“It is over. It is clearly over,” Mark Snead, Vice President and Economist for the Federal Reserve Bank of Kansas City-Denver branch, said about the recession during the 18th annual Vectra Bank Colorado’s Economic Forecast Breakfast, attended by more than 700 business leaders. Navigating in the New Economic Reality.

“I am unabashedly telling you this cycle has turned,” Snead said, although he noted that the housing and construction markets remain a drag on the economy in Colorado and the nation. He said even government employment is down, which is off-setting some of the nation’s private employment gains.

Fishing for housing bottom

“There is no clear bottom in housing,” Snead said at one point. “We are still fishing for the bottom.” He added that while home building in 2010 came “closer to zero growth,” that he ever dreamed it would, nationally builders still constructed more homes than there were buyers. Pointing to a national graph that showed more new homes being built than sales, he said until those two lines cross, homes will not appreciate at their historical pace close to the inflation rate. (Later, economist Patty Silverstein said the supply and demand for new homes are much closer in the Denver area, and a case can be made that it is “close to the time to pull the trigger,” on building more homes in the Denver area.)

Snead  said that the number of sales needs to pick up before home prices can rise.  In that respect, the Denver-area is an anomaly, as prices rose last year from 2009, while closings dropped.

Job growth better in other parts of the country

Also, Colorado is lagging the nationwide trend in job creation by six months, and possibly as much as nine months, he said.  Even hard-hit real estate markets such as Arizona and Florida could boast that they had more robust job increases last year than Colorado.

Silverstein, the chief economist for the Metro Denver Economic Development Corp., who also spoke at the economic forum, said that Colorado still is down about 145,000 jobs from its peak annual employment in 2008. While the state is projected to gain 22,000 job this year that remains “anemic growth” by historic standards, Silverstein told InsideRealEstateNews following the event. While job growth is lagging much of the rest of the country at this time, she said that historically, Colorado and Denver grow faster than the U.S. as a whole, and eventually that trend will return.

“Colorado and metro Denver have some tremendous assets, and will remain tremendously attractive, but we have our challenges as well,” she said following her official presentation.

Double dip not in cards

Asked if Denver-area housing will see a “double dip in pricing, she said the data does not support that happening. Others have contended that Denver is in danger of a double dip, as prices are still relatively close to their all-time lows, and with still a large number of foreclosures competing with homes, it is possible that prices could re-visit old lows. The Standard & Poor’s Case-Shiller report released on Tuesday warned of the danger of a double dip this spring for many of the 20 markets it covers.

“I think that throughout other parts of the country, they are almost there, but in Denver the median prices last year, were up about 6 percent or 6.5 percent,” Silverstein said. ‘We’re not seeing the double dip here. Now, price appreciation will be softer in 2010 than in 2009. I’m predicting a 2 percent or 2.5 percent increase. But hey, we’ll take it.”

She also projected that Denver-area closings will rise about 9.5 percent to 42,500 this year, from 38,818 in 2010. She said that she was surprised that closings were so weak last year, falling to their lowest point in more than a decade. “We came out of the chute strong last year, with the first-time home buying tax credits,” Silverstein said, but the sales momentum died with the end of the tax credits.

Silverstein, and most analysts, say that jobs and consumer confidence are keys to a recovery in the housing market. Last year,  one of the strongest sector was the so-called “Cleantech” industry, which grew by 7.1 percent and includes such things as solar, wind and biofuels. That trend will continue next year, she said.

Pioneer spirit flourishes in Colorado

She noted that from 2000 to 2009, Colorado’s population increased by 744,500, increasing the potential labor force by 421,00. However, only 30,00 “wage and salary” positions were added.

What happened is that about 200,000 people in the state became “sole proprietors,” she said. Indeed, Colorado is fourth highest in the U.S. as far as sole proprietors, behind Montana, Idaho and Vermont. “What all of these states have in common, is they are places where people want to live,” Silverstein said.

However, following the meeting, she said she is concerned that entrepreneurs will not be able to finance new businesses as easily they did following other downturns.

“There is very little venture capital out there, angel financing has pretty much disappeared, and banks have not been lending,” Silverstein said. But she said she was heartened that Bruce Alexander, the president and CEO of Vectra Bank Colorado, said that the surviving banks, who have shored up their reserves, are beginning to make loans again to qualified borrowers. “He indicated that not only will they be making more loans, but they will be very competitive,” she said. “That bodes well for entrepreneurs in the Denver area and Colorado.”

