At a recent  conference call, Carl Reichardt, an analyst for Wells Fargo, asked Mizel, what he thought of the Denver market. Mizel’s opinion matters, because he is the CEO and chairman of Denver-based MDC Holdings Inc., parent of Richmond American Homes, one of the nation’s largest home building companies.

MDC: Denver’s “big gorilla”

Reichardt prefaced his question by saying that MDC appears to be the “big gorilla” in Denver, noting that a lot of its competitors have left the local market.

“Well, having competitors exit never hurts,” Mizel said. “Colorado is a great place to live. And I expect some interesting dynamic leadership after Tuesday’s (today’s) election. I can give you a lot more color 90 days from where we are now. I expect a change in tone and that tone will convert into real and improved market conditions around the country and more consumer confidence.”

Colorado key for MDC

At the end of September, MDC owned 2,762 lots in Colorado, more than in any other state where it builds. Colorado lots accounted for 38.4 percent of the 7,194 lots owned by the company. In addition to Colorado, MDC builds in Arizona, California, Nevada, Utah, Delaware, Maryland, Virginia, Florida and Illinois. MDC has more lots in Colorado than it does in Arizona, California and Florida combined. The average price of a Colorado home sold by the company at the end of the third quarter was $322,600, compared with its national average of $299,900.

Mizel, during the conference call last Friday, went on to say that Denver has received “all sorts of national and international recognition” during the past 24 months and that is continuing. The analyst conference call was held following the company’s third-quarter release, in which it reported a net loss of $10.2 million, or 22 cents per share, compared with a net loss of $32 million, or 69 cents per share in the third quarter of 2009. MDC has a market cap of more than $1.2 billion. By comparison, KB Home’s market cap is about $844 million.

Now, with “few major competitors left” in Denver, MDC “will continues to expand our assets in this market because we know it very, very well,”  Mizel. At  one point, he  compared buying lots to buying buying stocks. Mizel said noted there is one school of thought that when “you can see the value, it is already priced into the product.” Because it so difficult to buy land in today’s environment, in part because so many prospecive buyers are afraid to commit capital to purchase land, which he says sends a contrarian signal that now is “good time to buy.”

Vegas, Phoenix poised to bounce back

Along the same lines, Mizel said, “No one should count Las Vegas out.” Over the next couple of years, he said he expects a “lot more activity” by buyers seeking “quality lots,” in Vegas.

He also said that Phoenix, in the past, has bounced back strongly from downturns as severe, or even worse, as the current one. Bob Martin, the vice president of finance for MDC, said that Phoenix is tougher for the company than Vegas at this time.

“Phoenix is a great place to live, and when you look at it over a long-term basis, and I’m not speaking decades, but years,” Phoenix will rebound smartly, Mizel said.

Mizel added that when you “drill down” in Phoenix, you find there really are two markets: the foreclosure market and the new-home building market. He said the “hot thing” right now in Phoenix is to invest in “buyer syndicates” that pool money to buy foreclosed properties. Efforts such as these are slowly taking the foreclosed properties off the market, he said.

New homes not competing against foreclosures

He said that builders now are competing against each other for the most part, and not against resale, foreclosed properties on the market. He also criticized the delay in banks being able to complete foreclosures because of “legislative interferences with all of these new legal nuances” such as robo-signing of documents. “It should be enough that the guy hasn’t paid you,” for six months or a year, Mizel said.

Mizel also indicated that the bottom of the market passed this summer.

It appears the market has hit an “inflection point,” Mizel said.  “I like to think of August as the low point of the cycle and the season. If it is the low point of the cycle, there will be rewards for those companies that are able to properly execute and what we hope will be an expanding market.”

MDC, he notes, appears to be poised to take advantage of its goal of owning enough lots to have a two- to three-year supply of land.

“With $1.6 billion in cash and investments at the end of the quarter, which exceed total debt by more than $350 million, we are well-positioned for continued expansion into new projects, even if overall market conditions remain weak,” Mizel said.

Contact John Rebchook at 303-945-6865.

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The Denver-area market didn’t experience the meteoric rise of other markets such as Las Vegas, Phoenix, Miami and Los Angeles, but neither did it suffer the spectacular falls of those markets and others.

Today,  S&P/Case-Shiller  released a report that confirms that.

