Six economic indicators move in a positive annual direction in Metro Denver, up from one last month

Economic indicators for Metro Denver showed promising signs of improvement in March, according to data compiled by the Metro Denver Economic Development Corporation (Metro Denver EDC) in its Monthly Economic Summary for March 2010.

Nine indicators – including the indicator for foreclosures – moved positively for the month, compared to seven indicators in the prior report. Six indicators moved in a positive annual direction, compared to one indicator in the prior month’s report.

Recent residential real estate data suggest housing markets are shifting due to a variety of influences. The extension of the homebuyers’ tax credits in late 2009 removed a sense of urgency for buyers, therefore, existing home sales nationwide and in Metro Denver have slowed.

"Many buyers still hoping to receive the credits are now returning to the market, though, and brokers say the pace of home sales should accelerate in the coming months," stated Patty Silverstein, chief economist for the Metro Denver EDC and president of Development Research Partners.

Increased sales volume should help home prices, which are stabilizing – and even rising – in some markets. The Denver-Aurora-Broomfield MSA, for example, was one of 24 metro areas to report an increase in median home price between 2008 and 2009.

As home prices continue to stabilize, mortgage delinquency rates should gradually subside. Data from the Mortgage Bankers Association show the nationwide delinquency rate declined in the fourth quarter of 2009, and Colorado’s rate ranked ninth-lowest in the nation. Significant delinquency challenges remain, though, as roughly one in 17 Colorado home loans was at least 90 days past due or in foreclosure in the fourth quarter.

Foreclosures are an even greater concern in California, Nevada, Arizona, Illinois, Michigan, and Texas – all key economic development competitors with Colorado.

"These six states alone represented 60 percent of U.S. properties with foreclosure filings in January," said Silverstein.

The nationwide median home cost for 2009 ($173,200) was down nearly 12 percent over-the-year, while the median in the Boulder MSA ($346,000) fell by just 3.8 percent. Price trends were stronger in the Denver-Aurora-Broomfield MSA, where the 2009 median price of $219,900 represented a slight, 0.3 percent increase from the 2008 median. The Denver-Aurora MSA was one of 24 metropolitan areas to report an increase in median home price between 2008 and 2009, and the region’s median price ranked 26th-highest in the nation. The Boulder MSA’s 2009 median home price ranked 11th-highest overall.

Data from the Mortgage Bankers Association’s National Delinquency Survey for the fourth quarter of 2009 show Colorado’s rate of mortgage delinquency – 6.91 percent – ranked ninth-lowest in the nation.

Clearly, residential markets are facing a combination of early momentum and continued challenges. High unemployment and policy changes in the months ahead – including an end of the Federal Reserve’s financial support for mortgage-backed securities and the expiration of the homebuyers’ tax credits – will bring additional hurdles. Ideally, residential markets will build momentum in the coming months that can sustain a recovery as the policy environment changes.

The benchmark revision for national-level employment data shows the nation’s total employment loss from the start of the recession through December 2009 was nearly one million jobs higher than the data initially suggested.

The Colorado Department of Labor and Employment is currently conducting its annual benchmark review of the state’s employment and unemployment data. Statistics for the month of January and revised data for prior years will be released on March 10. A supplement to the March Monthly Economic Summary will be issued following the data release.

The Monthly Economic Summary provides a snapshot of metro area economic activity, as well as its relationship to national and regional economic trends. Key highlights include:

Consumer Sector

• The Conference Board’s U.S. Consumer Confidence Index fell abruptly between January and February as consumers’ assessment of present conditions – specifically, business conditions and the labor market – fell to the lowest level reported since 1983. Consumer confidence in the Mountain Region was little better, although consumer outlooks have improved from lows reported at the same time last year.
  
  
• Metro Denver retail sales followed a typical seasonal trend and declined between October and November. The November sales total, however, represented a significant slowdown in an over-the-year sales decline that had persisted for the past twelve months.
  
