Case-Shiller: Denver No. 1, 10.2% gain

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Highlights:

  • Case-Shiller releases its 20-city index today.
  • Denver continues streak of being No. 1 on Case-Shiller.
  • Denver home prices up 10.2%, Case-Shiller reports.
Case-Shiller snapshot of 20 major housing markets. Denver was No. 1 in June.

Case-Shiller snapshot of 20 major housing markets. Denver was No. 1 in June.

Denver-area home prices soared 10.2 percent in June from June 2014, landing it the No. 1 slot for the third consecutive month on the closely watched Case-Shiller Index released today.

Denver has been ranked No. 1 five of the six months, an unprecedented streak, according to the S&P Case-Shiller Home Price Indices.

In June, Denver was the only city to show double-digit growth on a year-over-year basis.

San Francisco was No. 2, at 9.5% and Dallas, at 8.2 percent, was in third place.

Denver appreciated more than twice the 5 percent year-over-year gain for all 20 cities on the index.

June also marked the 40th consecutive month that home prices had risen in Denver, according to Case-Shiller.

“It’s nothing short of, ‘wow,’ said Peter Niederman, CEO of Kentwood Real Estate, about Denver’s ranking in the Case-Shiller report.

“The run continues,” Niederman said.

The only obvious potential headwind to slow not only housing activity in Denver, but across the U.S., is the global financial meltdown, he said.

But with interest rates still incredibly low, a strong local economy and Denver’s magnetic draw for millennials, the Denver housing market is in a uniquely strong position, he said.

“I had dinner at a new restaurant in LoHi, called Avanti Food & Beverage and it was communal seating and just filled with millennials,” Niederman said.

“I was talking to the young professionals in their 20s at the restaurants and they are excited about being here and building careers here,” Niederman said.

“And they want to own homes,” he said. “Denver has become an “it” city.”

However, he does worry about housing affordability.

“Denver is becoming an expensive housing market,” Niederman said.

It is important for the metro area’s market to have homes for first-time buyers, retirees, transplants from out-of-state and those wanting to move up, he said.

“I wouldn’t want to see Denver become one of those big peak-to-trough markets like Phoenix, Las Vegas or Miami,” Niederman said.

Next year, Niederman predicted that housing prices in the Denver area will be appreciating 4 percent to 6 percent annually, interest rates will be in the low to mid 4 percent range, and there will be a three to four-month supply of unsold homes on the market, compared to about a six-week supply today.

Independent Realtor Gary Bauer described Denver’s Case-Shiller ranking as: “Amazing and not surprising.”

“Denver continues to set records,” Bauer said. “Denver is a true destination city. Millennials want to move here and we are seeing companies continuing to move her, driving growth and demand for housing.”

He and others pointed out that the Case-Shiller report is for June and does not reflect what is happening in late August.

“August is almost over and we are experiencing the traditional, seasonal slow down,” Bauer said.

Case-Shiller snapshot for June.

Case-Shiller snapshot for June.

Bauer said the volatile stock market, which crashed on Monday and was recovering this morning, would have a “short-term impact” on the Denver housing market.

“Depending on what happens with the stock market, I don’t think it will have a long-term impact on the Denver housing market,” Bauer said.

Chris Mygatt, president of Coldwell Banker Residential, said the Denver-area housing market has been on such a tear that he joked he doesn’t want to “jinx it,” by speaking out of turn.

Other cities across the country envy the strong local housing market, he said.

“It’s the talk all around the country,” Mygatt said.

And while it was exciting when Denver first took the No. 1 slot, he would like to see prices and Denver’s ranking, come down.

“I’ll be interested to see when Case-Shiller comes out with the August numbers,” Mygatt said.

“It seems like we have a little more inventory and it is a little less frantic out there today, as seasonality kicks in, with kids going back to school,” Mygatt said.

“My hope is that our appreciation will drop down to about the 8 percent range and we will move more back into the pack,” on the Case-Shiller index, he said.

“I think we can sustain 7 percent or 8 percent appreciation for years, but when we get to 10 percent, it makes me nervous,” Mygatt said.

Denver’s strong housing market, he said, is being driven by the strong employment numbers and the number of people relocating to Denver.