The index, which tracks 20 major metropolitan statistical areas across the country, released a report that shows from Denver’s peak in August 2006, home prices have fallen by 8.1 percent.  Only Dallas fell less from its peak, about 5 percent from June 2006, according to the report, titled “A Year In Review.”

By contrast, Las Vegas fell 55.4 percent from its peak, Phoenix fell by 49.3 percent,  and Miami was off just less than 50 percent. The peaks vary from Metropolitan Statistical Area to MSA.

“Since 2000, the area traditionally defined as the Sun Belt – Arizona, California, Florida and Nevada- has experienced the largest run-up in prices and, subsequently, has been hit the hardest in the downturn,” according to the report.

By contrast, ”Markets such as Boston, Charlotte, Cleveland, Dallas and Denver never saw the large double-digit price increases in the 2004-2006 period, but their relative rates of decline have also remained comparatively benign,” according to the analysis by S&P/Case-Shiller. “As of the October 2009 report, Denver’s rate of decline is close to flat, at -0.1%,and Dallas is not far behind, down only 0.6% on an annual basis.” The October report was the most recent one. (Denver was rated No. 1 in the October report. To read more about it, please go to this blog.)

The Detroit market was the only one currently below its 2000 level, down by almost 27 percent

Of course, Denver never saw the dramatic, short-term run-up in prices of  other markets. In 2004, Las Vegas was up by 53.2 percent and Phoenix jumped by 49.3 percent. Los Angeles, Miami, San Diego, San Francisco and Tampa all saw peak annual growth rates above 30 percent. Denver rose by 40.3 percent from January 2000 to its peak in August 2006.

“i think this certainly tracks with what we have been seeing,” said economist Patty Silverstein, principal of Development Research Partners. “Our home prices have been much more stable through this entire period. Our stability means we are in a better position for this whole recovery in the housing market, than most other markets. We have certainly felt the pain of falling prices, and we have certainly felt the pain of rising foreclosures. But the extent of our decline is nothing in comparison to many other markets in other parts of the country. There is something to be said for having a more stable pattern.”

She also said that with almost a 50 percent from January 2000 to Denver’s peak, and then a drop of less than 10 percent from the peak to October, means, “We still have had a net gain position for the whole decade. Considering that we lost about 40,000 jobs and we have seen many other economic indicators that are very flat to negative,  we still managed to see some housing appreciation. I think that is  pretty good. I think we are really in a better position than almost every other market.”

(For another take on the Denver market, please visit this blog.)

Contact John Rebchook at JRCHOOK@gmail.com or 303-945-6865.

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Most metrics for the housing market in 2009  when compared to 2008 – from the number of homes sold, prices and dollar volume – were underwhelming, shows a report released today.

Still, Denver is a shining star compared to much of the nation, although the housing bar is pretty low elsewhere.

Indeed, he said “if there is anything sunny about 2009, which was a very challenging year, not only in Denver but all across the country, it all took place in the last quarter. We know what drove the lower-end home activity – it was people trying to get under the wire and close homes in case the tax credits went away. But in November we also started to see some improvements in the $1 million market for the first time in 20 months. We will be watching the first quarter very carefully to see if this trend continues into 2010.”

Under contracts down 10%

The report by independent broker Gary Bauer showed that 56,174 homes were placed under contract last year, down 10.3 percent from the 62,647 in 2008, which was also a weak year for sales. Bauer bases his report on information obtained from Metrolist. And sales volume is at a 10-year, falling by $1.75 billion from 2008, which itself was  a lackluster year.

“While the Denver numbers aren’t particularly impressive, when you compare them to Arizona, Nevada and most other states, the Denver and Colorado numbers look pretty good,” said Jeff Thredgold, economist for Vectra Bank.

Bloodbaths in other markets

“We may be flat, but overall we were not down 40 percent or 50 percent, or so, like Las Vegas, Phoenix and San Diego,” he added.

That may be little consolation to someone who lost their job and can’t sell their home because the mortgage is worth far more than the house.

“I think it is a case of misery loving company,” Thredgold said. “We saw some real bloodbaths in other markets. As bad as things were here, just be glad you didn’t buy a house in Las Vegas, Nevada, a few years ago.”

Byron Koste, head of the CU Real Estate Center in Boulder, is on the same page as Thredgold, when it comes to the Denver-area housing market.

