Denver No. 6 in Case-Shiller


A snapshot of Case-Shiller's latest report.

The Denver area housing market showed an overall drop of 4.1 percent in April from April 2010, but that was good enough for sixth place in the 20 metropolitan statistical areas covered by the closely watched and influential S&P/Case-Shiller Home Price Indices released today.

And on a month-to-month basis, Denver home prices rose 1.5 percent in April from March, good enough for fifth place. Only Washington, D.C., gaining 3 percent, performed dramatically better than Denver from March to April San Francisco rose by 1.7 percent and Seattle and Atlanta each gained 1.6 percent.

Tax credit impact

Denver and other markets showed relatively large percentage losses on a year-over-year basis, although that was not surprising given that April 30, 2010 was the deadline for placing a home under contract in order to take advantage of the federal tax credits for qualified buyers, which boosted home sales activity in April 2010.

Lane Hornung, president, CEO and co-founder of 8z Real Estate said that the Denver’s relatively strong showing in Case-Shiller did not come as a surprise to him. 8z Real Estate is a sponsor of InsideRealEstateNews.

“It’s not because I am a genius when it comes to predicting the market, but because Case-Shiller reflects market activity that has already occurred,” Hornung said. “Those of us who live and breathe real estate already knew that market demand was relatively strong in April based on showings, contracts, and closings.  Coupled with a lack of supply due to shrinking inventory, eventually this would result in rising prices. What surprised me was that the reversal, from falling prices to rising prices, was this strong of a move.”

Recovery obstacles

In his recent newsletter, Hornung addressed why the recovery is so slow and factors holding back the market.

“The answer is a complicated one,” Hornung wrote in his newsletter. “The real estate market is being buffered by a number of different forces, often working at odds against each other.”

Hornung said that while Colorado’s unemployment rate dropped to 8.7 percent in May, compared to 8.9 percent in May 2010, “an unemployment rate topping 8 percent does not exactly fuel real estate demand.” Still there is good news on the supply side of housing, as inventory levels are falling. He said “an especially encouraging sign” is that foreclosure filings in Colorado’s largest counties in May fell by 24 percent and were down 20 percent from May 2010, according to the Colorado Division of Housing, marking the sixth consecutive month of filings and sales being down when compared to the same month a year earlier.

He also noted that mortgage  rates continue to hover near historic lows. However, the rates are reserved for only those that qualify. “Undoubtedly, the lack of credit due to tight lending standards is putting a crimp in the number of home buyers and one of the forces holding the market back.  However, the lending standards “pendulum” continues its swing back to the more reasonable middle allowing more buyers to qualify,” Hornung wrote.

Consumer confidence key

Consumer confidence –  or the lack thereof –  remains the “biggest force” impacting the Denver-area housing market right now, according to Hornung. But consumer confidence is a chicken-and-egg  proposition. “It is hard to say whether housing is weighing on confidence or a lack of confidence is weighing on housing; probably a bit of both,” Hornung wrote.

Hornung went on to say that while all real estate is local,”consumer confidence is national. In some ways, the confidence of Coloradoans is being dragged down by other parts of the country. Our housing market is, and has been, much healthier than bubble markets such as Arizona and Nevada for a long time. We should probably be more confident than we actually are.”

Unlike the other macro forces hammering the market, consumer confidence can change on a dime.

“After all, a shift simply requires people changing their minds,” according to Hornung. “As a result, consumer confidence can go from being a force hindering the market to a force fueling the market literally overnight. When swings happen in consumer confidence, they tend to happen fast. So we will keep an eye on consumer confidence, and see if Coloradoans pay more attention to our local market, or continue to be overly influenced by the dire national headlines about housing. When are we going to become more confident in our market?  Perhaps this tick up in home prices will be the start of that swing in confidence.”

Peter Niederman, in a separate interview, echoed many of Hornung’s thoughts and themes.

“As I’ve said before, the Case-Shiller data is 60 days old,” Niederman said. “We already know what happened in May, and will soon get the Metrolist data on June. Case-Shiller’s main importance is how we compare to 19 other major markets.”

Niederman said he is keenly interested in where the Denver market stands in July, as that will truly be the first month on a year-over-year basis not to be unduly influenced by the tax credits. “Even though the government extended the closings until the end of last September, I think 85 percent to 90 percent of them closed by the end of June 2010,” Niederman said. “My barometer will be July. And I think this July will be better on a year-over-year basis. The tell-tale sign will be July figures.”

