Dec
11
Mark Twain’s quote “Lies, damn lies, and statistics.” is apropos when discussing the real estate market. Real estate statistics for sales are skewed due to the growth in real estate the past five years. Fueled mostly by low interest rates and overly aggressive loan programs, people of all shapes and sizes bought homes. As rates have gone up and the those loan programs have been deemed “too risky” the growth has slowed. However, the statistics will show that the Denver Real Estate market tanked.
To put things in perspective the real estate market is very similar to the career of Denver Bronco Jake Plummer. Jake has been a steady player who never put up gaudy statistics. The last several years his statistics were better than ever as Jake played at an elite level. This year his play dropped. But did it? On average he throws 15 touchdowns and 15 interceptions every season and this season, if he wasn’t pulled for Jay Cutler, he was set to meet those mediocre statistics.
A thorough statistical analysis should take into account the overall average over time. Recently I came across a blog called the Bubble Buster which presents a complete Real Estate analysis of major cities. The analysis takes history into account. Today they released their Denver real estate analysis:
The Denver economy is continuing its steady recovery following the bursting of the tech bubble. The past thirty years have seen three real price cycles and the beginning of a fourth in Denver. Including one cycle of TWELVE years in which nominal growth was 32.6%, yet real growth was negative 29.4%. Market cycle time periods have varied from the downturn cycle of twelve years to the prior growth cycle of fourteen years.
What I truly appreciate about this analysis is that it takes into account the real estate growth in Denver during the past quarter, four quarters, year, five years and historical average. According to this analysis, Denver has seen an appreciation of .1% in the last quarter, 2.3% past four quarters , 4.7% last year 2005, 17.6% last five years and 6.3% historically.
The analysis is further broken down:
- Summary
- Recent History
- Price Charts
- Peaks and Troughs
- Forecasts
Recent declines in sales activity have increased the number of homes on the market. Further sales declines should be expected due to current local market psychology. However, significant price declines are unlikely as the mortgage debt servicing cost has remained steady.
The past five years have seen fair nominal and real price growth. The Denver mortgage-debt-to-income ratio has remained steady throughout the past five years despite a national increase, indicating there should be little to no concern about an Denver market bubble. Consequently, nominal and real prices should be expected to continue to grow at near historic levels if mortgage rates remain at current levels.
In order to most accurately determine prior market price cycles one must remove the effects of inflation and look at real historical prices. The past thirty years have seen three real price cycles and the beginning of a fourth in Denver. Including one cycle of twelve years in which nominal growth was 32.6%, yet real growth was negative 29.4%. Market cycle time periods have varied from the downturn cycle of twelve years to the prior growth cycle of fourteen years.
Accurately projecting local prices is a challenging task because so many factors play a part in home prices. Mortgage rates, inflation, job growth, median income, legislation, migration patterns and market psychology are just a few. Additionally, real estate markets rarely have periods in which they achieve average historical growth. Rather, real estate markets have periods of tremendous growth followed by market decline. Consequently, the tables and charts below present three likely scenarios, rather than one definite path.
Good stuff!
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One Response to “An analysis of the Denver Real Estate Market”
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What a great piece. Thoughtful, well written and to the point.