Report Examines Denver Housing Market Microcosm

Nearly every housing report of late targets three key super-hot markets: Seattle; Portland, Ore.; and Denver. In its latest Home Value Forecast, Pro Teck, Waltham, Mass., looks at why Denver represents everything good–and bad–about the housing market.

For starters, Denver (site of the Mortgage Bankers Association’s Annual Convention & Expo this October) is booming. Nearly 1.5 million people work in the greater Denver area; the unemployment rate is less than 3 percent. Since late 2000, the median household income in the Denver area has risen by 36 percent.

And now, the challenge: Pro Teck notes booming employment and higher wages have led to increased home prices and tight housing inventories. Home prices on a cost-per-square-foot basis have taken off, now averaging over $300 per square foot–meaning an average 2,000-square-foot home now exceeds $600,000. With fewer houses to be had, Months of Remaining Inventory has fallen to 2.23 overall, and even less at the lower end of the market.

The condo market doesn’t offer much in way of alternative. Pro Teck said development of for-sale condos in Denver has declined 53 percent over the past five years. In all, condos represent less than 3 percent of all housing starts in metro Denver compared to 20 percent a decade ago.

“However, there is hope that a newly enacted state law and a city affordable housing initiative may help ease the limited housing inventory situation,” noted Pro Teck CEO Tom O’Grady. In May Colorado Gov. John Hickenlooper (R) signed into law House Bill 1279, a measure that makes it more difficult to file construction-related lawsuits against condo builders. “It is hoped that this law will spur building of more affordable condos and help cool rising real estate prices,” O’Grady said.

Also in 2017, Denver earmarked $150 million over the next decade for affordable housing, funded by property taxes and new development impact fees. The Affordable Housing Fee ranges from $0.40 to $1.70 per square foot of development. Property tax bills would see a modest increase, an additional $12 per year for the owner of a $300,000 home. This money has been earmarked to support the development and preservation of affordable housing.

Despite all the demand, Pro Teck says there is no sign of a housing bubble in Denver. The city’s Affordability Index is back to pre-crash, 1999-2007 levels, at 120, still more affordable than the 100 threshold, meaning there is more room for home price appreciation.

Elsewhere, Pro Teck said with one exception, the West continues to dominate top markets. It’s top 10 include Bremerton, Wash.; Las Vegas; Richmond, Va.; Colorado Springs, Colo.; Denver; Boise City, Idaho; San Francisco; San Jose, Calif.; Seattle; and Sacramento, Calif.

“The Las Vegas real estate market appears to be on the mend, with positive trends that include foreclosures as a percent of sales under 10 percent,” Pro Teck said. “While prices are rebounding, average Vegas sale prices are still $80,000 below pre-crash levels.”

Pro Teck said the bottom 10 markets still struggle with higher unemployment and higher levels of distressed homes. The bottom 10 includes Albany, N.Y.; Chicago; Lake County, Ill.; Miami; Killeen, Texas; Shreveport, La.; Virginia Beach, Va.; Peoria, Ill.; Jackson, Miss.; and Atlantic City, N.J.

“Miami saw its foreclosures as a percent of sales drop by more than 21 percent, to 11.47 percent,” Pro Teck noted. “With foreclosures accounting for increasingly fewer sales, we see a brighter future for single-family home sales in Miami.”