Contact John Rebchook at JRCHOOK@gmail.com

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Denver was not on the list of 20 MSAs that NAR released data on median prices and sales in March, but at the request of InsideRealEstateNews.com, the trade organization supplied it with otherwise “unpublished” data on the Denver market.

The data shows that only San Diego, with a 20.4 percent increase in price, and St. Louis, at 19.8 percent, bested Denver.

“There may be some other unpublished data that would be in conflict,” with Denver being ranked No. 3, said Walter Molony, a spokesman for the NAR. “But Denver is one of the top ones.”

Positive national spotlight

“I think this is really good news,” said Gary Bauer, an independent broker, who tracks local real estate data based on Metrolist figures. His latest report showed a 12.2 percent increase in the median price in march 2009 to 2010.

“Clearly, what we have previously reported to you from Metrolist is consistent with what NAR is saying, although the numbers are slightly different possibly because of different way of calculating them or slightly different geographic areas being included,” Bauer said. “But I think that this is very positive, especially in light of the recent Forbes.com article,” which listed Denver as the second worst housing market, based on what it thought it was a rising inventory numbers based on Zillow.com, which local Realtors discredited.

“What I also think is very positive is that when you look at the homes that are under contract, but have not closed,” Bauer said. “We are going to have a very good April and a very good May for closings. And even when the tax credits go away at the end of this month, my gut tells me we are still going to hang in there.”

Mix, not appreciation, driving stats

The main reason that the median prices are up is because more sales are occurring at higher price points than in the spring of 2009, said Jeff Thredgold, the economist for Vectra Bank in Colorado.

“I would have to say that the Denver and Colorado markets are much more stable than they had been,” Thredgold said. “If you look at how things were a year ago, or 18 months ago, people did not know what tomorrow held. Now, the Colorado economy is much more stable, the U.S. economy is more stable and stronger, the stock market is doing much better, and mortgage rates still remain at very attractive levels. ”

Still, it would be a mistake to think the NAR numbers are showing home appreciation.

“This is not to say that the average home has gone up 14 percent,” Thredgold said. “They have been pretty much sideways. What we are seeing is that people are buying more homes in the $300,000 to $450,000 range than we were seeing, which is driving up the overall prices.”

As far as percentage changes in sales, the Denver-area market was near the bottom of the MSAs tracked by NAR.. The Denver-area sales rate rose by 9.2 percent, a far cry from the 45.6 percent in Portland, the No. 1 market by the sales metric. Portland’s home prices, however, remained down from a year earlier.

“That doesn’t surprise me,” Thredgold said. “Some of these other market were really crushed. People are now just starting to buy again, after that big run up in prices and the equally huge downturn. Denver never went through those big increases and big drops.”

Market heading for first real appreciation in 10 years

Jack O’Connor, an owner of RE.MAX Professionals, agrees.

“We have neither had the big appreciation, nor have we had the big declines,” O’Connor said. “What we are seeing is a solid market. Our inventory is not rising dramatically like it does in a typical spring, and ales are up. Those are all good things. while you don’t want to take a snapshot of one month and say this is the trend, I think if this continues for three months or so, you could have evidence that we are going to see the first real appreciation of homes prices in the Denver area for the first time in 10 years. I think we are going to see home appreciation from the very low-end all the way up to the $500,000 to $600,000 price range.”

End of tax credits could hurt

Economist Patty Silverstein, principal of Development Research Partners, said that not only are more expensive homes starting to sell in the Denver area, but demand is driving up prices at the lowest end, driving up the overall numbers.

“We still have more foreclosures entering the market than we would like, but our foreclosure problems started earlier than in most markets, so we are likely to come out of it faster than most markets,” Silverstein said.

However, she said that she is concerned that while the $8,000 tax credits for first-time home buyers, and the $6,500 tax credits for some existing home owners, could be boosting today’s market, at the expense of future sales

“you have to wonder how much of the sales activity here and all across the country are because of the tax credits,” Silverstein said. “I don’t know if this is a sustainable situation. I guess they are good as far as they go, but would prefer sales market based on fundamentals that could be sustained.”

