- Case-Shiller releases its January report.
- Denver was unchanged from December, year over year.
- Shortage of homes only thing holding back the Denver market.
Denver-area home prices increased 9 percent in January on a year-over-year basis, according to the closely followed Case-Shiller index released today.
Denver’s percentage gain and its 16th place ranking out of the 20 metropolitan statistical areas tracked in the S&P/Case-Shiller Home Price Indices was a carbon copy of Denver’s December performance, at a time when much of the country’s home sales activity was hammered by bad weather.
On a month-to-month basis in January, Denver prices were flat, ranking it 8th by Case-Shiller.
Overall, the 20 MSAs in the index showed a 13.2 percent and a -0.1 percent change, year-over-year and month-to-month, respectively.
“National analysts have blamed softer home sales this winter on decreasing affordability,” said Lane Hornung, founder and president of 8z Real Estate.
“The theory is that the combination of higher home prices and higher interest rates have made buying a home too expensive, pushing some potential buyers out of the market,” Hornung said.
‘“The resulting decrease in demand ultimately translates into lower sales,” he said.
However, that is “simply not the case,” in the Denver-area market.
“We do not have a demand problem. We have a supply problem,” Hornung emphasized.
“Decreasing affordability may be taking some buyers out of the market, but certainly not enough to create a lack of demand,” he said.
The housing market is simply a matter of supply and demand, he noted.
“High demand coupled with low supply equals price increases,” Hornung said.
“I’m on record predicting that annual appreciation will moderate by the summer to the 5 percent or 6 percent range, but I’m starting to think there’s a possibility of this moderation reversing course,” Hornung continued.
“We just might see double-digit increases in the index. We’re still at 9 percent, and the 0.8 percent month over month pop in the seasonally adjusted index this month may foreshadow more price jumps this spring as buyers compete for limited inventory.”
Chris Mygatt, president of Coldwell Banker Residential in Colorado, couldn’t agree with Hornung more that a low inventory is the main problem currently facing the Denver-area market.
However, he said he thinks today’s Case-Shiller report reinforces the strength and stability of the local market.
“I think this is yet another example of Denver’s and Colorado’s stability in its real residential real estate market,” Mygatt said.
“We have become known around the country for having a stable, solid market,” he said.
The only thing that is holding back the Denver-area market is a lack of inventory, he said.
“When I talk with Realtors, they tell me there simply is not enough compellingly priced homes on the market,” Mygatt said.
“Consumers are unwilling to compromise and only will buy homes at a price point that makes sense,” Mygatt said.
In other words, a seller cannot expect that buyers will automatically over-pay for a home, simply because there are so little available to purchase.
“We still have a very robust market, but what is keeping us from having an explosive market like Phoenix and Las Vegas and Miami, is a lack of inventory.”
It’s a true Catch-22, Mygatt said.
Potential buyers aren’t willing to sell their homes, even as they rise in value, because they fear there is nothing to buy, but there is nothing to buy because not enough people are putting their homes on the market.
“It’s a bit of a quandary,” Mygatt said.
To a certain extent, new homes will help to fill the void of the shortage of resale market.
Mygatt late last week was speaking to Dave Mandarich, president and chief operating officer of MDC Holdings Inc. parent of Richmond American Homes of Colorado, by far the largest new home builder in the metro area.
In less than a week, Richmond had sold 48 homes along the Front Range, Mandarich told Mygatt.
“That is astounding,” Mygatt said.
Increasingly, builders are finding infill opportunities in neighborhoods around downtown, as well as first-tier suburbs, such as Wheat Ridge, Mygatt said.
“Builders are becoming very aggressive and creative with plans to build some really fun stuff in city markets,” Mygatt said.
“They realize that not everybody wants to live in subdivision at the edge of someplace like Parker or Douglas County,” he continued.
“Builders are finding opportunities to build new homes in areas close to downtown, which provides the lifestyle many buyers are seeking,” Mygatt said.
Independent broker Gary Bauer said the 9 percent year-over-year gain reported by Case-Shiller was lrager than he expected.
“It’s encouraging that Denver is holding steady,” Bauer said.
“I thought it might drop a little bit at the beginning of the year, because of things like the increased rules and regulations for lending, so I think it is very positive that we are kind of staying in the middle of the pack,” Bauer said.
“We are right where we want to be,” he said.
Nationally, bad weather in the Northeast, Southeast and Midwest in January likely slowed housing activity a bit.
“The housing recovery may have taken a breather due to the cold weather,” said David M. Blitzer, Chairman of the Index Committee at S&P Dow Jones Indices. “Twelve cities reported declining prices in January vs. December; eight of those were worse than the month before. From the bottom in 2012, prices are up 23% and the housing market is showing signs of moving forward with more normal price increases.”
In one comparison, Denver continues to out-perform most of the country.
“Dallas and Denver are the only cities to have reached new record peaks while Detroit remains the only city with home prices below those of 14 years ago,” Blitzer said.
He said housing prices will likely continue to rise this year.
“Expectations and recent data point to continued home price gains for 2014,” Blitzer said.
“Although most analysts do not expect the same rapid increases we saw last year, the consensus is for moderating gains. Existing home sales declined slightly in February and are at their lowest level since July 2012,” according to Blitzer.
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.
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