“It is not pretty,” Koste said. “Anyone who thought it was going to be pretty, was smoking something. It reflects the general economy and the general economy is flat, at best. We were all hoping it was going to be better than the general economy, and it was better than the general economy, but it still wasn’t very good. To think we are out of the recession is being very optimistic. But it could have been a lot worse. And a lot of places are worse, a lot worse.”

Hopeful signs emerge

Chris Mygatt, president of Coldwell Banker Colorado, said “no one is going to be terribly surprised by the numbers.

David Simonson of RE/MAX Professionals released a similar report and focused on December compared to November and to December 2008, which showed improvements.

The average price of a single-family home sold and closed last year, for example, was $281,756, 6.1 percent higher than $265,498 in November and 13.6 percent more than the $240,945 in 2008.

That shows that more move-up homes are selling in recent months, and not just the starter homes as was the case earlier in the year, Bauer said, not that housing prices are appreciating.

But only 3,028 homes were placed under contract in December and 2,959 closed, a 7.9 percent and 8.5 percent drop, respectively, from December 2008. “Seasonality came into play in December,” Bauer said.

There were 3,444 closings in November, 12.1 percent more than in December, but such a drop is expected for seasonal reasons. Closings fell by 17.8 percent in December from the 3,599 in November. Closings reflect sales that occurred in previous months.

The number of homes sold and closed fell 12.1 percent to 42,070 in 2009 from 47,837 in 2009.

Fewer closings and lower prices translated into the the lowest sales volume in a decade. Almost  $10.2 billion in homes sold last year, down 14.7 percent from $11.95 million in 2008.

“Ten billion is still a big number, ” Bauer said, but added the drop of $1.75 billion from 2008 impacts the economy far beyond the housing market, as other industries also depend heavily on a robust housing market.

Both Bauer and Thredgold said the market would have been hammered even more, if not for the $8,000 tax credit to first-time  buyers. They also believe the $6,500 credit for qualified existing home owners will help this year.

Tax credits role

Both think that Congress will extend the credits beyond the current deadline April 30 to continue to drive demand for the market. “I think they’ll be extended until the end of the year, given we have a Democratic Congress,” Thredgold said.

Last year, most of the interest was in lower-priced homes, with multiple offers driving up prices. Financing was tough for those buying expensive homes.

Jim Nussbaum, a broker at the Kentwood Co., who specializes in selling top-end houses, saw the impact first-hand.

“I’m entering my 40th year in the business,” Nussbaum said. “Last year was the most challenging in my career.”

He sold about $10 million in homes last year, about half what he did in 2008.

“The issue for the higher-priced homes is that banks are reluctant to make non-conforming loans because they can’t sell them to Fannie Mae and Freddie Mac,” Nussbaum said.

The most expensive home he sold was slightly above $1 million, accounting for about one-tenth of his sales total. In most years, he sells homes priced well above $1 million. He currently is listing two properties – a condo for $13.9 million and a home for $22.9 million – and if either of them sell close to their asking price this year, it would eclipse his 2008 total.

“I think 2010 is going to be a much better year,” Nussbaum said. “I had four closings in December and I’ve already closed one this year.  What we need to see is reasons for increased consumer confidence I still think we have got everything going for us in Denver.”

Economist Thredgold said that now is a a great time for people to buy, especially lower-priced homes.  There were only 16,456 unsold homes on the market at the end of last year, a 16 percent drop from the 19,600 on the market at the end of December 2008.

Usually, when the supply goes down, prices go up.

In addition, while interest rates have risen slightly, they are still near record lows, he noted. But he said there is a good chance that the Fed will start to raise rates later this year, which means that home prices and mortgage rates could be higher.

High-end homes in a world of hurt

“I do think there will be more pain at the upper-end,” Thredgold said. “There might be some deals out there, but I would bet that a typical $800,000 house on the market today, will cost less a year from now.”

Koste said the expensive homes that are especially vulnerable, are those only were sold for $1 million because they were big.

“They weren’t built in areas where there were any services around them; there not in traditional high-end communities; and there’s nothing unique l about them. Half the space in the house is never even used, ” Koste said. “Some builder just did the arithmetic and multiplied the square footage by a number and said this is a million-dollar home. You can say it is a bargain because it is now selling for less than $1 million. But it never was really worth $1 million. It never should have even been built.”

But Lydia Lin, owner of One Realty in Denver, said “everyone has heard stories,” about well-heeled buyers getting snapping up high-end homes at bargain prices.

