Housing Decline (Denver: real estate market, renters, condominium)

[GreasedLightning]

We're moving to Colorado in December and will be purchasing a condominium. As we all know, the housing market is come to a screeching halt and Shiller's housing trend graph projects a declining national housing market until 2011, where the market will finally reach an equilibrium. If we were to purchase a small, 2 or 1 bedroom condo in one of the suburbs of Denver, will we see a drastic depreciation over the next few years or is Denver a pretty stable housing market?

[Tom Emmerling]

It is definately a buyers market right now. Housing prices have decrease a little and there are a lot of them to chose from. There are also sellers who are desperate to get rid of their properties and willing to take less for them. The interest rates are also low right now. This is a great opportunity to buy a condo. Plus if the housing market crashes that means that there is usually more renters out there. So if you decide to move to a house you could always rent your condo out until the housing market picks up again and make more money on it. Great investment opportunity. The housing market in this area has not seen the dramatic decrease that most of the country has. Overall we have a pretty stable market here.

[tfox]

It probably depends on exactly where. Some 'hoods are bound to drop further; a few are in free-fall as the sub-prime mess unfolds. There's a few zip codes in the city that are seeing double-digit appreciation, and that will probably continue. It's all local, supply and demand. The entry-level markets and the drive-till-you-qualify subdivisions are the most vulnerable to price drops, I'd say.

[2bindenver]

Change vs Jul 07 Prior Month % Year Ago %
Single Family (Res + Cond)
Active 30,272 0.05 -5.37
Under Contract 5,951 -3.01 7.46
Sold 4,980 -2.91 2.68
Avg DOM 95 -1.28 -0.22
Avg Sold Price $289,294 -4.85 -3.47
Residential
Active 22,643 0.57 -3.41
Under Contract 4,698 -3.47 6.94
Sold 3,899 -4.11 2.63
Avg DOM 90 -4.26 0.00
Avg Sold Price $316,024 -5.62 -3.86
Condominium
Active 7,629 -1.46 -10.74
Under Contract 1,253 -1.26 9.43
Sold 1,081 1.69 2.85
Avg DOM 112 3.70 -0.88
Avg Sold Price $192,885 3.52 -0.93

[jazzlover]

Sometime in the coming 12-24 months, I expect the Colorado real estate market to seriously tank. Most Coloradans (including many newcomers--sorry) have not seen this happen before. The last decade or so has been one of the most robust real estate markets ever. Several factors have made it so, and all of them are now turning negative:

1. Cheap energy costs. Cheap energy is gone for good. Cheap energy made McMansions, sprawl, and long commutes affordable to nearly everyone. That's about over. Higher energy prices actually benefit some segments of the Colorado economy. But EVERYONE must pay higher energy prices, and the effects from that will seriously diminish the discretionary spending available for many segments of the Colorado economy.

2. Cheap and easy money. People forgot all of the hard-earned lessons from the late 1970's and early 1980's, when an era of cheap and easy money brought on out-of-control inflation and ecomomic distortions. The cure was a painful recession and the S&L debacle. The current speculation circus makes that era look tame. The correction from that will be much more severe.

3. The construction and recreation boom. Colorado's latter-day economy is heavily reliant on construction and recreation--both industries that will be decimated by high energy prices and a real estate bust. At the same time, Colorado has pretty much turned a cold shoulder to industries that actually produce things of use--agriculture, mining, etc. Just as the mining bust of the 1890's soured much of the Colorado economy for decades, the coming bust in real estate, construction, and recreation will sour the Colorado economy for years to come.

4. Population growth. Population growth in Colorado has been facilitated by people moving from other areas--people that either had the financial resources to relocate or could make a living in the state. Both are now in jeopardy. Much of the growth, especially in rural Colorado, has been from the "mailbox" economy--people living on investments, pensions, and property income and appreciation from other areas. As that cash flow dries up, so will the ability of those people to relocate to Colorado, unless they can make a local income. For anyone who actually has to hold a job in Colorado to make a living, it won't be any picnic, either. With all of the other economic problems I have outlined, I expect the Colorado job growth wil go from growth to decline. When Colorado residents find themselves laid off, there can hardly be an incentive for people to move to the state.

Without doubt, someone will flame me for being a "doomsayer," or "negative," or a "pessimist," or whatever. Let 'em. No one who has studied economics and related disciplines for any length of time can look at our present national situation and not be honestly alarmed. We're in for a rough ride--and Colorado, because of some very short-sighted decisions and policies followed over the last few years, may have a rougher ride than many other places. Colorado has been a naturally beautiful state with an agreeable climate forever. It doesn't have 30 million people living in it because it 1) lacks sufficient water to sustain that kind of population; and 2) equally importantly, has--for most of its history--been a relatively difficult place in which to make a living. That, I believe, is about to be true again.

[GreasedLightning]

Wow, so I guess that means we should rent . . . lol. Also, looks like I'll be going to grad school in a couple years instead of looking for a job, maybe the economy will have reached equilibrium half a decade from now. I've read the the exact same speculation for much of the nation though. In fact, even your draconian image of Colorado's future seems to hold less consequence than many of the forecasts I've heard for other economic hubs across the nation.

[Wyomiles]

I'm with jazzlover, and do not buy a condo, my niece had to sell very low just to get out of hers a year ago and she was in a nice one.

[tfox]

Originally Posted by GreasedLightning

Wow, so I guess that means we should rent . . . lol. Also, looks like I'll be going to grad school in a couple years instead of looking for a job, maybe the economy will have reached equilibrium half a decade from now. I've read the the exact same speculation for much of the nation though. In fact, even your draconian image of Colorado's future seems to hold less consequence than many of the forecasts I've heard for other economic hubs across the nation.

Well, we may yet have a real estate meltdown similar to what Jazzlover is predicting. However, many feel that Colorado (and Denver in particular) is less vulnerable than other markets since our real estate market has been fairly stable since the tech slowdown of 2001. We've had very slow appreciation since then, with no significant price run-ups, and what declines we have seen have been very modest (low single digits). I'd be more worried about places like Las Vegas, Phoenix, etc, where you've seen runaway appreciation caused mainly by speculative out-of-state investing. We haven't seen that kind of artificial shortage here, so I'd say that we're less at risk from that kind of speculative bubble.

That being said, if there's a prolonged economic recession, large spike in inflation, etc, then all bets are off, but that would be anywhere.

[GreasedLightning]

Originally Posted by Wyomiles

I'm with jazzlover, and do not buy a condo, my niece had to sell very low just to get out of hers a year ago and she was in a nice one.

What was her encouragement to sell her condo? This may actually work to our advantage as I might be able to buy low and sit on it for awhile.

[Wyomiles]

She was getting married and moving to a house.