And because there are not enough homes on the market to satisfy all the demand, it is keeping home prices high, he said.

As far as the stock market, he thinks that primarily will impact the luxury housing market, which has been extremely strong this year.

“Many affluent people are seeing and feeling the impact of falling stock prices,” Mygatt said.

However, when the smoke clears, he said he wouldn’t be surprise is some high-end home buyers will decide to take some equities off the table in this volatile market and use the proceeds to buy a bigger and more expensive home.

“They may see a home as a fairly stable asset in these uncertain times,” Mygatt said.
“We certainly saw during the last downturn that Denver home prices held up better than many other places in the country,” he said.

He doesn’t, however, think there will be a rush for people to sell stocks and buy rental properties.

“During the last downturn, we ended up with many ‘accidental’ landlords and many people found out it is not as easy to be the owner of a rental property as many think,” Mygatt said.

“It can be a great business and a great investment, but it not for everyone,” he said.

“If you have the time and temperament for owning real estate, it’s wonderful, but I don’t think the casual stock market investor will want to suddenly own rental properties.”

“Wow,” was Ty Dokken’s response when he was told of Denver’s No. 1 ranking by Case-Shiller.

“Denver is a really cool place and it shows in the numbers,” said Dokken, with Metro Brokers.

“Stocks dipped pretty hard and that will impact things,” Dokken said. “I think the stock market and the housing market are all intertwined. I spoke to my money guy yesterday and he said it is important not to have a knee jerk reaction. But I think if there was a sustained stock market correction, it would impact the housing market negatively in Denver and across the country.”

He agreed with others that today the Denver market is experiencing a typical seasonal slowdown, as autumn approaches.

“There seems to be a bit more inventory hitting the market,” Dokken said.

“I think the high housing prices are bringing people into the market who wouldn’t normally be selling. I like that there are some really quality properties out there right now.”

However, he said the market temperature varies based on geography and not every area is hot.

“People read the headlines about the hot market, but that is true for Denver,” Dokken said.

“If you are in Englewood or pushing out in Douglas County, they think they are in this hot market, but they are not. They need to work closely with their Realtor to make sure they price their properties appropriately.”

Across the country, home prices are easily out-pacing inflation.

Case-Shiller: National take

“Nationally, home prices continue to rise at a 4-5 percent annual rate, two to three times the rate of inflation,” said David M. Blitzer, Managing Director and Chairman of the Index Committee at S&P Dow Jones Indices.

“While prices in San Francisco and Denver are rising far faster than those in Washington DC, New York, or Cleveland, the city-to-city price patterns are little changed in the last year,” Blitzer said.

“Washington saw the smallest year-over-year gains in five of the last six months; San Francisco and Denver ranked either first or second of all cities in the last five months,” Blitzer continued.

“The price gains have been consistent as the unemployment rate declined with steady inflation and an unchanged Fed policy,” he said.

However, not enough new homes are being built across the country, he said.

“The missing piece in the housing picture has been housing starts and sales,” Blitzer said.

“These have changed for the better in the last few months. Sales of existing homes reached 5.6 million at annual rates in July, the strongest figure since 2007. Housing starts topped 1.2 million units at annual rates with almost two-thirds of the total in single-family homes. Sales of new homes are also trending higher. These data point to a stronger housing sector to support the economy,” he said.

Still, the volatile stock market and rising interest rates could damper the national housing market, he said.

“Two possible clouds on the horizon are a possible Fed rate increase and volatility in the stock market,” Blitzer said.

“A one quarter-point increase in the Fed funds rate won’t derail housing,” he said.

“However, if the Fed were to quickly follow that initial move with one or two more rate increases, housing and home prices might suffer,” Blitzer continued.

“A stock market correction is unlikely to do much damage to the housing market; a full blown bear market dropping more than 20 percent would present some difficulties for housing and for other economic sectors.”

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Have a story idea or real estate tip? Contact John Rebchook at JRCHOOK@gmail.com. DenverRealEstateWatch.com is sponsored by 8z Real Estate. To read more articles by John Rebchook, subscribe to the Colorado Real Estate Journal.

 

 

 

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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 GlobeSt.com, covering commercial real estate for the Internet publication.

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