She said she was just talking to a doctor who paid $850,000 for a new home in Arvada. The seller had slightly more than $1 million into it and was sick of owning it.

“I didn’t even know homes sold for that much in Arvada,” Lin said. “But he showed me pictures and oh my goodness, it is pretty spectacular. It is big and beautiful with gorgeous view of the mountains.”

The flip side is she was talking to an older couple who last year bought a 4,000-square-foot home on the golf course in Castle Pines.

“He was making $1 million a year and he lost his job,” Lin said. “The wife is cleaning the house herself and hates it. But I told them if they paid market rate for it last year, and didn’t get a screaming deal, they are better off waiting than trying to sell it now.”

She said they have enough money that they aren’t fearing foreclosure.

Low-end demand continues

But Lin said far more typical is demand for lower-priced homes.

One of her clients, a first-time buyer, recently paid $177,000 for a home in Park Hill. The home was built in 2001 and in 2002  had sold for $249,222, according to public records.

The woman had been out-bid on four other homes, while working with another broker, and was getting worn out by  looking at many homes and keep coming up with with  losing bids. She also was stressed  because she feared the tax credit would disappear before she found her castle.

Lin said that while her sales volume was down in 2009 from 2008, several sales people in her office could boast they had their best year ever in 2009.

“I think you will find that a lot of brokers think 2010 is going to be better than 2009,” she said.

But Koste, of CU, is a lot less optimistic.

“I think 2010 is going to be a lot like 2009,” Koste said. “For the housing market  to improve, what it really needs is to have a lot of companies relocating here. And I don’t see that on the horizon. Getting a company here and a company there, doesn’t cut it.”

Bauer, however, thinks the market will start out slow, but will gather momentum later in the year. Buyers will begin to have more of a sense of urgency as they start to see mortgage rates and prices rise slowly, and the risk that the tax credits will not be extended, he said. And hopefully, the economy will start to improve in the second half of the year, as many economists are predicting, he said.

For related blogs, please visit these links:

Denver market sales volume falls by $1.75 billion

Home prices adjusted for inflation

About $10 billion in homes sold last year in the Denver area. Sources: Gary Bauer, Metrolist.

Home sales fell in 2009 from 2008, but many Realtors expect stronger activity this year. Sources: Gary Bauer, Metrolist. (Single family refers to condos and single-family homes, while residential reflects only single-family homes.)

Contact John Rebchook at JRCHOOK@gmail.com or 303-945-6865.

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As I reported in an earlier blog today, the widely followed index showed that in August Denver was second only to Dallas, with the markets showing a 1.9 percent and 1.2 percent drop, respectively.

The entire composite of the 20 cities, although improved from previous months, still showed a double-digit drop, losing an overall 11.3 percent.

“I tell all of my clients that we are in one of the best markets in the country,” said John Skrabec, co-owner of Live Urban Real Estate in Denver.

Byron Koste, head of the CU Real Estate Center, in Boulder, agreed.

“I think it shows that by not over-doing it as much as others did, our overall pain was comparatively less,” Koste said. “It is still painful for those who had to pay the price. But as home buyers in other cities can tell you, it could have been a lot worse.”

For example, in August prices were down 29.9 percent in Las Vegas, 25.1 percent in Phoenix, and 18.8 percent in Miami.

“And people in Miami would tell you, “Baloney. It’s a lot worse,” Koste said.

Koste said the most surprising part of the report was that Dallas was No. 1.

“I guess I am a little surprised by Denver being No. 2 to Dallas,” Koste said. “Dallas being No. 1 was a bigger surprise. I’m surprised they did as well as they did. I think unfortunately, that shows the strength of the petro-chemical industry. The Dallas-Fort Worth area is not a vacation spot, so they were not as glutenous as far as building as Phoenix, and California and Nevada and Florida.”

Independent real estate broker Gary Bauer agreed with others that it was no surprise how well Denver performed.

“We have done very well in maintaining our market,” Bauer said. “There is no real overall price appreciation, other than in some niche markets, where we’re still seeing a little appreciation. ”

Jim Nussbaum, a broker with the Kentwood Co., reinforces the Pew Research Center poll early this year that found Denver was the top big city where people wanted to live,  according to the 2,260 adults it polled.

