Home prices at snail's pace

Colorado, Denver rank near bottom in cost appreciation

John Rebchook, Rocky Mountain News

Friday, June 2, 2006

Both Colorado and the Denver area rank near the bottom of home appreciation, according to a federal, first-quarter report released on Thursday.

That is good news from an economic development perspective but disappointing if you're looking to sell your home.

Experts say that rising foreclosures and a record inventory of unsold homes on the market are keeping a lid on appreciation in the Denver area.

Colorado homes on average appreciated 5 percent in the first quarter from a year earlier, ranking it No. 45 out of 50 states, according to the report by the Office of Federal Housing Enterprise Oversight, the agency that regulates mortgage giants Fannie Mae and Freddie Mac.

And the Denver-Aurora metropolitan statistical area showed a 3.24 percent increase, ranking it 248th out of 275 metropolitan areas.

"If you're competing for companies looking to expand or move here, it's helpful that our housing prices aren't out of control," said economist Patty Silverstein, principal of Development Research Partners.

"If you put it into perspective of where we are in our business cycle, this is very good news. We're starting to see firmer job growth, and our home prices are still at reasonable levels, compared to other parts of the country."

"But individual homeowners already living here won't like that," she said. "That's why economists always talk with both hands. There's always a good side and a bad side."

Overall, the annual percentage increase was 12.5 percent for the nation, although it drops to 2 percent when the first quarter is compared with the fourth quarter of 2005.

Homes in Colorado rose in value by only 0.20 percent from the fourth quarter, while homes in the Denver -Aurora metropolitan area fell by 0.35 percent from the fourth quarter, according to the report.

"We're at the bottom of the heap," Silverstein said. "But that is OK from my perspective. Being up 5.1 percent (statewide, first quarter), that number sounds pretty good."

She said the 12.5 percent appreciation for the nation is being driven by a few extremely hot housing markets in states such as Arizona and Florida and doesn't yet reflect the cooling in those markets resulting from rising interest rates.

Indeed, those two states ranked No. 1 and No. 2, respectively, up 32.81 percent and 26.62 percent, year over year, but up only 3.8 percent and 4.89 percent from the fourth quarter.

"A few key markets across the country are pulling up the numbers, and while Colorado being 45 out of 50 is not tremendous, you have to understand where we are and put it in perspective," Silverstein said. "We had been in one of the strongest growth markets in terms of housing prices (nationwide), and now those numbers are being tempered. What that means is that the playing field is being evened out."

Silverstein noted that for years, the Denver area and Colorado were at a disadvantage because of their high housing prices.

Indeed, several years ago the Denver area had the most expensive housing prices in the nation outside of either coasts, but that no longer is true because of record appreciation in many other areas.

Steve McGuire, an agent with RE/MAX Professionals who closely tracks the area housing market, said two culprits hurt home values: foreclosures and a record glut of unsold homes clogging the market.

"I think we're at the top of the list as far as foreclosures," McGuire said. "That is playing a big factor as far as home prices. Also, the inventory is going to continue to grow throughout this summer."

He notes that last month there were more than 29,000 unsold homes in the Denver market - a record amount - and "now we have to be well over 30,000."

Rising foreclosures and growing inventory are "just fueling the fire," McGuire said. "I expect that they are both going to continue to impact the market into the fall."

Independent real estate broker Gary Bauer said the federal numbers "sound about right."

But he noted that the while the overall Denver-area housing market will grow in the 3 percent to 5 percent range this year, "there are some areas that will be showing negative growth."

For example, Adams County, plagued by a large number of foreclosures, likely will see a drop in home prices, he said.

On the other hand, some geographic areas locally will see overall appreciation of around 7 percent this year, he said.

"And these are good, solid numbers," Bauer said. "There is nothing funny about these numbers. They reflect true, solid growth."

First-quarter home appreciation • 50 states and 275 metropolitan areas

Area % change Rank

Colorado 5.1% 45

Denver-Aurora 3.24% 248

Colorado Springs 7.0% 160

Boulder 2.53% 258

Greeley 2.74% 256

National average 12.54%Source: Office Of Federal Housing Enterprise Oversight

rebchookj@RockyMountainNews.com or 303-892-5207