By NAR Research Denver Housing Market Conditions and Prospects
Dec 15, 2015
By NAR ResearchBy NAR Research
Denver Housing Market Conditions and Prospects
Denver Housing Market Conditions and Prospects
Denver Metro Home Prices:Did not Experience Rapid Price Growth
Denver Metro Home Prices:Did not Experience Rapid Price Growth
0
50
100
150
200
250
300
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Source: NAR
$ thousand
Denver is “Affordable” Western Market(2006)
Denver is “Affordable” Western Market(2006)
0
100
200
300
400
500
600
700
800
0
100
200
300
400
500
600
700
800
Source: NAR
Existing Home Sales in Colorado at Near Historic Highs
Existing Home Sales in Colorado at Near Historic Highs
0
50
100
150In thousand unitsIn thousand units
Source: NARSource: NAR
Something appears Out of Whack!National Income and Price Trend Something appears Out of Whack!National Income and Price Trend
50
100
150
200
250
Income Home Price
50
100
150
200
250
Income Home Price
Income and Price set to Index of 100 in 1990
Source: NAR
However, Consider that Low Historic Rates permits Higher Loans to be taken out without
Higher Monthly Payments
However, Consider that Low Historic Rates permits Higher Loans to be taken out without
Higher Monthly Payments
Source: Freddie MacSource: Freddie Mac
1970s9% average
1980s13% average
1990s8% average
2000s6.5% average
Better Metric on Assessing Housing Market
Bubble is Mortgage Obligation to Income Looks Manageable at the National Level
Better Metric on Assessing Housing Market
Bubble is Mortgage Obligation to Income Looks Manageable at the National Level
10
15
20
25
30
U.S. Average
Source: NAR
%
All Real Estate is Local and National Trends may not apply at
Denver
All Real Estate is Local and National Trends may not apply at
Denver
Mortgage Obligation to Income Very High in Some Markets
Mortgage Obligation to Income Very High in Some Markets
0%
10%
20%
30%
40%
50%
1990 1995 2000 2005
debt service to buy a median priced home by a middle income family
San DiegoSan Diego 45% !!!
Source: NAR
Mortgage Obligation to Income Very Favorable in Denver and Below
Historic Average
Mortgage Obligation to Income Very Favorable in Denver and Below
Historic Average
0%
10%
20%
30%
40%
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006
debt service to buy a median priced home by a middle income family
Historic Average
DenverDenver
Source: NAR
Apartment Rent Now Rising and will Begin to Squeeze Renters in DenverApartment Rent Now Rising and will Begin to Squeeze Renters in Denver
-8.0%-7.0%-6.0%-5.0%-4.0%-3.0%-2.0%-1.0%0.0%1.0%2.0%3.0%4.0%5.0%6.0%7.0%8.0%
Rent Growth
Source: Torto-Wheaton ResearchSource: Torto-Wheaton Research
%
0.0
2.0
4.0
6.0
8.0
Prime VA FHA Sub-primeFixed
Sub-primeARM
0.0
2.0
4.0
6.0
8.0
Prime VA FHA Sub-primeFixed
Sub-primeARM
National Foreclosure Rates High only in Subprime Loans
2007 Q1
National Foreclosure Rates High only in Subprime Loans
2007 Q1
Data: MBA
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
Colorado
Prime Sub-prime Fixed Sub-prime ARM
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
Colorado
Prime Sub-prime Fixed Sub-prime ARM
Colorado Foreclosure Rates also High in Subprime Loans
Colorado Foreclosure Rates also High in Subprime Loans
0%
20%
40%
60%
Prime VA FHA Sub-prime
0%
20%
40%
60%
Prime VA FHA Sub-prime
Delinquency Leading to Foreclosure shows “Bad” Performance by Subprime Loans
(Latest Foreclosure/Delinquency ratio)
Delinquency Leading to Foreclosure shows “Bad” Performance by Subprime Loans
(Latest Foreclosure/Delinquency ratio)
Better Loss Mitigation Programs for VA and FHA
Bottom Line: FHA and VA are superior to Subprime Loans
Healthier Future MarketHealthier Future Market• Job growth leads to accumulating and releasing of Job growth leads to accumulating and releasing of
pent-up housing demandpent-up housing demand
• Cut back in new home construction thins out Cut back in new home construction thins out inventory and strengthen home pricesinventory and strengthen home prices
• Shift to “traditional” productsShift to “traditional” products– Reckless lenders going belly up Reckless lenders going belly up – Wall Street tighteningWall Street tightening– FHA revivalFHA revival– Higher prevalence of fixed-rate mortgagesHigher prevalence of fixed-rate mortgages– Could lead to a temporary setback for Could lead to a temporary setback for
homebuying but will bring forth a much healthier homebuying but will bring forth a much healthier housing market conditions in the future housing market conditions in the future