MSA	Median Price 2009	Median Price 2010	YOY % Price Change	YOY % Sales Change
Atlanta	$116,300	$113,600	-2.3%	7.0%
Baltimore	$245,500	$236,800	-3.5%	18.9%
Boston	$289,500	$329,800	13.9%	25.9%
Cincinnati	$113,200	$124,100	9.6%	16.0%
Dallas	$138,100	$144,600	4.7%	12.6%
DENVER	$203,000	$238,200	14.4%	9.2%
Houston	$145,500	$154,300	6.0%	11.0%
Indianapolis	$107,500	$117,500	9.3%	11.0%
Kansas City	$131,600	$137,400	4.4%	11.5%
Miami/Ft. Lauderdale	$210,200	$218,200	3.8%	12.9%
Minneapolis	$154,125	$165,000	7.1%	6.5%
New Orleans	$156,300	$154,100	-1.4%	-2.3%
New York	$367,400	$379,900	3.4%	24.5%
Philadelphia	$209,700	$209,300	-0.2%	19.6%
Phoenix	$127,500	$144,500	13.3%	10.1%
Pittsburgh	$108,700	$122,900	13.1%	26.3%
Portland	$245,700	$238,700	-2.8%	45.6%
San Antonio	$145,400	$143,700	-1.2%	29.7%
San Diego	$326,800	$393,600	20.4%	4.0%
St. Louis	$107,900	$129,300	19.8%	25.6%
Washington, D.C.	$287,300	$298,900	4.0%	12.5%

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The report said the overall drop was “due largely to a cutback in multi-family construction,” although it did not break out the drop in apartment and housing construction. There were 30,334 total permits issued last year in the six Rocky Mountain region states. In the Denver metro area, building permit activity peaked at 28,310. “Now that is a comparison for you,” said economist Patty Silverstein, principal of Littleton-based Development Research Partners.

Silverstein noted that there were 3,408 building permits issued in the Denver metro area last year, the lowest on record. (For a separate report on the Denver metro area’s construction activity, please go to this link.)

“The regional numbers track pretty well with the Denver-area numbers,” Silverstein said.

Jeff Hawks, principal of Apartment Realty Advisors in Denver, said that apartment construction in the Denver area “has come to a screeching halt. There really was no new construction at all.” From about 2005 to 2007, apartment communities in Denver and almost every other major city in the US. were selling for cap rate of 4.5 percent, while cap rates have now risen to 6.5 percent. The cap (short for capitalization) rate is the net operating income divided by the sales price or value of a property expressed as a percentage. The lower the cap rate, the higher the sales price.

“I believe that every apartment building that was sold during the past couple of years at these low cap rates is not worth its debt,” Hawks said. “Because of that, the developers and lenders have pulled in their horns. They have to handle these legacy issues and they are not building anything new. To build anything new today in Denver, you would have to convince your construction lender and your equity partners that you could basically get 20 percent or 30 percent more in rents than you are getting today.”

Raising rents is tough at a time when a lot of new high-paying jobs aren’t available, he said. The HUD report noted that Colorado’s unemployment rate at the end of last year was 7.5 percent, the highest of the six states in the Rocky Mountain region – that had an overall unemployment rate of 6.8 percent. Colorado’s unemployment rate, however, was lower than the U.S. unemployment rate of 10 percent. The report also noted that the population grew 1.7 percent from the 52-week period ending on July 1 for the six-state region, even though the number of non-farm employment fell by 3.7 percent in Colorado. That compared with a 3.6 percent drop for the region and a 3.0 percent drop for the U.S., according to HUD.

If Colorado would see job growth, and it were possible to raise rents by 5 percent annually, it would still be another four years before new apartment buildings would be built, Hawks said. “And we have 180,000 kids turning 20 in Colorado over the next five years, which is going to mean we are heading for a huge shortage of apartments,” Hawks said. “The last time we saw that kind of increase was from 1969 to 1975 and we built 70,000 units. We’re going to face a real push and pull with supply and demand. We’re going to see a real shortage of apartments.”

Jeff Thredgold, corporate economist for Vectra Bank, said that Colorado’s overall housing market still is in better shape than many other places in the country, such as California, Nevada, Arizona and Florida.

“Colorado is in a recession, but Colorado did not get hit as hard in the recession, as some of these other states that had these excesses of housing,” Thredgold said. “Colorado did not see the huge increase in housing prices and then the huge deflation of housing values as some of these other states. Colorado did not get as carried away as some of these other states. Even states like Idaho have been hit hard.”

Still, the drop in construction activity hurts the entire economy, he said. “It hurts everybody,” he said.”We have seen a huge decline in home building across the country from its peak. But of course, you don’t want to keep building when you are already over-built. There are some excesses to still be worked off in Colorado, but we’re not nearly as bad as a lot of other states.”

S. Robert August, a Denver-area housing consultant, said the drop in building activity, “is a bad thing. It is bad for Colorado and it is bad for the country.” August blamed the banks. “The biggest issue is that banks are not lending money,” August said. “Until the banks start lending and circulating money, the permits are going to keep going down. Pent-up demand is not being met, based on the fact of the organic direction of life continues to go on.”

