Wednesday, December 30, 2009

CASE-SHILLER RANKS DENVER AS BEST PERFORMING MARKET IN THE COUNTRY

As I have posted many times before, I don’t buy the Case-Shiller housing data “hook, line and sinker” because it throws the entire housing market into one big pot, like a mutual fund. Obviously, it’s better to have a good Case-Shiller reading than a bad one, but as I have said for two years, this market is incredibly segmented.

Overall, Case-Shiller reports that homes in the Denver market lost 0.1% of their value in the year ending October 30, the top reading from the 20 major metro areas the study tracks.

However, as is always the case the statistics, some interpretation is in order.

Almost all of the strength in the Denver market lies in one place, and that is the sub-$300,000 market. We have seen appreciation as high as 15% in some areas of town over the past year, mostly in areas of entry-level homes that were on the front end of the foreclosure cycle. Above about $400,000 the market is dead, regardless of what your neighborhood brokerage is putting out there or what propaganda you read in the newspapers.

Our economy has fundamentally shifted in the past 18 months, and “thinking small” is the trendy new reality of today. One client recently asked me, “How much house can we afford if my wife loses her job and we have to get by on one income?” That’s a great question, and it’s one you never heard asked three years ago.

New construction is dead, high end is dead, but the population continues to grow. Colorado is on track to be the fourth fastest growing state in the country in 2009, and our excess housing inventory is being depleted at a pace that is much quicker than the rest of the country. The number of homes for sale is off by nearly 40% from its peak in 2007, and bank-owned inventory is getting harder and harder to find.

Bottom line: the Case-Shiller news is good for Denver. But it’s especially good for people who have purchased entry level homes over the past 36 months, with fixed rates in the 5's and waves of future demand sure to come as our population continues to grow.