Denver’s got good news and bad news when it comes to the real estate market.
First, the good news: Though the Mile-High City has seen its share of sublease space flow onto the market thus far this year, it has been far less hard-hit than other metro areas across the country. Additionally, a lack of overbuilding means that Denver is not suffering the same problem as cities such as Phoenix and Las Vegas: a glut of new construction that proves a tough sell in troubled times.
However, Denver has taken its share of lumps. In March, total sales of existing homes posted a 13.6 percent decline from a year earlier, according to Metrolist Inc., the metro area’s Multiple Listing Service. The average sales price has also dropped from a year earlier, with the average sales price clocking in at $232,395 for March. That’s a drop of 8.51 percent, according to Metrolist.
So what to make of this mixed market?
“Denver’s not doing too badly, believe it or not,” says mortgage broker and Realtor Matt Sparks. “Granted, we’ve got tons of foreclosures, and certain market segments and areas are hurting, but average values are steady.”
Since Denver missed the real-estate bubble experienced by much of the country, Sparks says, the city didn’t have far to fall. “The bright spots are the downtown Denver neighborhoods,” he says. “A lot of the central slum and blight has been transformed into vibrant, safe, and trendy neighborhoods in recent years. The major Denver schools have been updated and improved big time. And we’re in the middle of increasing our Light Rail system from nearly non-existent to over 90 total stops all throughout the metro area. Good things are happening, and we’ll likely see a nice upswing in values and new construction once the finance sector and the overall economy turn around a bit.”
Sparks likens Denver’s challenges to those faced by most other cities in the country: record numbers of home foreclosures, financing difficulties, a surplus of inventories, banks foreclosing on developers, and empty subdivisions in far-flung suburbs.
“To me, the scariest part is the exodus from the suburbs back to the city, which in itself is mostly a good thing, but some of the most distant and least convenient suburbs are slowly turning into the new slums,” he says. “This causes untold problems for the city planners and officials in those districts, as you can well imagine.”
A Multiplicity of Markets
Not all properties are performing equally. While some continue to sit on the market, others sell rapidly – a distinction that Kentwood Company at Cherry Creek broker-manager Gretchen Faber attributes to listing price.
“Our lower to mid-range priced homes – $150,000 to $500,000 – are selling rapidly right now, and we’re even seeing multiple offers. The number of days it takes to sell these homes is shrinking, leading to a more balanced market,” Faber, who also serves as a director on the Denver Board of Realtors, as well as the National Association of Realtors, says. “Our high end – more than $1,000,000 – is still struggling, but slowly showing signs of life. This is reflective of too many of these homes on the market, too few buyers and relatively high rates for jumbo mortgages.”
According to DataQuick’s February sales report for Denver, sales of existing single-family detached homes were far outpacing condos. Sales of detached homes fell just 6.1 percent from a year earlier, while condo sales were down 20.6 percent.
Faber points to an increase in the number of listings coming onto the market as a positive sign.
“In March we had 20,628 active listings in our local MLS, which is 2.84 percent more properties for sale than in February,” she says. “This says that even in these typically busy spring selling months, we’re not being flooded with new properties coming on the market. We still have 19.16% fewer homes available than this time last year. It’s a good thing – it gives us some time to sell off the inventory we have and keeps a floor under any further decline.”
According to Metrolist, condominiums remained on the market an average of 106 days as of March. That’s a month-over-month decrease of 2.75 percent and a year-over-year drop of 10.17 percent. Single-family homes posted the same amount of days on market, which was unchanged from February, but a drop of 2.75 from a year earlier.
Faber characterizes Denver as traditionally counter-cyclical to other markets. “We flattened out after 9/11 and the tech bust, so we’ve already been bumping along the bottom for quite awhile,” she says. “There really aren’t too many inherent difficulties investing here. We have stable employment and a growing population base. Jobs are relocating into Denver …. (However,) I might advise staying away from strip malls unless you really know the area can support it.”
Sparks says good investment deals are plentiful in Denver – if you know what you want and are able to move quickly. “Cash buyers with no contingencies often beat every other offer, but even if that’s not you, there are deals to be had,” he says. “We’re talking condos, in good condition, in average neighborhoods, for $20K. We’re talking houses for $50K. We’re talking multi-units, in trendy rental neighborhoods like Capitol Hill even, for under $30K per unit.”
He also warns investors against looking to flip immediately for profit: “Not impossible, and some people are doing it, but it’s far easier to buy now, rent and hold for another day,” he says. “If you’ve got a two- to five-year hold time to work with, you can do extremely well in Denver real estate, especially if you invest within a couple miles of downtown.”
Sparks cautions against buying in the suburbs, particularly areas that are removed from downtown and the mountains. “People move to Colorado for the mountains, and they get jobs downtown and in the DTC, so what’s the point of living in Henderson or eastern Aurora?”
He also cites increasing commute costs as a reason to buy close-in: “More and more people are looking for ways to move closer to work, public transportation, and everything else.”
With a more limited construction pipeline and at least some positive absorption to balance out negative activity – the city’s southern submarket has seen 255,107 square feet of negative absorption thus far, but downtown has had positive absorption of 33,153 square feet during that time – the outlook may be stabilizing for Denver.
“Short term, we’ll have a steady market, but won’t really be on fire until later this year or early 2010,” Faber says. She forecasts flat appreciation for this year as well as next, with the exception of specific and exceptional market segments. “Then, we will begin to show a positive increase.”
During Denver’s best times, appreciation clocked in at 12 to 15 percent: “Not the out-of-whack increases we saw in other locales,” Faber says.
She sees that balance reflected in Denver’s character as a city. “Also, our legislators and community leaders have worked to keep our economy balanced and not skewed toward one type of employer,” she says. “it’s a wonderful place to live, and that is why our population is growing and not shrinking.”
Sparks agrees that things will remain flat in the short term, but the long term is extremely promising. He believes Denver will be one of the first U.S. markets to rebound, with significant gains on the horizon. “It could be Spring 2010, 2011, or 2012 before we turn the corner, but once we do, the central Denver zip codes are primed for double digit growth for several years to come.”