Denver is the Most Improved U.S. Housing Market

14th June 2010 | Category: General

The housing market in Denver and 20 other markets are showing
signs of life, but still a long way from pre-crash highs

Across the U.S., signs of life are budding in the housing market.
This statement will have many people scratching their heads. Yes, more foreclosed
homes will enter the market. Yes, job creation has been
disappointing, and unemployment hovers at high rates. And yes, more
mortgages are going to become delinquent. So what is the good news?

With help from the government’s first-time home buyers tax credit,
which expired in April, home prices improved slightly. Some metro areas
appear to have entered the early phases of the long recovery process.
According to CoreLogic, a data company in Santa
Ana, Calif., national home
prices increased 1.73 percent from March 2009 to March 2010. The
next few years will be rocky, but gains on Wall Street during the first
quarter and hiring improvements in some areas since January have
improved confidence, with a positive effect on housing. Things are not
rosy, but several markets are showing modest signs of improvement.

To determine which places experienced the biggest overall
improvements, Bloomberg and Businessweek.com ranked the 50 largest
metropolitan statistical areas (MSAs), based on first-quarter data from
CoreLogic. We emphasized first-quarter home prices, foreclosures, and
delinquent loans and also looked at overall home sales, distressed
sales, and local unemployment figures from the U.S. Bureau of Labor
Statistics.

Strength in San Jose, Boston, St. Louis

The greatest year-on-year price increase in the first quarter, 8.3
percent, occurred in the San
Jose area, but it was Denver
that ranked as the most improved market overall. Prices in the Denver
area jumped 5.8 percent during the first quarter, and unemployment
dropped slightly, to 7.8 percent in April from 8.3 percent in January. Boston
and St.
Louis came in second and third. At the bottom of the list were Las
Vegas and Miami,
where prices fell 13.1 percent and 7.6 percent, respectively.

Development Research Partners, an economic research firm in Littleton,
Colo., expects home sales and prices in the metro Denver
area to increase about 5 percent this year, says President Patty
Silverstein. Also, an influx of renewable energy companies and the
relocation of kidney care giant DaVita’s (DVA) headquarters to Denver
from California
in 2009 are expected to create jobs. In fact, about one in 25 employers
in the Denver-Aurora-Broomfield
area plans to add jobs in the second quarter, according to the most
recent Manpower Employment Outlook Survey.

Other leading private-sector employers in the region include DISH
Network, Liberty Global, Liberty Media, Ball Corp. (BLL) and Newmont
Mining.

“We never went up as fast in terms of value, and we never came down
as fast,” says Jim Nussbaum, a broker associate for Kentwood Real Estate
in Greenwood
Village, Colo. “Last year [buyers] were like deer in
headlights-they were afraid to move. When the stock market improved,
they started to feel better.”

Is the Upturn Sustainable?

Sam Khater, a senior economist at CoreLogic, says government
subsidies and low interest rates have temporarily boosted demand. A good
portion of the gains in home sales this year are due to the federal
first-time buyer and repeat buyer tax credits, which expired on Apr. 30,
and the large supply of low-priced distressed properties. (A state tax
credit program in California will continue to encourage buyers for the
rest of the year.)

Also, fewer new constructions, moratoriums on foreclosures, and loan
modifications over the past year have limited the supply of foreclosed
homes on the market.

Government life support has boosted the economy, but “the issue is
what happens when you reprivatize the market,” he says. In many cases,
these programs delayed inevitable foreclosures. “We’ve got our foot on
the gas pedal pressed to the floor, but it’s not sustainable.”

Brokers expect sales to slow this summer, as a large number of buyers
signed contracts before the April deadline for the federal credit. In
the Denver area, homes under contract in May dropped by 39.3 percent
from April and 27 percent year-on-year, according to data from
Metrolist, the real estate Multiple Listing Service (MLS) for the area.

Bids Above Listing Prices

California had six metros on our list of improving markets but
remains volatile. Zillow’s chief economist, Stan Humphries, says
California is now experiencing a boom because its housing market went
into recession earlier and it had already experienced tremendous
declines in home values. Also, state foreclosure laws do not require
court action, so foreclosures can be dealt with efficiently. “You can
clear through the foreclosure backlog fairly quickly,” he says, so
markets can bottom out and start to heal.

C.J. Brasiel, a broker in San
Jose, Calif., says that since October, her listings have moved
quickly, and she has received bids above the listing price for many
homes. Sales activity has improved, but more than 70 percent of
Brasiel’s listings last year were distressed properties, and about half
her sales were foreclosed homes.

If first-time buyers retreat following the expiration of the federal
tax credit and banks release foreclosed homes on to the market,
increasing supply, Brasiel says prices could drop more than 5 percent in
some areas in Santa Clara County this summer, unless there are
government interventions to mitigate a flood of shadow inventory. “We’ll
be bumping along the bottom,” she says.

