Report sheds light on Metro Denver's housing scene

The nation's housing scene is undeniably in a state of flux with many cities experiencing sluggish sales in the existing and new homes market and declining new home construction. Also, foreclosure rates have grown across the country.

Metro Denver is not immune to the impacts of the national housing downturn. But while some regions are experiencing a "housing bubble," Metro Denver's current housing situation is not as dire, and is described as more of a "market correction" by Patty Silverstein, economist and author of the Metro Denver Economic Development Corporation's (Metro Denver EDC) housing report, "State of the Housing Market in Metro Denver."

Released today to Metro Denver EDC investors, regional economic development partners, and local media, the study analyzes the many factors contributing to Metro Denver's softening housing market.

According to Silverstein, foreclosures top the region's housing challenges. In fact, residential foreclosure rates through third quarter 2006 are tracking at 34.2 percent higher than last year. The report explores five reasons for the region's foreclosure situation: employment, income, inflation, mortgage fraud, and mortgage products.

The mix of mortgage products being used in the Metro Denver market may be impacting the foreclosure rate. For example, while adjustable rate mortgages represent 28.6 percent of the total Colorado loans serviced in the second quarter of 2006, 52.5 percent of the loans in foreclosure in Colorado were ARMs. As ARMS increased in popularity in 2004, 2007 may be a difficult year as the rate on three-year ARMS gets set.

"Rising foreclosures have multiple impacts on both the existing and new home market, as well as on for-sale and rental markets," explains Tom Clark, executive vice president of the Metro Denver EDC.

The study also details statistics on the region's current housing situation:

• Existing Homes: The existing housing market in Metro Denver has weakened in recent months following two years of the most robust sales in Metro Denver's history. Total existing homes sales are down five percent through third quarter 2006 compared to the same period last year.
  
  
• New Homes: New home sales in Metro Denver are also down compared to last year. The Genesis Group reports that new home sales in the first half of 2006 were down 11.3 percent in Metro Denver compared to the same six-month period in 2005. Meanwhile, home prices continued to climb in the first half of the year despite declining sales.
  
  
• Home Construction: Metro Denver homebuilders have recognized the softening market conditions and pulled back accordingly on residential construction. Compared to the first eight months of 2005, the total number of single-family building permits issued in Metro Denver is down 7.1 percent.
  
  
• Rental Market: Today's higher interest rates and increased foreclosures bode well for the apartment market as existing renters remain in place and those impacted by foreclosure return to a rental position. The average vacancy rate for the Metro Denver apartment market improved from 12 percent in 2003 to 8.2 percent in 2005. Through the first half of 2006, the average vacancy rate was 7.2 percent.
  
  

How can we expect the housing market to perform through the remainder of 2006 and into 2007?

According to Silverstein, the Metro Denver housing market will likely post soft conditions for the remainder of 2006 and throughout 2007. Expect to see existing home sales moderate again in 2007 along with stable home price appreciation between three and five percent. Inventory levels will continue to be at high levels in 2007 although total foreclosures are expected to decline slightly.