He said that big, national builders, such as Denver-based MDC Holdings, parent of Richmond American Homes and KB Home, are continuing to build because they have lines of credits to finance construction. “It’s the smaller to mid-sized buildings that do not have the ability to get loans,” August said.

Source: HUD

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

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Margaret Kelly, CEO of RE/MAX International, has been named to the board of the Denver branch of the Federal Reserve.

Margaret Kelly, Chief Executive Officer for Denver-based RE/MAX International, Inc., has been named to the Board of Directors, Federal Reserve Bank of Kansas City-Denver Branch. She is joining six other board members in working with the reserve Bank, lending her insight and expertise on the regional economic front.

“It’s a great honor and privilege to serve on the Denver Board,” Kelly said after attending her first board meeting. “I’m very impressed with the dedication and careful consideration all the board members bring to their position, and I’m looking forward to being a contributor in the future.”

Kelly was chosen for her  knowledge and experience in real estate, and her “on-the-ground” skills. She will bring her familiarity of housing issues and challenges to the board, as well as her reputation as a well-respected industry leader. As a member of the board, she will provide real time housing information and advise the bank on economic policies.

Kelly has also just been recognized by Inman News as one of the Top 100 Most Influential Real Estate Leaders in 2009, and was named one of Real Estate’s 25 Most Influential Thought Leaders by REALTOR magazine. Kelly is a popular source of insight on real estate trends, and speaks before industry groups around the United States and is frequently interviewed by the media.

Kelly became Chief Executive Officer of RE/MAX International in October 2005, capping a series of leadership positions she has held since joining the organization as a Financial Analyst in 1987.   Kelly rose rapidly through the ranks of the Membership Services and Regional Services departments, being named vice president in 1992 and president in 2002. Today, she oversees the worldwide operations of RE/MAX International.

The Federal Reserve Bank of Kansas City is the 10th of 12 districts in the Federal Reserve System, and provides services to financial institutions and the public. The Denver Branch is one of three branches of the Federal Reserve Bank of Kansas City, and covers the states of Colorado, Wyoming and northern New Mexico.

Each branch has its own board, and has seven members, four of whom are appointed by the Kansas City Board of Directors, the remaining three by the Board of Governors of the Federal Reserve System in Washington, D.C.

Kelly was appointed to serve the remainder of a three year term that expires in December of 2010. Each member of the board is allowed to complete two three year terms. She joins  directors as: Bruce K. Alexander, president and CEO of Vectra Bank, Colorado, Charles J. Brown III, president of C.H. Brown Company, and Anne Haines-Yatskowitz, president and CEO of ACCION.

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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Denver-area home sales in the Denver area are down $1 billion through October, compared with the first 10 months of 2008, shows an analysis of data by InsideRealEstateNews.com.

Realtors in the Denver-area through October sold and closed on $8.58 billion worth of homes, the lowest dollar volume in the first 10 months of a year in a decade. The last time, in non-inflation adjusted dollars, was the dollar volume of homes sold less than in the first 10 months of a year was in 1999, when $7.44 billion in homes were sold.

And you have to go back to 1997 to find fewer closings in the metro area than the 35,512 closings so far this year.  A dozen years ago, buyers closed on 34,231 homes through October.

For a comparison to the activity this year, in 2001 buyers snapped up $9.47 billion of homes through October, 9.3 percent higher than during the same period this year. When the difference is even larger when adjusted for inflation. In 2001, buyers paid the equivalent of $11.55 billion in 2009 dollars for homes in the metro area.

The analysis is based on figures from Metrolist, compiled by independent broker Gary Bauer.

It shows that the  $1.09 billion drop in closings in the first 10 months of this year represents an 11.3 percent downturn from the same period in 2008. Still, that is an improvement of the 21.06 percent dollar volume drop from 2007 to 2008. In most other years, the dollar volume had increased when compared to the previous year.

The first time on record that the dollar volume dropped in the first 10 months of the year, compared with the same period in the year before, was from 2005 to 2006, which saw about a 2.3 percent decline.

Bauer said the most recent numbers did not surprise him.

“From 2007 to 2008, was the full impact of foreclosures,” Bauer said. “In 2008 to 2009, it is the recession.”

Bauer said it is important to realize that a $1 billion drop has a far greater impact than that on the overall economy.

“If you go back to the trickle-down impact, I have heard that every $1 in real estate has a $4 multiplier effect,” Bauer said. “So this would have a $4 billion overall effect on the economy.”

For comparisons, MDC Holdings Inc., the largest homebuilder based in Denver and parent of Richmond American Homes, has a market cap of $1.54 billion.

