Metro Denver is leaving last decade’s housing bust in the rear view mirror faster than any other major metro area in the country, according to a new study from HSH.com.
Home prices are now 49.1 percent above the old high they reached in the first quarter of 2006. That is the biggest increase from the prior decade’s peak among any of the 100 metros tracked in a home price index run by the Federal Housing Finance Agency.
Five of the other top 10 metros making the list for the strongest appreciation above the prior peak are all in Texas: Austin, Houston, Dallas, Fort Worth and San Antonio.
What the best performing markets tend to share is that they didn’t catch up in the exaggerated home price gains seen in states like Florida, Arizona and Nevada. They also are reporting robust job gains and population growth.
“For the most part, markets that didn’t crash as hard have fared well during the recovery, as have those where job markets recovered the fastest,” said Keith Gumbinger, a vice president at HSH.com, a New Jersey firm that provides mortgage research.
Metro Denver did see foreclosures, short sales and underwater properties swell at the end of the last decade, said real estate market veteran Gary Bauer, a member of the Denver Metro Association of Realtors.
“We suffered our downfall and it had a dramatic impact,” Bauer said. But looking back, the Denver market didn’t have as far to crawl back as many other cities.
Take Las Vegas, where home prices have bounced back more than 75 percent from the bottom, a remarkable move by any measure. Still, the Las Vegas home price index remains nearly 50 percent below the exaggerated highs reached last decade.
Other housing bubble cities struggling the most to achieve their former highs include California cities of Stockton, Bakersfield, Fresno and Riverside; Fort Myers and Orlando in Florida; Tucson; Camden, N.J.; and Elgin, Ill.
Despite the passing of so many years, only 42 out of the 100 metros have surpassed the old home price index highs as of the first quarter. Allowing that a dollar today doesn’t buy as much as it did a decade ago, only one in 10 metro markets have provided any real gains from their prior peaks.
A question the report raises is whether metro Denver, given its strong home price appreciation, may find itself a decade from now where Las Vegas is today. The median price of a home sold in metro Denver last month approached $400,000.
Since the FHFA home purchase index started back in 1991, metro Denver home prices have quadrupled. No other metro, not even San Francisco, has managed that kind of long-term appreciation. Miami’s index did quadruple from 1991 to 2007, but hasn’t regained those highs after crashing. Only economic rival Austin comes close to matching Denver’s performance.
“Regular, modest gains are usually the most durable; upward spikes that outstrip incomes and job and population growth are more susceptible to correction,” Gumbinger said.
But there are significant differences between 2006 and 2016. A decade ago, easy-to-obtain mortgages and rising home prices created artificial demand for homes. Those same loose lending standards allowed builders to bring what proved to be a glut of new homes to the market, including in metro Denver.
Back in May of 2006, for example, there were 30,457 listings available for sale in the Denver market, double the historical average, according to counts from DMAR. Last month, there were only 5,463 homes available for buyers.
Demand is strong, but the supply of new homes and apartments isfalling short of population growth. And builders remain hard pressed to keep pace.
Gumbinger recommends watching for two things that could contribute to home prices rolling over — a surge in investors putting rental properties on the market and weakening job growth or job losses.
Bauer said he attended a conference recently where investors acknowledged they were sitting on a healthy gains in their rental homes. But those properties are yielding them 6 percent to 10 percent returns.
“I can sell it and make a profit, but what would I replace it with,” Bauer said investors were asking.