I sat in on a very informative and educational panel discussion this past Thursday looking at the economic conditions for Metro Denver in 2010 and beyond. The panel consisted of Mark Snead from the Kansas City Federal Reserve, Patty Silverstein from Development Research Partners, Tom Clark from the Metro Denver Economic Development Council, and Steve Westfall, a RE/MAX broker and one of the most prominent REO agents in town.While Denver continues to outperform much of the nation economically, there’s no denying that we are facing serious challenges in the years to come. In the space below, I’ll summarize some of the key points made by the panel and elaborate on what it may mean for the Denver economy and the Denver housing market.
MARK SNEAD – ECONOMIST FOR FEDERAL RESERVE BANK OF KANSAS CITY
As a board member for the Kansas City branch of the Federal Reserve, Mark Snead studies “the numbers inside the numbers” of the US economy. One of his largest concerns… the massive commercial real estate losses projected for 2010 and 2011, which could result in a 30% devaluation by the end of 2011.
Additionally, American households have lost a combined $10 trillion of wealth in the last 18 months, with the average household seeing its net wealth decline by 17%. These kinds of losses obviously freeze consumer spending, which shrinks demand, which results in layoffs… exactly the scenario we have seen as the nation’s unemployment rate has topped 10%.
The upside for Denver? Energy.
As one of five “energy states” in the nation’s midsection, Colorado is benefiting from huge investments in new technology and the presence of the National Renewable Energy Laboratory (NREL) in Golden. Colorado has the highest percentage of college-educated residents of any state in the country, and the combination of a skilled workforce and new, green technologies will lessen the local impact of the national recession.
PATTY SILVERSTEIN – DEVELOPMENT RESEARCH PARTNERS
PATTY SILVERSTEIN – DEVELOPMENT RESEARCH PARTNERS
Patty Silverstein is President of Development Research Partners, a professional research firm based in Jefferson County that works with businesses and governments throughout Colorado to help identify trends, fiscal economic impact analysis and strategic business opportunities.
In Silverstein’s view, there’s no sugarcoating what happened to our economy in 2009. For the first time since 1938, personal income growth was negative (-2.5%) in the seven county Denver metro area. Retail receipts were down 11.1%, home sales were down 12%, and the region lost more than 55,000 jobs, many of which will not return.
In Silverstein’s view, there’s no sugarcoating what happened to our economy in 2009. For the first time since 1938, personal income growth was negative (-2.5%) in the seven county Denver metro area. Retail receipts were down 11.1%, home sales were down 12%, and the region lost more than 55,000 jobs, many of which will not return.
2009 was also the worst year on record for residential real estate construction, with just 3,300 new homes being built. By comparison, the seven-county Denver metro region has averaged more than 17,000 new homes per year since 1980. (Taking new construction offline isn't necessarily a bad thing for existing homeowners, who no longer have to compete with builders)
The sum total of this contraction will be significantly reduced tax receipts, which will cause systemic shortfalls in tax revenue for quite some time. Government functions from public schools and police departments all the way down to animal control and street sweeping will face serious cuts in the years ahead.
The upside for Denver? Massive investments by Vestas Wind Energy and commitments from six different Vestas suppliers to set up operations in Colorado, as well as the progress being made with the Conoco-Phillips new energy campus in Louisville, which will begin operations in 2011.
TOM CLARK – METRO DENVER ECONOMIC DEVELOPMENT COUNCIL
TOM CLARK – METRO DENVER ECONOMIC DEVELOPMENT COUNCIL
As Vice President for the Metro Denver Economic Development Council, Tom Clark has one job – to recruit new businesses to the Denver metro area. Over the past seven years, Clark has helped to recruit the headquarters of over 40 corporations to Denver.
What does he see today? Clark calls it a “perception gap”.
“People hear that things are great in Denver, and we are attracting thousands of new residents, many from California," Clark said. "But the reality is that things are not as good today as they were three years ago. It’s simply that things are so much worse in other places.”
Clark says the Democratic National Convention did open Denver up to the world in 2008, and there is unprecedented international attention from corporations interested in possible relocations. The “new energy economy” will be a primary driver of growth, with both Denmark-based Vestas and Germany-based SMA (the world’s largest manufacturer of solar inverters) bringing jobs and international focus to Colorado.
Clark’s biggest challenge today? Working with DIA to attract at least one direct, non-stop flight from Luxembourg and Tokyo, so corporate CEOs and senior managers from Germany and Japan can have easier, direct access to Denver.
STEVE WESTFALL – REO BROKER AT RE/MAX PROFESSIONALS
Clark says the Democratic National Convention did open Denver up to the world in 2008, and there is unprecedented international attention from corporations interested in possible relocations. The “new energy economy” will be a primary driver of growth, with both Denmark-based Vestas and Germany-based SMA (the world’s largest manufacturer of solar inverters) bringing jobs and international focus to Colorado.
Clark’s biggest challenge today? Working with DIA to attract at least one direct, non-stop flight from Luxembourg and Tokyo, so corporate CEOs and senior managers from Germany and Japan can have easier, direct access to Denver.
STEVE WESTFALL – REO BROKER AT RE/MAX PROFESSIONALS
While the Denver metro region saw foreclosure filings fall by 12% last year (an exceptionally strong performance in light of last year’s economic challenges), Westfall says that job losses and national economic conditions are going to keep the foreclosures coming for the foreseeable future.
Working closely with some of the nation’s largest holders of mortgage loans, such as GMAC and Fannie Mae, Westfall says that executives in those companies are bracing for another rough year in 2010.
With statistics showing that 78% of modified loans go back into foreclosure within 12 months, Westfall says that many homes that would have ended up in foreclosure in 2009 are simply being pushed off into 2010.
And consistent with a theme that’s been running in this blog for the past year, the foreclosure problem is creeping up into higher price points while the lower end of the market is tending to solidify.
Citing a 58% increase in his average REO sales price in 2009, Westfall points to the surge in foreclosure filings in higher-end markets like Boulder (+36% in 2009), Arapahoe County (+15%) and Broomfield (+11.8%) as evidence that values are now eroding at the higher price points.
“A year ago, I started telling everyone I know to buy rental properties,” Westfall said.
As the nation’s homeownership rate continues to decline and more former owners become renters, that may not be bad advice.