“Another quick analogy is that is about one seventh the size of NBC Universal, based on the $30 billion that Comcast is willing to pay for it,” Bauer said.

But economist Patty Silverstein said that from a “strict, economic analysis,” the real estate industry does not overall have a 4-to1-multiplier impact, although she said it may have that kind of an effect on subcategories - possibly sales impact on title insurance companies, for example - that are not measured by broad economic categories.

To complicate things even more, economists break down the impact to sales, employment and earnings. In real estate and construction, the overall multiplier effect ranges from about 1 to 1 to 3.4 to 1, said Silverstein, the chief economist for the Metro Denver Economic Development Corp. and principal Littleton-based Development Research Partners.

“Still, if you take the 2.24 multiplier for jobs created in the construction industry, that is a $2.25 billion impact on the economy,” Silverstein said.

Silverstein said that the Denver-area housing market for the past two years has been hammered by two things - a drop in overall home closings and a drop in prices.

“That said, I would argue that we are starting to see some stability in prices,” Silverstein said. “And with home sales being where they are, there is little reason to construct new properties, until our current inventory starts to see some life in the market again.”

Also, the federal government’s decision to extend the $8,000 federal tax credit for first-time home buyers, as well as offering some existing homeowners a $6,500 tax credit, will help boost the Denver-area housing market in the coming months, she said.

Jeff Thredgold, corporate economist  for Vectra Bank Colorado, said that the $1 billion drop in housing sales volume is the most recent symptom of the worst economic downturn in the U.S. since the Great Depression.

“Housing has been uniformly weak across the country,” Thredgold said. The sales volume drop is “tied to the recession, tied to excess home appreciation – not in Colorado and the Denver market, but in other markets – tied to existing home sales that have been soft and new home construction that has been even softer. This is all a byproduct of the longest, deepest, most painful and most costly recession since the Great Depression.”

Still, Thredgold said Denver is better off in other markets, such as Phoenix and Las Vegas, which had seen unsustainable home apprecaiton of “60, 70 and even 80 percent. Denver housing did not experience that enormous boom, so there is no need for the kind of bust we’re seeing in Arizona, California, Nevada and Florida.”

Mark Lee Levine, head of the Burns School of Real Estate and Construction Management/Daniels College of Business at the University of Denver, said that the $1 billion drop in home sales has a “domino” effect on the entire economy.

“Which means it is not only having a direct impact on sales and brokerage commissions, and appraisals and bank loans, but it impacts people who sell carpets, and paints, appliances, all the way down the line. You cannot just look at how it effects the home industry itself. The $1 billion by itself is a lot of money, but the list of the jobs and loss of income in other areas of the economy just goes on and on.”

Levine said he doesn’t think people who do not directly feel the impact of a drop in housing sales realize that it may be impacting their economic well being.

“It’s the same things when car sales drop,” Levine said. “A lot of people do not care if the unemployment rate is 10.2 percent. But if I lose my job, than I’m 100 percent unemployed. And that is the message that really hits home.”

Year	Home Closings from January through October of each year	Average year-to-date combined price of condos and single-family homes	Dollar volume	Inflation-adjusted dollar volume
1991	21,944	$101,349	$2.24 billion	$3.55 billion
1992	27,866	$106,406	$2.96 billion	$4.57 billion
1993	31,757	$114,857	$3.65 billion	$5.46 billion
1994	32,162	$125,119	$4.02 billion	$5.86 billion
1995	29,962	$136,075	$4.08 billion	$5.75 billion
1996	31,947	$144,505	$4.62 billion	$6.36 billion
1997	34,231	$152,961	$5.24 billion	$7.05 billion
1988	38,783	$168,488	$6.53 billion	$8.65 billion
1999	39,867	$186,563	$7.44 billion	$9.64 billion
2000	40,690	$215,587	$8.77 billion	$11.0 billion
2001	40,656	$233,033	$9.47 billion	$11.55 billion
2002	40,647	$243,836	$9.91 billion	$11.90 billion
2003	40,985	$253,457	$10.3 billion	$12.09 billion
2004	45,397	$265,807	$12.06 billion	$13.79 billion
2005	45,016	$281,381	$12.66 billion	$14 billion
2006	43,575	$289,018	$12.59 billion	$13.49 billion
2007	43,088	$284,374	$12.25 billion	$12.76 billion
2008	41,683	$255,839	$9.67 billion	$9.7 billion
2009	35,512	$241,653	$8.58 billion	$9.05 billion
2010
2011

Related Links:

Overall October Market

Best October for under contracts

Active price bands in October

October housing inventory

Record sales rate in October

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

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