Optimism About Next Year

Despite the projected dips over the next months and years, an end is
in sight. An April report on the Fiserv-Case Shiller home price indexes
says a prolonged recovery will begin early next year, and some markets
are poised for a relatively fast recovery, including those that did not
see large price declines, such as Pittsburgh,
Columbia,
S.C., and metro areas in Texas,
Washington
state, and upstate New
York.

Nationally, Zillow’s Humphries expects the market to bottom in the
third quarter and be flat for the next three to five years as the market
works through foreclosures, shadow inventory, other economic issues.

CoreLogic’s Khater sees a need for a correction. “When you adjust for
inflation, which until recently was 2 percent to 3 percent a year, then
prices should return to roughly 1997 rates,” he says. “We’re not that
far off from late 1990s in terms of wealth and income when adjusting for
inflation, so home prices should not be much higher than that.”

Rising home prices may be encouraging, but in the long term, they
will need to climb out of the recession in step with the rest of the
economy-even though many would like to see them race ahead.

10 Most Improved Housing Markets

No. 1: Denver-Aurora-Broomfield,
Colo.
Q1 Home price index: 5.8 percent*
Q1 Foreclosure rate (YOY change): 1.9 percent (up 21.9
percent)*
Q1 90+ day delinquency rate (YOY change): 5.7 percent
(up 34.3 percent)*
April 2010 unemployment rate: 7.8 percent**
* Source: CoreLogic
**Source: U.S. Bureau of Labor Statistics

No. 2: Boston-Quincy,
Mass.
Q1 Home price index: 6 percent
Q1 Foreclosure rate (YOY change): 2.1 percent (up 32.8
percent)
Q1 90+ day delinquency rate (YOY change): 7.2 percent
(up 43 percent)
April 2010 unemployment rate: 7.9 percent

No. 3: St.
Louis, Mo.-Ill.
Q1 Home price index: 2.1 percent
Q1 Foreclosure rate (YOY change): 1.4 percent (up 34.9
percent)
Q1 90+ day delinquency rate (YOY change): 5.9 percent
(up 39.2 percent)
April 2010 unemployment rate: 9.5 percent

No. 4: Pittsburgh
Q1 Home price index: 1.3 percent
Q1 Foreclosure rate (YOY change): 1.8 percent (up 20.8
percent)
Q1 90+ day delinquency rate (YOY change): 5.5 percent
(up 24.7 percent)
April 2010 unemployment rate: 8.1 percent

No. 5: San Jose-Sunnyvale-Santa
Clara, Calif.
Q1 Home price index: 8.3 percent
Q1 Foreclosure rate (YOY change): 1.9 percent (up 39.8
percent)
Q1 90+ day delinquency rate (YOY change): 6.9 percent
(up 53.1 percent)
April 2010 unemployment rate: 11.7 percent

No. 6: San
Francisco-San
Mateo-Redwood
City, Calif.
Q1 Home price index: 1.6 percent
Q1 Foreclosure rate (YOY change): 1 percent (up 56.2
percent)
Q1 90+ day delinquency rate (YOY change): 3.7 percent
(up 69.5 percent)
April 2010 unemployment rate: 9.3 percent

No. 7: Washington-Arlington-Alexandria,
D.C.-Va.-Md.
Q1 Home price index: 5.6 percent
Q1 Foreclosure rate (YOY change): 2.3 percent (up 28.6
percent)
Q1 90+ day delinquency rate (YOY change): 7.9 percent
(up 40.3 percent)
April 2010 unemployment rate: 6 percent

No. 8: Cincinnati-Middletown,
Ohio-Ky.-Ind.
Q1 Home price index: 4.7 percent
Q1 Foreclosure rate (YOY change): 2.4 percent (up 26.2
percent)
Q1 90+ day delinquency rate (YOY change): 6.4 percent
(up 29.5 percent)
April 2010 unemployment rate: 10.2 percent

No. 9: Minneapolis-St.
Paul-Bloomington,
Minn.-Wis.
Q1 Home price index: 0.5 percent
Q1 Foreclosure rate (YOY change): 1.9 percent (up 26.9
percent)
Q1 90+ day delinquency rate (YOY change): 6.1 percent
(up 29.7 percent)
April 2010 unemployment rate: 6.8 percent

No. 10: Milwaukee-Waukesha-West
Allis, Wis.
Q1 Home price index: 0.1 percent
Q1 Foreclosure rate (YOY change): 2.3 percent (up 25.4
percent)
Q1 90+ day delinquency rate (YOY change): 6.1 percent
(up 32.7 percent)
April 2010 unemployment rate: 8.5 percent