- RealtyTrac: 24% of sales in Denver area were all-cash purchases.
- Median price in Denver MSA was $250,000.
- Construction defect liability keeping low-priced condos out of market.
The Denver-Aurora area had the highest price homes in the middle of the country at the end of July, according to a national report released today.
The report by RealtyTrac also shows that 24 percent of the homes sold in July in Denver were for all cash.
While that may seem like a lot, it is far below the national average of 40 percent all-cash purchases.
The median price of a home in the Denver metropolitan statistical area was $250,000, according to the Irvine, Calif.- based real estate data company.
Only cities on either coast and Honolulu were more expensive.
Denver was the 10th most expensive city of the 58 MSAs tracked in the report.
Of the top 10 most expensive cities, half of them were in California, with the San Jose MSA leading the pack with a median price of $640,000.
U.S. median price $174,500
The median price in Denver was 43.3 percent more than the national median sales price of $174,500.
In Denver, prices rose by 2 percent from June and 11 percent year-over-year.
Nationally prices rose 4 percent from June and 6 percent from July 2012, marking the 16th consecutive month in which median prices nationwide have increased annually after bottoming in March 2012. according to RealtyTrac.
“Home prices are less expensive in Denver than in most major cities,” he said.
“Denver prices are less than in Chicago, for example,” he said.
Although the RealtyTrac report disagrees, as it places the median price at $182,000 in the Chicago MSA, Mygatt does have a point.
RealtyTrac uses Census blocks to define the MSAs. The Chicago MSA not only captures home sales in the Windy City, but in Naperville, Joliet and ner the Indiana and Wisconsin borders.
Such a wide geographic swath includes a large range of home prices.
In Naperville, for example, the median price of a home is about $350,000, while it is about $110,000 in Joliet. In Wilmette, a suburb near Chicago’s North Shore, the median price of a home is approaching $600,000.
Denver has long held title
“We have held that position for a number of years now, if you can call it a problem,” he said.
The good news is that Denver home values endured the Great Recession probably better than any major city in the country, he said.
“We lost maybe 4 percent of our value during the Great Recession, while Vegas lost 43 percent and Phoenix lost 38 percent, or whatever,” Clark said.
Except during the go-go days of 2006-2007, Phoenix always had lower home prices than in Denver.
Even with the recent appreciation in Phoenix, home prices there are still well below what they cost in Denver.
“We tell companies looking at Phoenix and looking at Denver, yes, our prices are higher, but you won’t have to worry about losing 38 percent of your value,” Clark said.
“They tell us, yes, that is true, but people still have to be able to afford their mortgages and cash flow,” he said.
Also, he recently was talking to officials in Omaha about moving businesses to Denver, “and they really suffer sticker shock when they look at our prices.”
Below the surface, an endemic problem lurks
However, the high home prices in Denver also reflects a more fundamental, but less obvious problem with Denver housing, he said.
“There are no starter condos being built in the metro area because of construction defect liability concerns,” Clark said.
“No. 1, that deprives many young people of a low-priced option, when single-family detached homes are expensive,” he said.
“Most of us build our wealth over time through home ownership and that is hard to do if there is no price point where you can start building equity and moving up.”
Also, it not good for society to have a nation of renters, he said.
“If you talk to the sheriffs in the seven-county area, they will tell you they spend 80 percent of their time on responding to calls to rentals, as opposed to owner-occupant homes,” Clark said.
“If you look at FasTracks, all the housing being built at light rail stops is rental,” Clark said.
“That means all the people living in these TODs (transit-oriented developments), are transient people. There will be no one living in TODs who want to invest in their properties and set down roots.”
Meanwhile, Mygatt said he was surprised by the large number of cash buyers both in the Denver area and across the country.
The report shows that 6 percent of the sales in July in Denver were by institutional investors in July, while nationally institutional investors accounted for 9 percent of all sales.
“It makes sense we have fewer all-cash buyers, since we have fewer institutional buyers, and those buyers often pay cash,” Mygatt said.
A big part of the reason for rising prices in Denver and across the country has been the low inventory.
In Denver, the inventory homes of unsold homes hit an all-time low in March, but has been growing in recent months.
“Low inventory of homes available for sale is proving to be a double-edged sword in many local housing markets that have bounced back quickly from the real estate slump,” said Daren Blomquist, vice president at RealtyTrac.
“Home prices are accelerating rapidly in these markets thanks to the combination of low supply and strong demand,” Blomquist continued. “However, counter to the national trend, sales volume in these markets is down even as the percentage of cash sales rises, indicating there is still strong demand but that buyers who need financing to purchase are increasingly left out in the cold.”
Also, mortgage rates have risen from an all-time low of about 3.3 percent for a 30-year fixed rate, to a bit north of 4.5 percent.
“The recent uptick in interest rates could also be contributing to a higher percentage of cash purchases as some non-cash buyers can no longer afford to buy, particularly in high-priced markets,” Blomquist said.
Metropolitan Statistical Area Median Price
San Jose $640,000
San Francisco $565,000
Los Angeles $450,000
San Diego $405,000
New York-Northern NJ $372,000
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.