Denver Tops Case-Schiller Index for May 2015 but….

The S&P/Case-Shiller Index for May 2015 (released earlier today) indicted a rise in prices for single-family homes at the same pace for April 2015 (year-over-year) but fell short of forecasts. The gain was 4.9% yet forecasts predicted a 5.6% increase. Of note, home ownership across the nation is at its lowest point since 1967, a period when interest rates were hovering around 5.44% (1% higher than today and credit was more challenging to obtain).

Of note for our local market of Denver the year-over-year increase was the highest of the 20-city index at 10% exceeding San Francisco at 9.7% and Dallas at 8.4%. Of note, San Francisco with its average price exceeding $1,000,000 and Dallas in the $200,000 range, both in real dollars are impressive gains.

Interestingly Denver while far from recession-proof did not experience the significant downturn in values during the 2008-11 downturn unlike Phoenix and Las Vegas. Yet Denver is also a market that did not experience exponential value rises as those markets did.

While I do not read “tea-leaves” I am a bit concerned about the local Denver market and the recent run-up. Based on my review of the MLS, pricing patterns and in conversation with peer brokers, I am actually seeing a sense of fatigue in the marketplace concerning buyers and sellers.

On the buyer-side I have had clients ask “is 30% increase in 2 years normal” and my response has been “If you plan to live in the place for more than 3-5 years, you should be OK concerning retention of value”. For sellers who assume 30% appreciation is normal in 2 years, I have advised if not under-contract within a few weeks there may be buyer hesitation concerning pricing as interest rates continue to be attractive and lenders are increasingly more flexible.

I am seeing houses that would have sold in days just a few months ago now sitting on the market. However I am not overly worried. Prices in my humble opinion have risen too quickly especially within certain “in-demand” neighborhoods. On my street there is a small residence which is asking $600K and has had many showings. The sellers paid approximately $420K within the last 24 months. Sans any meaningful value-adding improvements coupled with a somewhat challenged location and other physical aspects i.e. smaller lot, traffic impacts, the underlying equity appreciation in my humble opinion is quite steep if the residence does in fact sell at asking.

I believe it will sell i.e. one of the cheapest options in the neighborhood HOWEVER I would hope any buyer represented by a broker would be doing their due diligence and looking at the sales price history of the residence and then justify their offer based on their specific desires. If the buyer is obtaining financing, the appraisal may be an issue as well.

Personally I am not a fan of monthly statistics; I look at the overall trend line coupled with other factors concerning the overall economic health of a regional economy. While my income is based on transactions I for one while continually looking for myself am taking a breather.

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