Job Gains in Denver RegionJob Gains in Denver Region
-60
-40
-20
0
20
40
60
Source: BLSSource: BLS
12-month net payroll job changes in thousands
Denver Office Vacancy Rate Falling due to Job Gains
Denver Office Vacancy Rate Falling due to Job Gains
10%
12%
14%
16%
18%
20%
22%
Vacancy Rate%
Source: NAR/Torto-WheatonSource: NAR/Torto-Wheaton
Denver Office Rent - Positive Denver Office Rent - Positive
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
2004.1 2004.3 2005.1 2005.3 2006.1 2006.3 2007.1
Rent Growth
Source: NAR/Torto-WheatonSource: NAR/Torto-Wheaton
%
Wage Growth Picking UpWage Growth Picking Up
1
2
3
4
5
% change from a year ago
%
Source: BLSSource: BLS
U.S. Migration Trend Favors Warm-Weather, Low-Tax States
(Top vs. Bottom)
U.S. Migration Trend Favors Warm-Weather, Low-Tax States
(Top vs. Bottom)
StateState Net Migration from 2000 to 2006Net Migration from 2000 to 2006FloridaFlorida + 1,221,000+ 1,221,000
ArizonaArizona + 541,000+ 541,000
TexasTexas + 452,000+ 452,000
GeorgiaGeorgia + 378,000+ 378,000
North CarolinaNorth Carolina + 347,000+ 347,000
NevadaNevada + 318,000+ 318,000
MichiganMichigan - 239,000- 239,000
New JerseyNew Jersey - 277,000- 277,000
MassachusettsMassachusetts - 290,000- 290,000
IllinoisIllinois - 473,000- 473,000
CaliforniaCalifornia - 950,000- 950,000
New YorkNew York - 1,242,000- 1,242,000 Source: CensusSource: Census
Mountain States BenefitingMountain States Benefiting
StateState Net Migration from 2000 to 2006Net Migration from 2000 to 2006
ArizonaArizona + 541,000+ 541,000
NevadaNevada + 318,000+ 318,000
ColoradoColorado + 80,000+ 80,000
New MexicoNew Mexico + 23,000+ 23,000
WyomingWyoming + 5,000+ 5,000
UtahUtah-18,000 18,000
(expected to be positive if including 2007)(expected to be positive if including 2007)
Source: CensusSource: Census
Denver New Single-Family Construction Falling … Very Good in Limiting
Oversupply Conditions
Denver New Single-Family Construction Falling … Very Good in Limiting
Oversupply Conditions
0
5,000
10,000
15,000
20,000
25,000
Starts
Source: CensusSource: Census
FHA Market Share for Home Purchase in Denver … will revive and much
better than Subprime Loans
FHA Market Share for Home Purchase in Denver … will revive and much
better than Subprime Loans
0%
5%
10%
15%
20%
25%
30%
2000 2001 2002 2003 2004 2005 2006 2007 est.
2008forecast
Source: HMDA,NAR estimate
Local Forecasts:Who Will be on Top?Local Forecasts:Who Will be on Top?
Presented by Lawrence Yun, Vice President of Research at NAR Midyear Meetings in May
Top Five Markets (in random order)
Top Five Markets (in random order)
NashvilleNashville
AustinAustin
Salt Lake CitySalt Lake City
DenverDenver
Raleigh-DurhamRaleigh-Durham
Watch out for these Watch out for these small marketssmall markets
St. George, UT St. George, UT Myrtle Beach, SCMyrtle Beach, SC
Watch out for these Watch out for these small marketssmall markets
St. George, UT St. George, UT Myrtle Beach, SCMyrtle Beach, SC
1995
1995
1998
1998
2001
2001
2004
2004
$0
$50,000
$100,000
$150,000
$200,000
Renter Homeowner
1995
1995
1998
1998
2001
2001
2004
2004
$0
$50,000
$100,000
$150,000
$200,000
Renter Homeowner
Best Evidence for Homebuying:Household Wealth Accumulation
Best Evidence for Homebuying:Household Wealth Accumulation
Source: Federal Reserve
Median Net Worth
$184,400$184,400
$4,000
SummarySummary• Denver clearly looks to be “underpriced”Denver clearly looks to be “underpriced”
– Compared to other Western MarketsCompared to other Western Markets– Based on Mortgage servicing cost to income ratioBased on Mortgage servicing cost to income ratio
• Job growth and educated workforce will provide solid Job growth and educated workforce will provide solid demand for homesdemand for homes
• Homebuilder cutback is good for housing in limiting Homebuilder cutback is good for housing in limiting oversupply conditionsoversupply conditions
• FHA loan revival will help for the better for low-and-FHA loan revival will help for the better for low-and-moderate income households buy their first homes moderate income households buy their first homes (good move away from risky subprimes) (good move away from risky subprimes)
• Subprime resets on the horizon, but to be Subprime resets on the horizon, but to be overwhelmed by above positive factorsoverwhelmed by above positive factors
• Denver – one of the markets to watch and one of the Denver – one of the markets to watch and one of the markets to be on top over the next two yearsmarkets to be on top over the next two years