Traders bet prices will fall 14.4% by 2011

John Rebchook, Rocky Mountain News

Published October 5, 2007 at midnight

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Traders on the Chicago Mercantile Exchange are betting that Denver-area home prices will drop an average of 14.4 percent between now and 2011.

But that is a bet that Denver-area real estate brokers are unlikely to take.

"That just doesn't make any sense," said broker Gary Bauer. "In order for homes to drop in value by 14 percent, we would have to create no new jobs, and huge companies would have to shut down their operations here. There are no planned major players leaving the area."

The Wall Street Journal reported that the traders on the exchange, who are allowed to buy housing futures based on the 10 S&P/Case-Shiller Home Price Indices, predict an overall 10.2 percent drop over the next four years for the 10 cities in the index.

Part of the predicted drop is due to a glut of homes on the market and lack of demand. Also, there are concerns that home appraisals have been inflated and that lenders will reject them.

"So, they are saying that a house that cost $1 million today will sell for about $860,000 in 2011? Hmmm," said Denver broker Chris Djorup. "I think our recovery is going to be faster than other areas of the country, in that we weren't racking up the huge price increases other cities were experiencing."

Trouble ahead?

• Expected four-year change in average house prices for selected metro areas, based on futures contracts traded on the Chicago Mercantile Exchange:

Metro area Expected % chg.

Chicago -6.6 percent

New York -12.1 percent

Washington, D.C. -13.3 percent

Boston -13.8 percent

Denver -14.4 percent

Los Angeles -15.0 percent

Las Vegas -18.1 percent

San Diego -18.6 percent

San Francisco -25.9 percent