“I still go back to that study,” Nussbaum said. “Everybody who comes here, really likes it here. We haven’t gone up as fast as other places, but we have not come down as much, either.”

Nussbaum said that in Denver, as elsewhere, a “disproportionate” of the sales are occurring in the lower-price range. A large part of that is being driven by the $8,000 federal tax credit, due to expire at the end of November.

“But we are starting to see some cracks in the $1 million range homes, too,” he said.

Nussbaum noted that he is listing one home that started at $985,000, and the owner agreed to reduce the house to $919,000. It had been listed at even higher prices by other brokers in the past.

“There was a guy who had been watching this house for a couple of years, since the builder first completed it,” Nussbaum said. “He made an offer right away, and we made a very reasonable counter-offer. He didn’t accept it, and we put it under contract this weekend to another buyer.”

Skrabec said that despite the overall market’s drop of 1.9 percent in August, there are pockets of strength.

“In the 80211 ZIP Code (in northwest Denver), I would say that homes have appreciated 3 percent to 5 percent this year. The Highland market, especially at the lower-end, was quite strong this summer. It’s basic supply and demand. I would say another strong market is City Park. I think Highland and City Park are the two strongest markets in the Denver area.”

Contact John Rebchook at JRCHOOK@gmail.com or 303-945-6865.

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“I really do not understand where they are coming from on that,” Silverstein told me this afternoon.  “It sounds crazy. I don’t believe it whatsoever. It  almost seems like they are looking at the wrong data. I say that kind of in jest, but I really do not understand where they came up with this.’

Silverstein said that all of the evidence she has seen indicates that the Denver-area real estate market is on the mend, and one of best-poised metropolitan statistical areas in the country. According to Money only Las Vegas, Los Angeles, Miami, New York, Philadelphia and Phoenix will lose more ground than Denver before recovering. While that part may be true, is Denver really in worse shape in terms of real estate than Boston, Chicago, Cleveland, Detroit, Kansas City, St. Louis, and many others? Are prices going to drop twice as much than in San Francisco, as Money predicts.

Silverstein said that while the Denver-area economy has suffered some recent hits, and may continue to have some issues such as increased unemployed, relative to most of the rest of the country, Denver is in good shape. Indeed, she told me she believes that Denver will help lead the nation out of this economic stupor.

And that bodes well for home prices.

“Our expectations that we are seeing from a lot of indicators – sales activity, interest in the markets, falling inventory, little new construction – is that why we are really not expecting this year to be a great year by any stretch of the imagination, we expect to see some firming up by the end of the year,” Silverstein said. “For them to think that we are going to work through some huge downward-price issues until first quarter 2011, really does seem crazy.”

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“I think it is awesome,” said Stacy Neir, an agent with Kentwood City Properties. “It is a bit of being the best of the worst.  Still,  only dropping about 5 percent when compared to the rest of the market, shows that we are in much better shape relative to the rest of the nation.”

Neir also noted that “obviously, these are just averages. Real estate is very local and depends on what neighborhood you are talking about.”

For the one-year period, through April, the 20 major metropolitan areas on the list showed a 18.1 percent drop. It also is broken into a 10-city list, which includes Denver, which posted a 18.0 percent drop. Phoenix was the worst-performer, showing a 35.3 percent lost. It was followed by Las Vegas, with a 32.2 percent decline and San Francisco, which fell 28 percent.

Following Denver as the best performers, were Dallas and Boston, down 5 percent and 7.7 percent respectively, in the the one-year period that ended in April.

Overall, the 20 cities are not as doing as poorly as they have in the past.

“The pace of decline in residential real estate slowed in April,” said David M. Blitzer, chairman of the Index Committee at Standard & Poor’s. “In addition to the 10-city and 20-city composites, 13 of the 20 metro areas also saw improvement in their annual return compared to atha of March. Furthermore, every metro area, exept for Charlotte, recorded an improvmeen tin monthly returns over March. While one month’s dta cannot determine if a turnaround has begun, it seems tha some stabilization may be appearing in some of the regions. We are entering the seasonally strong period in the housing market, so it will take soem time to determine if a recovery is really here.”

He also said that other parts of the economy also have shown some strength.

“The stock market bottomed in March and measures of consumer confidence have turned upward,” Bitzer said. “This report shows that these better spirits are also appearing in the housing market.”

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• Case-Shiller: Denver market falls little from peak
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