Study: 7-year trend may have peaked
rockymountainnews.com
By John Rebchook, Rocky Mountain News
May 24, 2003
If you paid $100,000 for a Denver-area home in early 1996, at the end of the first quarter of this year it was likely worth $189,000.
By comparison, if you bet $100,000 on the S&P 500 during the same period, it would have grown to $146,356.
Home appreciation during the past seven years in the metro area has averaged 9.1 percent, according to a new study by the locally based Genesis Group.
That's the good news.
The bad news is those days are over, according to the first-ever Genesis Home Appreciation Index, which tracked the values of repeat sales of homes in Adams, Arapahoe, Broomfield, Denver, Douglas and Jefferson counties from 1996 to 2003.
The report shows that the same-house sale value - with a purchase price of $100,000 in 1996 - peaked at $190,000 in the third quarter of 2002, and then fell to $185,000 at the end of the fourth quarter, said Genesis research analyst and economist Mike Kone. He had about 10,000 homes in his database.
While the price rose to $189,000 in the first quarter, that was for seasonal reasons, Kone said, not because the market was getting back on its feet.
"My concern . . . is that the rebound may be somewhat illusionary," Kone said. "Usually, we have a great first quarter for appreciation. Typically, the third and fourth quarter are weaker."
Indeed, the increase from the fourth quarter of 2002 to the first quarter of 2003 was the smallest increase from the fourth quarter to the first since 1996, he said.
And the 2.68 percent drop in the fourth quarter was by far the largest drop during the past seven years, he noted. Previous drops were well under 1 percent and were purely for seasonal reasons, he said.
Unlike the monthly Realtor reports, which track the sales of all homes sold each month, this report tracks identical detached home resales in the metro area.
The monthly reports can be skewed by the mix of expensive homes sold, although Kone noted they are valuable for showing trends in the direction of housing prices. Kone also said his methodology reflects the market better than a recent Federal Deposit Insurance Corp. report, which shows the Denver-area market as being basically flat.
While the FDIC report also compares the same-home sales, it also includes refinances, while his includes only actual sales, Kone said.
Perhaps even more important, the home appreciation index eliminates the statistical bias of bigger homes being built and sold in recent years, which can drive up the average sale prices, Kone said.
Gary Bauer, an independent real estate broker and housing consultant, said the 9.1 percent annual appreciation sounds right, because there were only a few years of double-digit appreciation during that time period.
But he said his "gut" feeling is that home prices didn't peak in the third quarter 2002, but some time after that.
Bauer said while newer, bigger homes are driving up the average price of homes to a certain extent, that doesn't tell the entire story.
"The common denominator for all homes is the price per square foot, and I think you would find that the price per square foot in the Denver-area market has increased at least 9.1 percent and probably higher," Bauer said.
Especially in Denver neighborhoods, smaller homes that can be scraped off or have their tops popped, sell for more per square foot than larger homes, he said.
The lowest mortgage rates in about 45 years - now hovering near 5 percent for a 30-year fixed- rate - have been "propping up" housing prices, Kone said.
"After all, if the average price remains the same but buyers are able to get much more house for the same dollar, then prices may effectively be declining," the report notes.
He estimated that many home buyers and owners who have refinanced recently have cut their monthly payments by 15 percent during the past couple of years.
"What we're really paying at the checkout counter for a house is really coming down," he said.
He said his statistical analysis doesn't predict where home prices are heading, but Kone said he doesn't think home prices are heading up.
"My concern is not to be swayed by the first quarter," Kone said. "We have seen appreciation growth so far this year, but I think overall for the year, the numbers are going to come out negative."
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