Metro home prices remain soft in 2006-07

Yet another report paints flat picture

John Rebchook, Rocky Mountain News

Published June 1, 2007 at midnight

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Denver-area home prices rose only an average of 1 percent in the first quarter of this year vs. a year ago, lagging an overall 4.3 percent increase for the entire nation.

U.S. home prices in the first quarter rose at the slowest pace in a decade, led by declines in Massachusetts and Michigan, as the U.S. housing slump entered its second year, a government report showed.

The 4.3 percent increase is the smallest gain since the 4.1 percent increase in the third quarter of 1997, the Office of Federal Housing Enterprise Oversight said Thursday. The report doesn't give an average price, only the percentage change.

"Nationwide, home prices continued to rise in the first quarter of 2007, albeit at the lowest rate in 10 years," said James B. Lockhart, director of the agency.

The organization released its index based on Fannie Mae and Freddie Mac data.

Richard Yamarone, chief economist of Argus Research in New York, said the next national -OFHEO price report could show a decline, which would be the first in more than 30 years.

From the fourth quarter 2006 to the first quarter 2007, homes in the Denver-Aurora metropolitan area overall lost 0.34 percent in value. Nationally, home prices rose 0.5 percent, according to a national housing index.

Though this was the third report this week that showed the Denver area is trailing the national housing market - the other reports were released by Standard & Poor/Case-Shiller and DataQuick Information Systems - it wasn't all bad news for Colorado.

Home prices in Grand Junction rose by 16.82 percent in the first quarter compared with the first quarter 2006, making it the fourth-best-performing metropolitan area in the country, according to OFHEO, which oversees Fannie and Freddie.

Grand Junction is benefiting from the hot energy sector and from retirees moving to the area, experts said.

Lou Barnes, a principal of Boulder West Financial Services, said the "big news" will occur today, when the U.S. Bureau of Labor Statistics releases its payroll numbers for May.

If they are as strong as many expect, that could cause a 30-year fixed-rate loan, with no points, to rise to 6.5 percent, he said.

And later this summer, rates could rise to around 7 percent, he said.

"A lot of adjustable-rate mortgages are resetting to 7.5 percent and 7.75 percent," Barnes said. "In the last year, it has been pretty easy to refinance into a 6.25 percent fixed rate."

Rising rates, combined with a flat housing market, could increase the number of foreclosures in the metro area, he said.

Foreclosures already are at a record level.

"The new lender term is 'jingle mail,' " Barnes said. "They call it jingle mail because the homeowners are mailing their keys back to their lenders."

The biggest weakness in housing prices in the Denver area - and where most of the foreclosures are occurring - is with lower-priced homes, said economist Michael Kone, owner of Housingmetrics Inc. in Boulder.

"The key thing is there are still some pockets in the metro area where homes are actually still rising in value," Kone said. "And there is a lot of weakness at the bottom end."

Economist Patty Silverstein, principal of Development Research Partners in Littleton, said she found nothing surprising in the latest government housing report.

"Overall, we expected to see very minimal, to even slightly negative, home-appreciation rates," she said. "In the Denver-Aurora-area marketplace, we expect our job growth to be slightly under 2 percent. That is OK, but below our historical average.

"Our expectation for this year is that our housing appreciation rates will not come up to the national levels."

rebchookj@RockyMountainNews.com or 303-954-5207 Rocky wire services contributed to this report.

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