NAR Chief Economist Visits Boulder Area (Part 2)

Front Range Real Estate Poised for Recovery


“When everyone is greedy, be fearful. When everyone is fearful, be greedy.”
Warren Buffett



In a meeting that I attended yesterday, Dr. Lawrence Yun, the Chief Economist of NAR (National Association of Realtors) painted a fairly positive picture of the Metro Denver real estate market. He stressed that our area has not followed the national pattern and that we did not participate in the “boom” largely fueled by speculation in areas like California, Nevada and Florida. He stressed mortgage affordability over prices and said that the low interest rates and larger overall wealth make homeownership more affordable to many more people even though prices have increased.


Nationally, he expects to report that home prices decreased 2% during 2007. This will be the first time in over 70 years that the nation’s home values will have decreased over a 1 year period. During the same time period the Denver area will report flat home prices and the Boulder area will be in the 2% range. For 2008 he predicts that the nation will be flat as a whole and our area will have appreciation between 4 and 5%.


The number of sales has fallen but only to the levels of the “pre boom” year of 2002. The excesses of speculation and sub-prime borrowers (who shouldn’t have been able to qualify anyway) have been skimmed off.


Helping us locally is the fall in housing starts. Our supply has fallen 50% over the past two years. However, he predicts that foreclosures will rise again because of the number of adjusting loans this year is larger than any year on record.


I have been expecting an influx of Californians selling their homes for less than they wanted and finding an affordable deal in a nice area here in Colorado. Dr. Yun says that the CA market has stalled in large part because of the jumbo mortgage pricing. He doesn’t think it is fair that the rest of the country is paying 5.875% for a mortgage and Californian’s are paying 7%. We’ll see how that plays out. He thinks it may be awhile before the correctio in bubble areas is complete.


Dr. Yun has been watching Denver and thinks it will be one of the markets that will be on top over the next two years. In our area he sees pent up demand, good underlying economics and good mortgage affordability. He even said that our area might be underpriced.


Here is an article from yesterdays that gives a parallel account of a similar meeting held on the same day.


“Economist’s forecast sees Denver housing turnaround
John Rebchook, Rocky Mountain News (Contact)
Thursday, January 17, 2008

Yun says metro market in better shape than much of nation. 

The only thing that is holding back the Denver-area housing market is “irrational pessimism” from prospective buyers. That insight comes from Lawrence Yun, chief economist and senior vice president of real estate for the National Association of Realtors. Yun, who presented his 2008 real estate forecast to the Jefferson County Association of Realtors in Lakewood on Wednesday, noted afterward that “all markets are local” and that the bleak national market conditions do not represent what is happening in the Denver area. Yun said unemployment is lower in the Denver market than nationally, while job creation is stronger.
The Denver-area housing market also didn’t experience the huge run-up in prices that other markets did. It takes far less of the typical income in the Denver area to buy a house than in such areas as San Diego and Miami, he noted during his presentation.
“And interest rates are basically at their 45-year low,” Yun said. “I would say the Denver market is past its bottom and is now in the early stages of recovery.
“The one thing that may be holding back your market is buyer pessimism,” Yun said. “I think for your housing market it is irrational pessimism. You have very strong affordability.”
He said buyers’ gloomy attitude springs from all the attention on the collapse of the subprime market.
“Wall Street made a very bad mistake by being overly exuberant on the profits gained from subprime lending,” he said. “But those are mistakes made in the past. It’s not related to home buying today or in the future.”
He did say, however, that the number of foreclosures, which set a record in the metro area in 2007, will continue to rise this year.
But he still expects overall housing appreciation in the Denver area this year to be 4 percent to 5 percent, while the nation as a whole will be flat.
Previously hot markets, such as California and Florida, will likely see home prices continue to fall this year, he said.
Yun predicts that home prices in the metro area will rise another 5 percent to 7 percent, on average, in 2009.
Yun said that if there is a recession this year, Denver should weather it better than the country as a whole.
“That would really be bad news for a city like Detroit, where they have had seven years of rising unemployment,” he said.
“But Denver will be able to escape most of the job losses of a recession because of the highly educated work force and because you’ve already wrung out the excesses of the dot-com boom,” with a huge loss of tech jobs starting in 2001, he said.
Also, a recession would mean further cuts in mortgage rates, which would make Denver housing even more attractive, he said.
Jim Smith, owner of Golden Real Estate, called Yun’s talk “fascinating.”
The facts speak for themselves,” he said.”




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