Embers from metro Denver’s scorching housing market, which cooled late last year, remain hot enough to reignite into another nation-leading performance, some forecasts are predicting.
Activity slowed in the fall, and the market probably won’t burn as bright as it did in 2015, a record year. But metro Denver home price gains should remain at the top of the charts nationally for a second year in a row.
“If the jobs are there, if the wages are there, if the overall confidence of the consumer is there — those are the key ingredients for a housing market,” said Alex Villacorta, vice president of research and analytics at Clear Capital in Reno, Nev.
Clear Capital is forecasting that metro Denver home prices will rise 7.7 percent this year, after an 11.7 percent gain on its home data index in 2015.
U.S. home prices, which appreciated at a 6.5 percent pace in 2014 and a 5.1 percent pace in 2015, will gain only 1.4 percent in 2016, Clear Capital predicts. Against that backdrop, Denver will lead major metro areas for home price appreciation this year, followed by Dallas and Jacksonville, Fla., the company predicts.
Metro Denver’s low 3.2 percent unemployment rate, 1.1 percent income growth and strong home price appreciation put it first on Zillow’s “hottest housing markets” list for 2016.
Zillow considers Denver “hotter” than Seattle; Dallas-Fort Worth; Richmond, Va.; and Boise, Idaho.
Seattle-based Zillow, like Clear Capital, is calling for slower home price gains nationally and in Denver. It forecasts a 5 percent gain in its Denver home price index this year, down from a sizzling 16 percent gain measured last year.
For many, including those who make a living buying and selling homes, the slower pace will come as a relief.
“We can’t continue to sustain these year-over-year, double-digit increases over the long run,” said Anthony Rael, chairman of the market trends committee at the Denver Metro Association of Realtors.
The Denver Post looked at statistics from REColorado, which owns the region’s listing service, and DMAR to determine how 2015 compared to other hot stretches for housing since 1990.
A record 55,509 homes were sold in metro Denver last year, marking the third straight year that home sales topped 50,000. The last time metro Denver had that kind of run was from 2004 through 2006.
That might raise concerns of a bubble ready to bust. But what sets the current market run apart from last decade’s housing boom are how few homes are available for sale — under 4,400 at year’s end in both 2014 and 2015, according to REColorado.
During the peak of last decade’s housing boom, buyers had 23,000 listing on average to choose from at year’s end. Looking at the 25-year average, an inventory of 13,430, three times current levels, is closer to the norm.
A key reason inventory is so tight is that new-home construction hasn’t kept pace with the unexpectedly large number of people moving to the northern Front Range from other states.
A decade ago, Denver-area builders were pulling permits for nearly 15,500 single-family homes a year on average. During the past three years, single-family permits have averaged closer to 8,000 a year, according to the U.S. Census Bureau.
“Production in the Denver market is lagging, just like it is in most parts of the country,” said Robert Denk, senior economist at the National Association of Home Builders.
Much of that comes down to capacity. The housing downturn was so severe that it shrank the country’s ability to construct homes — from sawmills to lot developers, from skilled tradesmen to construction laborers.
While it may not feel like it, Denver has done a better job at recapturing pre-bust home-construction levels than the country as a whole, Denk said.
Single-family housing starts in metro Denver are running at about 60 percent of the pre-bust pace and are accelerating enough to potentially regain long-term averages by late 2016 or 2017, Denk predicts.
Of the country’s 50 most active master-planned communities, three are in metro Denver — Stapleton at No. 4, The Meadows in Castle Rock at No. 35 and Green Valley Ranch at No. 43, according to John Burns Real Estate Consulting.
In much of the country, single-family housing starts remain stuck at under half of their historical averages, Denk said.
But buying new requires patience in Denver. Rael said one client ordered a new home at the start of 2015 and only closed at the end of the year.
Another trend of note is that apartments have claimed a greater share of the region’s reduced construction capacity. That reflects developer concerns about the state’s construction-defects law, which doesn’t apply to rentals, and also a demographic shift toward renting.
Since 1990, single-family permits have accounted for two-thirds of the total in metro Denver. For the past four years, single-family homes have represented about half the total, another big difference from last decade.
The product being built, whether for purchase or rent, is targeting households with higher incomes. That higher-end focus, combined with the overall lack of supply, helped drive the average price of a home sold in metro Denver to a record $363,143 last year.
That’s a 29 percent jump from 2012 and double the increase seen in the 2004-06 stretch. But it still lags the 41 percent run-up in the average price of homes sold in the late 1990s, when the tech and telecom boom fueled housing demand in a constrained market.
Still, last year’s gains put metro Denver at or near the top of multiple rankings for home price appreciation.
Denver, Boulder, Fort Collins and Greeley all made the top 10 out of 271 metro areas for home price appreciation in the third quarter, according to the Federal Housing Finance Authority.
In the fourth quarter, housing activity in metro Denver slowed beyond the usual seasonal cooling. Prices have also slumped from the summer highs.
What changed as the year wore on was an increasing number of sellers who got ahead of themselves, confusing a hot market with an irrational one, said Eric Thompson, president of Windermere Real Estate Services in Colorado.
“Even in this heated environment, we still see the buyer being very discerning. They won’t overpay. Sellers that overshoot end up with a home sitting on the market. It will just sit there,” Thompson said.
Properly priced homes hitting the market for under $350,000 are still selling quickly, typically in under a week, he said.
Several things could weigh on housing activity this year. Collapsing stock values risk blowing a hole in consumer confidence, especially if they signal a slowdown.
Colorado’s northern Front Range is especially vulnerable to a renewed and sharp drop in oil prices, which are toying with a range of $20 to $30 a barrel.
Assuming things go the other way and the economy accelerates, higher interest rates, which the Federal Reserve is pushing for, could price more buyers out of the market.
“We saw a big slowdown in December. But what is interesting is that since the first of the year, everything has come back with an absolute fury,” said Jordan Connett, CEO of Redefy Real Estate, an Aurora firm that offers flat-rate listings.
Redefy queries are up 45 percent from a year ago, which should translate into much higher activity come February and March, Connett said.
“People are very excited about the market and starting to jump back in,” he said. “I don’t believe that Denver will slow all that much unless interest rates skyrocket.”
Redefy is calling for Denver home prices to rise 7 percent this year and for the area to remain a top housing market nationally for at least two more years, Connett said.
Villacorta said slow and steady is a better scenario for homebuyers and home sellers alike than wild swings. Denver could use a good dose of “boring” when it come to housing, he said, although that probably isn’t in the cards.
Aldo Svaldi: 303-954-1410, asvaldi@ denverpost.com or @aldosvaldi
