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Metro housing holding its value

New report could spur investment in local real estate

By John Rebchook, Rocky Mountain News (Contact)

Published January 15, 2009 at 12:05 a.m.

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A home for sale in Denver. A report shows a 1 percent risk that area homes will lose value.

Photo by David Zalubowski / Associated Press/2008

A home for sale in Denver. A report shows a 1 percent risk that area homes will lose value.

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Home prices in the Denver-Aurora metropolitan area have less than a 1 percent chance of declining in value during the next two years, according to a national report released Wednesday.

The report by PMI Mortgage Insurance Co. could help accelerate an expected surge of real estate investments by savvy buyers looking for bargains, said one local expert.

"In the last couple of weeks, I have been hearing that some very large and fully capitalized hedge funds and opportunity funds are aggressively wanting to make deals in Denver," said Mike Rinner of the Genesis Group, which tracks Front Range housing.

"The kind of national press from the PMI report about Denver being a low-risk area, as far as declining values, is going to make these investors want to make their moves sooner rather than later," Rinner added.

The U.S. Market Risk Index released by PMI ranked Denver as the 10th least risky of the 50 largest metro areas in the country.

Dallas-Plano-Irving in Texas had the least risk of losing value, while the Fort Lauderdale-Pompano Beach-Deerfield Beach, Fla., market ranked as the riskiest of 50 metro areas, according to the third-quarter report.

The spread between the 10 least-risky markets is so small that it is almost statistically insignificant, said LaVaughn Henry, director of U.S. Economic Analysis for the PMI Group.

Overall, year-over-year home values in the Denver area are down 3 percent, while the average drop for the top 50 metropolitan areas is about 11 percent, Henry said.

"That's in line where Denver was a year earlier," Henry said. "In the third-quarter 2007, prices were down 2.21 percent."

In addition, homes were 15 percent more affordable in the Denver area in the third quarter than they were in 1995, when PMI began to measure affordability, Henry said. PMI uses a formula based on income, housing prices and mortgage rates to calculate affordability.

"As far as things go, Denver is better off than . . . coastal (states)" such as California and Florida, Henry said. "Nationwide, Denver is by far not the worst place to be."

In addition to metro areas in California and Florida, risky markets include Phoenix and Las Vegas, according to the report.

"I feel pretty good about it," Rinner said. "It means there is less chance to see a decline. But it does not mean we will see appreciation, so in that respect, it is a modest accolade."

Today's market increasingly is feeling like the late 1980s, when the market was beginning to recover from a hammering that resulted from years of massive overbuilding, a huge drop of high-paying jobs when energy prices crashed, and a change in tax laws that dramatically reduced the favorable treatment of real estate investments, Rinner said.

"I've been around long enough to begin to sense when the tide is about to shift," he said. "In the late 1980s, the smart investors began to wait for the bottom of the market, or as close to the bottom as they could, and begin buying real estate in a big way.

"We've been expecting this to happen during the past year, but there have been very few actual transactions."

That, however, appears to be changing, Rinner said.

rebchookj@RockyMountainNews.com or 303-954-5207

Comments

  • January 15, 2009

    8:29 a.m.

    Suggest removal

    leavemealone writes:

    Our overall metro Denver market has been down for over 7 years.

    We turned the corner for the better back in the first quarter of 2008.

    Colorado does just the opposite of the rest of the nation as a whole. When the US stated going south a couple years ago I knew we would start to see a rebound.....& here we are!

    It's about time!

  • January 15, 2009

    8:31 a.m.

    Suggest removal

    breezencal writes:

    I find it baffling that a story like this would be run, and yet the list is not included as a link! Maybe this is why the Fourth Estate is in the condition it is and on the verge of extinction. Whatever happened to the attitude "you get headlines on television and the complete story in your newspaper!" So long Rocky, it was a nice run!

  • January 15, 2009

    10:29 a.m.

    Suggest removal

    Nobama writes:

    What the heck is going on? You mean the sky really DIDN'T fall? Just a little bubble that burst? Guess it's not so bad if you didn't mortgage yourself to the hilt on a house you couldn't afford and bet on the come. Cause, this time, it just didn't come. Lessons to be learned for deadbeats and future generations.

  • January 15, 2009

    10:33 a.m.

    Suggest removal

    can_do writes:

    We have been tracking the market extensively and identified these trends a while ago. We've been buying real estate as fast as possible since Q2 2008.

    Breeze: the list is in a link directly under the photo at the top of the article.

  • January 15, 2009

    10:40 a.m.

    Suggest removal

    market_man writes:

    Time to get rich using real estate......again.

  • January 15, 2009

    12:16 p.m.

    Suggest removal

    NeilT writes:

    "Home prices in the Denver-Aurora metropolitan area have less than a 1 percent chance of declining in value during the next two years"

    Really??

    I wish I had the same crystal ball they're looking at.

    So real estate values stand-alone, as an independent entity, not affected by any other indicator/industry/current events?

    Geopolitical instability...
    Ever increasing/accelerating job losses...
    Massive debt with decreasing foreign investors (thus, increased interest rates)...
    Private sector retirement getting whacked, soon to be followed by pensions...
    We don't have a clue what's going on with the financial markets and the subsequent bailouts, with new funds (in addition to TARP) being sought today...
    http://online.wsj.com/article/SB12319...

    Less than a 1 percent chance of declining real estate values? Where are the buyers going to come from? Where is their money going to come from? Of course we will not have enough buyers to experience an increase in values, as the report indicates, but we need enough to stabilize prices where they sit.

  • January 16, 2009

    1:02 p.m.

    Suggest removal

    psychoChicken writes:

    NeilT writes: (among other things) 'Where are the buyers going to come from?'

    Please take a longer view than the 24-hr news cycle hysteria that gets pounded into our heads, i.e., stock prices falling today because of unemployment numbers from six weeks ago. The economy is contracting because we overextended ourselves; this and all things will pass.

    Look on the bright side: the population continues to increase (although some will argue that this is a negative), and people need a home, if not a McMansion... The engine that traditionally drives the housing market is the 1st time buyer, who lives in an apartment (or mom's basement) waiting for a clear indication of a bottom to the market... and of course, steady (paying) employment, the confidence to go into debt for an extended period, and the ability to qualify for a loan (as long as the down payment nest egg was not totally obliterated last year). The 1st time buyer of today is a little bit smarter and more cautious than his / her counterpart of a few years ago.

    I would bet that most apartment dwellers in this region plan to purchase a home rather than rent forever; the question is when will they make the purchase. Your points about macroeconomic / geopolitical issues are well-taken... but most people make decisions based upon their own situation rather than global issues. However, I don't think anyone would suggest that housing demand is completely isolated from the outside world; that is a bit of a misrepresentation of the information in the article.

    Seeing investor groups purchasing homes at a large scale may affect the housing market (both up and down), since an increasing percentage of homes for rent in a given neighborhood makes getting a loan in that neighborhood more difficult... but at the same time, creates a perceived floor for those who were waiting for a floor before entering the market.

    Like every other situation, this one will play itself out, and there will be winners & losers.

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