Denver a cumulative 26 percent increase over the next three years. That compares to a 24 percent increase over three years for all 50 MSAs.

WSJ bullish on housing

Separately, the Wall Street Journal, a sister publication to Barron’s, in a front-page story on Monday, also highlighted the Denver-Aurora area as one of the first areas in the nation to hit peak prices this year, something that is now only happening in a number of other cities in the country.

Today, Case-Shiller will publish its closely followed index of 20 major markets for October. Many local observers believe that once again, Denver home prices will be at record levels, according to Case-Shiller.

“It’s nice to see national publications like Barron’s and the Wall Street Journal echoing what local real estate practitioners have been saying since the spring,” said Lane Hornung, CEO and co-founder of 8z Real Estate, a sponsor of InsideRealEstateNews.com.

“The Denver market is not only well off the post-bubble bottom, it’s actually setting new all-time highs,” Hornung continue

“That of course is great news, but frankly, it’s old news if you’re a reader of this site.”

He said Barron’s 9 percent forecast for Denver is “bullish,” which sets it apart from other nationwide expectations.

“I think they’re one of the first national voices to predict appreciation rates this high,” Hornung said. “Others have been saying for months that ‘these appreciation rates are not sustainable.’”

Zillow misses mark

“Zillow, for instance, is predicting just 2.1 percent appreciation for Denver in the next 12 months, a far cry from Barron’s 9 percent,” Hornung continued.

However, Zillow’s track record in predicting Denver home prices has not been very good.

Hornung noted that in July 2012, Zillow predicted home prices in the Denver area would experience a mere 1.6 percent increase in 2013. “Well, actual appreciation turned out to be 6 percent plus,” Hornung said.

“Zillow also predicted a 3.3 percent rise nationally in home prices in 2013. That number turned out to be 10 percent plus, so it’s not the first time Zillow has missed the mark,” Hornung said.

However, Barron’s may be too optimistic.

“Personally, looking ahead to 2014, I fall in between Barron’s and Zillow,” Hornung said.

“I’m on the record with a prediction of 5 percent appreciation in 2014,” he said.

But that could be a conservative forecast.

“However, if forced to choose between Barron’s 9 percent and Zillow’s 2 percent prediction, I’d bet on Barron’s percent,” Hornung said.

Inventory remains low

The low supply of homes on the market will keep pressure on home prices, he said.

“I just don’t see where the new inventory to satisfy demand is going to come from, especially with the foreclosure pipeline drying up,” Hornung said.

As the Federal Reserve eases its monthly bond buying, most economists and other experts are in rare agreement that mortgage rates will rise next year, although they will remain low by historic standards.

Other factors should make up for the rising rates, Hornung said. Indeed, the main reason that the government is easing its bond buying is because the economy is showing signs of strength.

“I don’t think interest rates are going to rise fast enough to slow down growing demand, which is being fueled by two major forces: move up buyers who can now sell their existing home (with a tidy gain no less!) and new buyers being created by job growth,” Hornung said.

Denver was one of the first markets in the country to be hit by a downturn and was one of the first to emerge from the Great Recession. However, its recovery has not been as dramatic as many markets that suffered a true bubble in housing prices and not the correction that Denver received. The Barron’s article, for example, predicted that Las Vegas, one of the hardest hit markets in the nation, will appreciate the most next year, with a 24 percent increase in housing prices.

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.