27 July 2010

The State of the Housing Markets

To the extent that housing prices are a barometer of a metropolitan area's general economic health, there is good reason to feel bullish about Denver. Of the twenty major cities studied by Case-Schiller, only Dallas has lost a smaller percentage relative to its peak housing price than Denver, as of May 2010. Denver is down 7.4% from the peak. Dallas is down 4.8%. Third place Charlotte is down 13.3%.

Las Vegas is worst off, down 56.1% from the peak. Las Vegas appears to still be in the grips of collective insanity:

Home prices in Las Vegas are down by 60 percent from 2006 in one of the steepest descents in modern times. There are 9,517 spanking new houses sitting empty. An additional 5,600 homes were repossessed by lenders in the first three months of this year and could soon be for sale.

Yet builders here are putting up 1,100 homes, and they are frantically buying lots for even more. ... Land and labor costs have fallen significantly, so the newest homes are competitively priced.

June 2010 had fewer new home sales than any June on record. The runner up was June 1982. The inventory of unsold new homes remains above average.

Home ownership is at an eleven year low of 66.9%. This is still higher than the 63%-66% home ownership rate that prevailed for the three decades before that. The home ownership rate is falling despite herculean stimulus fund efforts in the form of the home buyers tax credit, record low mortgage rates, and significantly lower housing prices. The fact that it hasn't been more affordable to own a home in decades has not preventing home ownership rates from falling.

Perhaps it is a sign of times then, that Andrew Romanoff has sold his Washington Park bungalow, removing himself from the rank of homeowners, in order to raise funds that he can loan to his U.S. Senate campaign. Clearly, he is betting the farm on this race. He did make a handsome tax free profit in the process, as a result of good timing in the Denver real estate market:

Romanoff said the house, which he bought for $190,000 in 1996, sold for $360,000. After paying off the remaining mortgage and cashing out other savings, he put $325,000 into the campaign in four installments, ending Monday.

For what it is worth, I can vouch for the fact that the price he secured to sell the house was not a sweetheart, above market rate deal.

Voting in the U.S. Senate primary in Colorado ends August 10th (in a mail in ballot election, it isn't really accurate to describe August 10th as "election day" anymore). So, in a couple of weeks we'll learn if Romanoff's high stakes gamble (precisely the kind that one should be making when the odds are winnable but against you) will pay off. I am on record at Colorado Pols predicting that he will win that primary.


Dave Barnes said...

Wednesday, August 11th?
I think not.
And, for some of us, the primary election was last Wednesday when we received our ballots.

Dave Barnes said...

Of course they are building new houses in Las Vegas.

1. Builders have to build or they are not builders.

2. If YOU were going to buy a new house would you prefer:
a. a brand new house, priced right, with a warranty from a builder still in business
b. a 2-year old house, no warranty, crappy renters living next door, from a difficult to deal with bank?

Andrew Oh-Willeke said...

Date corrected; brain fart there.

Also keep in mind that most of the builders who are building new stuff now, also have significant inventories of houses already on the market, and that the two year old houses that are sitting vacant are hardly crap -- many are high end gated community McMansions.

I also think that you are vastly overrating the importance that buyers attach to warranties.

It may be possible to compete on price, but it seems pretty clear to me that prices will fall significantly more before they hit bottom in Vegas; unsold inventory drives down prices.

You have to be either brave or foolhardy to build a house at a much thinner margin than you used to at a time when prices are likely to fall greatly by the time that you finish it.

Dave Barnes said...


Sure they are the same people, but not the same builders from a legal perspective.
That is why you have "limited liability companies".

Dave Barnes said...


Given that your vote and mine are not in agreement, I would be happier if you turned you ballot in on August 11th.

Sometimes "the Google" is too funny: surplucc.

Andrew Oh-Willeke said...

My family's votes are in. We'll be out of town on "election day."