Real estate experts: Boulder housing market improving

By Peter Budoff
Camera Staff Writer
Posted: 11/19/2009 11:14:24 PM MST

The national and local real estate market is showing signs of improvement, but a full recovery will depend on restoring consumer confidence, housing experts said at a Boulder forum Thursday.

Boulder remains somewhat insulated from the national economic struggles, Scot Smith, a broker with The Colorado Group, told the crowd at the second annual Boulder Valley Real Estate Conference and Forecast at Boulder's Millennium Harvest House.

"This is a good place to be," Smith said. "When the full recovery begins, it will probably begin here."

Smith said that the presence of large local companies and continued strength in the energy industry and others will continue to help stabilize the Boulder economy.

Commercial occupancy should increase slightly throughout Boulder Valley in 2010, while the area should remain relatively insulated from the national wave of foreclosures, Smith said. Office vacancies fell to low of 12 percent in 2009, not as high as some predicted.

Smith noted that in addition to governmental agencies -- which were the largest purchasers of commercial property this year -- the Boulder commercial real estate sector has been boosted by an unlikely industry: medical marijuana dispensaries.

"We can only hope marijuana never gets regulated, so it can lead us out of this recession," he joked.

D.B. Wilson, managing broker of ReMax, said the residential housing market through the beginning of 2010 will continue to favor buyers, with affordability at an all-time high.

But prices, interest rates and mortgages are still likely to fluctuate through next year, and true market stability won't come until consumer confidence is restored, several speakers said.

Sharp declines in wealth and increases in unemployment have dropped consumer confidence to near-historic lows, said Patti Silverstein, the chief economist of the Metro Denver Economic Development Corporation.

Confidence should improve as the economy does in 2010, but the improvement will be slow, Silverstein said.

"The recession from a technical standpoint probably ended in the third quarter of the last fiscal year," she said. "We will keep moving out of the recession but at an anemic pace."

Boulder Tops Colorado Cities for 1st Quarter Appreciation rates

With a one-year appreciation rate of 1.99 percent, Boulder was the highest-ranked Colorado city on the Federal Housing Finance Agency’s listing of home appreciation rates for 294 metropolitans in the nation. Boulder came in twenty-third for the first quarter of 2009, while Denver-Aurora-Broomfield’s one-year appreciation rate of 0.80% came in at sixty-fourth and Fort Collins-Loveland’s rate of -0.12 percent was ranked ninety-third.

Though none of Colorado’s eight metros ranked made the top 20, they also did not land in the bottom 20 metros, either. Colorado Springs was the lowest-ranked Colorado metro at one-hundred and fifty-third; it had a one-year appreciation rate of -1.70 percent.

The Texas metro of Corpus Christie had the highest appreciation rate in the nation – 4.12 percent – and three other Texas metros made the top 20. Indiana, South Carolina, Oklahoma and Louisiana also had more than one representative in the top 20. California and Florida dominated the bottom 20 list, with Nevada and Arizona with one representative each making the list. Merced, Calif., whose home prices depreciated 37.80 percent from the first quarter of 2008 to the first quarter of 2009, pulled up the rear of the 294 metros.

Here’s a look at how Colorado’s and its eight metros’ home-price appreciation rates performed compared with the rest of the nation:

Boulder homes continue to appreciate

Boulder had the second-highest ranking for home appreciation rates in Colorado and the 100^th highest out of 291 metropolitan statistical areas nationwide, according to the Office of Federal Housing Enterprise Oversight. Grand Junction was the only state metro area to break into the top 20 across the nation, coming in at No. 3. While no Colorado metros landed in the bottom 20 of U.S. metros, Greeley and Denver-Aurora both saw negative appreciation for the fourth quarter of 2006 to the fourth quarter of 2007, as well as from the third quarter to the fourth quarter of 2007. Here’s a look at how Colorado metro areas as well as the state compared with other metros and states in home appreciation rates for the fourth quarter of last year:

Source: Office of Federal Housing Enterprise Oversight

Boulder home prices remain steady in face of uncertainty

While many U.S. communities are experiencing depreciation of their homes – some even in the double digits in coastal states such as California and Florida – Boulder’s home prices have held steady over the last year.

Recent numbers from IRES shows existing-home prices within the city of Boulder increased 3 percent in the third quarter of 2007 compared with the same period last year. And the latest figures from the National Association of Realtors showed that while the median price of existing homes in the Boulder-Longmont area has fluctuated slightly since the third quarter of 2006, the median price for the third quarter of 2007 remained unchanged from the previous year. The median home price for the U.S. dropped 2 percent in the same period.

Ken Hotard, vice president of public relations for the Boulder Area Realtor Association (BARA), attributed the local market’s strength to the absence of rapid appreciation of home values in past years that occurred along the nation’s coasts.

“We never really did have a bubble,” he says.

Boulder also remains a popular home town, with its location offering a plethora of indoor and outdoor recreational opportunities, open space, federal laboratories and a healthy entertainment environment, Hotard says.

“Basic economics 101 will tell you that simple supply and demand plays a role here,” he says, noting Boulder’s high quality of living makes it a desirable place to live, but it has a limited ability to grow and, therefore, a limited supply of housing.

A recent study of Boulder’s affordable housing by BARA, in cooperation with the University of Colorado Real Estate Center and Leeds School of Business Research Division, showed clearly that the city of Boulder has a wealth-based housing market and local economy, Hotard says.

In other words, the city’s residents’ median income of $80,000 would not support the median home price, he says. In fact, 30 percent of all homeowners in the city of Boulder have no mortgage, which means they either paid cash for their homes or they have lived here long enough to have paid off their mortgages.

Nonetheless, Boulder-area homes are not appreciating as much as they have in years past because of the slower economy and less job growth, Hotard says.

“There’s been some but there hasn’t been like there was in the ’90s,” he says.

From 1990 to 2000, the average appreciation of Boulder homes was just over 10 percent, Hotard says. However, a housing study under way now shows that over the last 25 years, the annual appreciation rate for homes in Boulder city limits is 6.2 percent, and for Boulder County homes it is 4.8 percent.

Hotard says a 4 percent to 6 percent appreciation rate represents a healthy, sustainable market that makes purchasing real estate a wise long-term investment.

A 3 percent appreciation rate, though not as good, reflects a stable market, he says.

“That covers inflation,” Hotard says. “You’re not losing money but you’re not gaining much.”

Hotard predicts that the appreciation rate will remain stable and relatively unchanged until 2009 or 2010 in the absence of economy-impacting positive or negative events.

Once a new president and Congress are in place in 2009, it will take a while until it is clear how those changes will affect the real estate market, Hotard says.