  
• The January average occupancy rate for Metro Denver hotels (51.1 percent) was slightly above last year’s rate. January’s average room rate was nearly six percent below the average from January 2009.
  
  
• December 2009 passenger traffic at Denver International Airport was 1.7 percent lower than the year-ago traffic level. Airport traffic for all 12 months of 2009 declined 2.1 percent over-the-year as businesses and households limited their travel.
  
  
• The three major national stock indexes ended February with gains from the prior month, but all three indexes still showed a negative year-to-date return. By contrast, the Bloomberg Colorado Index rose 2.2 percent year-to-date in February. The state’s energy and media companies reported some of the largest market gains.

Residential Real Estate

• A decline in Metro Denver home sales between December and January was roughly consistent with seasonal trends, but total January sales were 4.7 percent lower than the sales total reported one year earlier. Despite the slower sales activity – which was partly expected given the late-year surge in tax credit-driven home purchases – average sale prices showed signs of improvement.
  
  
• Metro Denver foreclosure filings in January fell more than five percent from filings reported in January 2009. Filings declined over-the-year in four of the region’s seven counties but increased in Boulder County, Jefferson County, and the City and County of Broomfield.
  
  
• The pace of Metro Denver building permit activity changed little between December and January, although January permits for all property types rose 21 percent from the number reported one year earlier. The gain was due to a year-over-year increase in single-family detached home permits, as January permits for the remaining property types fell below year-ago levels.

Commercial Real Estate

• According to CB Richard Ellis’ fourth quarter MarketView report for Metro Denver, large corporations drove what little office market activity occurred in 2009. Brokers expect a similar trend in 2010 because large corporations – as opposed to small or local businesses – are more likely to have access to capital and credit in a still-difficult lending environment. With the overall demand for space still limited, however, brokers say the wide gap between asking rates and signing rates will persist this year. As a result, office market development will remain stalled. Despite these challenges, CB Richard Ellis brokers expect Metro Denver’s dynamic economy and favorable balance of supply and demand for office space will help the region’s market recover ahead of markets elsewhere.
  
  
• A fourth quarter report by Grubb & Ellis expects large tenant transactions to dictate Metro Denver’s office market conditions in 2010. Grubb & Ellis brokers say 2010 should mark the bottom of the market, however, and lease rate spreads should begin to normalize by the end of the year. Notably, the Grubb & Ellis report shows negative office market absorption in 2009 represented the smallest recession-related loss reported in Metro Denver over the past two decades. 
  
  
• A fourth quarter report by Grubb & Ellis shows Metro Denver industrial market vacancy rates – while low compared to rates for other property types – have risen thanks to two recession-driven trends. The collapse of the housing market put pressure on construction-related tenants early in 2009, and a pronounced decline in consumer activity strained retail warehouse tenants later in the year. The report notes, however, that the absence of industrial construction should help the market rebalance comparatively quickly. Grubb & Ellis brokers expect flex space leasing trends will remain weak in 2010, although properties near the National Renewable Energy Laboratory, Lowry, and Fitzsimons could move more quickly.
  
  
• A recent report by CB Richard Ellis notes that Metro Denver’s industrial market – while still facing considerable challenges – has less of a debt burden than other property types and industrial markets nationwide. As a result, CB Richard Ellis brokers expect the region’s market may not experience the same increase in distressed transactions that brokers expect to see in other markets this year. Because lease rates are significantly below levels that would promote development, though, brokers expect industrial market construction activity will remain subdued in 2010.
  
  
• A fourth quarter report by CB Richard Ellis suggests the downturn in Metro Denver’s retail market slowed as 2009 ended. Vacancy rates remained high and average lease rates continued to decline, but the somewhat slower erosion of market fundamentals that occurred in the fourth quarter suggests the retail market may at least stabilize in the coming months. Brokers note, however, that the retail market tends to lag other property markets and the rest of the economy, so a retail recovery is likely to take time. The report also suggests that retail construction and investment activity will be slow to rebound.

*A full report is available to Metro Denver EDC investors.