Niederman said when he looks at Kentwood’s internal numbers, “our June closings were exceptionally strong. Our July pipeline looks strong as well.”

In January, Niederman predicted that 2011 will end up being 3 to 5 percent better than 2010 as far as closings and dollar volume. “I’m sticking to my guns,” Niederman said. “I still think we’re going to be up 3 percent to 5 percent on a year-over-year basis. I know I am more optimistic than some people. But I think people are going to be surprised how much better we are going to be, on a year-over-year basis, starting in July. We still have attractive home prices and interest rates. The only thing that is missing is consumer confidence.”

Chris Mygatt, president of Coldwell Banker Residential Real Estate in Colorado, said the Case-Shiller report confirms what he had expected.

Inventory pressures prices

“I think the big story out there is that our inventory is at the lowest level it has been in years,” Mygatt said. “I’m very grateful that we don’t have 25,00 homes on the market right now. Buyers who are out looking in the market and have a need to buy, really do not have a ton of selection. That is keeping prices reasonably strong. I don’t think it it making them artificially high, but as I say, reasonably strong. It’s basic supply and demand, Economics 101.”

Still, the big question is whether there are unsold homes being held by lenders that are not being marketed, which could dramatically increase the size of the inventory.

“We keep hearing about that lending institutions have this shadow inventory,” Mygatt said. “I think the savvy lenders are selling them off, one home by one home. My hope is that the inventory remains fairly stable.”

National outlook improves

Meanwhile, on a national basis, David M. Blitzer, chairman of the Index Committee at S&P Indices, was more optimistic sounding than he has been in some time, although he cautioned it’s too early to declare that the housing market has turned the corner.

“In a welcome shift from recent months, this month is better than last – April’s numbers beat March,”  Blitzer said. “However, the seasonally adjusted numbers show that much of the improvement reflects the beginning of the spring-Summer home buying season. It is much too early to tell if this is a turning point or simply due to some warmer weather.” Denver showed a 0.1 percent seasonally adjusted drop in April from March, which was the same as the average for the 20 cities tracked by Case-Shiller. That tied Denver for 11th place with San Diego. Washington, D.C. showed the greatest seasonally adjusted monthly gain, rising 2 percent from March.

“Other housing statistics show the same trends,” Blitzer continued. “Single-family housing starts were up in May, but still well below their 2010 levels and still very close to their 30-year low. Existing home sales rose in May, but are still about 15% below last year’s pace and about 35 percent below their 2005 pace. While foreclosures remain a large factor in most parts of the country, the S&P Experian Consumer Default indices show a small decline in the pace of new defaults since last November. Other reports confirm that banks have tightened lending standards in the past year making it harder to qualify for a mortgage despite very low interest rates.

“In the monthly details, we saw home prices increase in April over March. The 10-City was up 0.8 percent and the 20-City rose 0.7 percent Only seven cities experienced lower prices compared to 18 in March. However, the seasonally adjusted figures saw less dramatic improvement. The annual rate of change for the 10-City remained the same at -3.1 percent; whereas the 20-City fell further from -3.8 percent  reported for March to -4.0 percent for April. For a real recovery we would need to see several months of increasing home prices, large enough to shift the annual momentum to the positive side. In short, better news, but still a lot of questions and a long way to go.”

Nationally, Myagtt  said there has been a lot of talk that 2011 will even be weaker than 2010. He said groups from the National Association of Realtors to Fannie Mae have been warning of “adjustments down” this year. But he said he thinks Denver may buck that trend. “I think it is not unlikely that Denver will out-perform 2010 in terms of the number of units closed, as well as continued strength in sale prices. I’m cautiously optimistic.”

Metropolitan AreaHome values changes from January 2000February/January1-Year Change
Las Vegas-3.53%-0.7%-6.2%
Los Angeles68.2%0.3%-2.1%
New York64.17%-0.8%-2.8%
San Diego54.50%0.4%-4.3%
San Francisco32.03%1.7%-5.5%
Washington, D.C.86.76%3.0%4.0%
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John Rebchook

John Rebchook has more than 30 years of experience in writing and communications. As the Real Estate Editor for the Rocky Mountain News, he wrote about residential and commercial real estate for 26 years. He has won numerous awards for business stories and columns that he wrote, both as an individual and part of teams. In addition to real estate, he also covered economic development, banking and financing, the airlines, and cable TV for the Rocky. In addition, he was one of the original freelance writers for, covering commercial real estate for the Internet publication.

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