Denver No. 5 on Case-Shiller

Date: Apr. 27th, 2010
Contact: John Rebchook Phone: 303-945-6865

The Denver-area housing market today ranked No. 5 of 20 cities ranked in the closely watched S&P/Case-Shiller Home Price index.

The index showed that in the one year period ending in February, the Denver-area housing market showed an overall gain of 3.6 percent – the fourth consecutive month that Denver showed a year-over-year jump. And the last time it showed a drop in year-over-year prices, when homes fell a mere 0.1 percent in October, that was a strong enough showing to land Denver in first place.

Overall, the 20 cities in the index showed a 0.6 percent gain for the 20 metropolitan statistical areas in the index, and a 1.4 percent gain for the 20 cities. San Francisco showed the biggest gain at 11.9 percent. Other cities doing better than Denver included San Diego, at 7.6 percent; Los Angeles, 5.3 percent; and Washington, D.C., 5 percent. Denver showed the highest appreciation of any city not on or near the West or East Coast.

Case-Shiller: Antidote to

Experts said the latest report is good news for the Denver-area market, and provides further ammunition that the now infamous April 5 report that ranked Denver as the second worst housing market in the county, is off base.

“Case-Shiller continues to report the same type of improvement we are seeing with the Metrolist numbers,” said Peter Niederman, chief executive officer and an owner of the Kentwood Real Estate. “We are almost always one of the top five markets on Case-Shiller. That provides a much better indicator of the market than the Zillow numbers that used in its initial report.” Forbes later wrote an article saying it should not have used Zillow numbers to measure the inventory in the Denver-area market, but has since taken both the first and the follow-up story off its Web site. Zillow, for its part, says the statistic was accurate, but it was not not characterized correctly in the first Forbes story.

“Case-Shiller represents yet another national source we have seen that establishes Denver as one of the best-performing cities in the country, and the best non-coastal city in the U.S.,” said Chris Mygatt, president of Coldwell Banker Colorado. “I think that first Forbes report was in direct conflict with what every other report, locally and nationally, is showing. Now, Forbes did circle back and showed the error of the way they handled the inventory numbers.”

Colorado affordable, sustainable, unlike California

He said that Colorado and Denver are in a better position than in California, even though San Francisco, San Diego and Los Angeles showed the biggest percentage gains in the Case-Shiller report;

“California is coming on strong,” Mygatt said.”The (almost) 12 percent increase in San Francisco is impressive. But it is like California is back on the roller coaster. You can’t have these huge gains unless you have the huge drops preceding them. Colorado and Denver are in a unique position. We have now experienced seven consecutive months of year-over-year price increases and the $1 million market is showing year-over-year increases,” Mygatt said. “And those deals are not being driven at all by the tax credits,” which require a buyer to place a house under contract by this Friday, and close on the home by June 30. The credits are valued as much as $8,000 for qualified first-time home buyer and $6,500 for qualified existing home owners.

“Denver still has an unemployment rate lower than the nation’s,” Mygatt said. “I see our housing as having a really nice, sustainable and improving market. California, by contrast, is entering its boom-and-bust cycle, once again.”

Tax credits fueled sales

Gary Bauer, an independent broker who tracks the Denver-area housing market using Metrolist data, said that what is important about Case-Shiller is that it uses the same methodology each month.

“I think today’s report is very positive for Denver,” Bauer said. “While it will show different numbers than Metrolist, it is very good for trending. And the Case-Shiller is moving along the same trend-line as Metrolist is showing.

Bauer said that he has a number of clients, both in Colorado, as well as in New Mexico, Texas and Arizona, who are scrambling to put homes under contract by Friday’s tax-credit deadline. The impact of the tax-credit buying spree will be felt in late summer and the fall, when the market drops off for seasonal reasons, anyway. “I expect that the seasonal drop off will be about 10 percent to 20 percent higher than it normally would be,” Bauer said. ” But I think that Denver will be one of the markets that lands on its feet, when the tax-credits are gone.” He noted that consumers did not stop buying cars when the similar cash-for-clunkers program disappeared. He said he expects home builders to react creatively in a move to convince buyers to sign on the dotted lines, just as car dealers and manufactures did, when the cash-for-clunkers program ended. But instead of zero-percent financing, builders will throw in $8,000 or more in upgrades, he said. ‘i don’t think too many builders will reduce the price by $8,000, but I do think they will offer a number of upgrades,” Bauer said.

Jeff Bernard, of Bernard Real Estate Analytics, noted that the 3.6 percent increase is very close to the historical increase in Denver-area home prices.

“Denver, for the most part, has tended to move in a very linear fashion,” said Benard, also a broker with RE/MAX Alliance. “We have had a couple exceptions. During the S&L crisis (of the mid to late 1980s) we had two down years – one in absolute terms and the other when adjusted for inflation.” California home prices, by contrast, frequently spike in prices. “That’s why the 11.9 percent increase in San Francisco does not surprise me,” Bernard said.

Denver housing in line with inflation

But he said one of the most important metrics in today’s Case-Shiller report is the one that shows since January 2000, Denver-area home prices have risen an average of 25.4 percent. That is below the 44 percent increase for all 20 areas, but outshines the long-term appreciation of only 3 percent in Las Vegas and 10 percent in Phoenix. Detroit was at the bottom, showing almost a 30 percent drop during the past decade.

“Poor Detroit,” Bernard said. “What do you expect from a city where you can buy a home for $1?”

But while Denver’s long-term appreciaton is not eye-popping, like the 76.5 percent increase in Washington, D.C., it is very good news, Bernard said.

“What that shows is that overall, Denver housing has kept pace with inflation, or performed slightly better than the inflation rate,” Bernard said. “That is a very positive indicator. It’s very sustainable and bodes very well for the future.”

Metropolitan Area Appreciation since January 2000 January-February Change 1-year Change from February 2009
Atlanta 5.6% -1.3% -0.9%
Boston 51.4% -1.0% 1.8%
Charlotte 16.1% 1.0% -2.5%
Chicago 22.6% -2.0% -3.0%
Cleveland 0.93% -2.1% 3.2%
Dallas 15.2% -1.8% 2.6%
DENVER 24.5% -0.8% 3.6%
Detroit -29.5% -1.8% -5.4%
Las Vegas 3.4% -0.4% -14.6%
Los Angeles 71.8% -0.7% 5.3%
Miami 47.5% -0.5% -4.4%
Minneapolis 19.91% -2.2% 3.0%
New York 70.5% -0.4% -4.1%
Phoenix 10.11% -1.5% -1.6%
Portland 43.7% -2.4% -4.8%
San Diego 57.9% 0.6% 7.6%
San Francisco 34.7% -0.7% 11.9%
Seattle 43.6% -1.1% -5.6%
Tampa 36.5% -1.2% -6.0%
Washington, D.C. 75.5% -0.5% 5.0%
Composite-10 56.6% -0.6% 1.4%
Composite-20 44.0% -0.9% 0.6%