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Wow! In the year 2000, home prices appreciated at a staggering 15 percent for existing single family homes and 18 percent for condominiums and townhouses. The year marked the fourth consecutive record year for the Denver metro housing market with annual sales of 48,600 homes totaling $10.6 billion. However, at some point, it gets hard for anybody to justify spending a half-million plus dollars on a two-bedroom bungalow, no matter where it sits. And 2001 may well be that point. Across the country, the white-hot sellers market that has persisted in thriving communities for several years -- and forced buyers to fight for the privilege of paying Rockefeller prices to live in Roseanne digs -- will cool off substantially. Bidding wars that pressure buyers to make snap decisions about the largest purchase of their lives will subside. In other words, a little sanity will return to the housing market in 2001. As for Denver, the forecast is cooling in the short term and strong in the long term.

Economic indicators

If you've been reading the newspaper over the past year, you've probably known since last summer what more and more real estate analysts are now forecasting -- the real estate market is correcting. And that may prove to be true (more than previously forecast) for the nation's hottest housing markets -- including Denver. Along with Wall Street's sell off, mounting poor earnings reports, a job demand slow down, dwindling consumer confidence and other negative economic indicators, the real estate market has also showed signs of weakness.

How well you cope as a consumer depends largely upon how well you watch the market and how well you design your buying or selling strategies to fare in the transforming market. The key statistic to monitor seems to be job growth. With job growth comes demand for housing. Job losses lead to housing depreciation, which will have a far greater negative impact on the housing market than a stock market decline. Buyers and sellers should also keep an eye on interest rates, building permits, home sales (both existing and new), market inventory, loan defaults and foreclosure sales -- all of which impact real estate prices and sales.

A seller's market doesn't become a buyer's market over night and if you aren't tracking indicators during the transition you won't see the change coming. One or two months of statistics do not make a trend. Trends develop over the long term. It is not what you think. It is what the market tells you. More and more often, according to forecasts, the market will begin to frown on seller greed and it will find fence-sitting buyers perched in the catbird seat. As the year moves forward, the need for new, effective buying and selling strategies likely will become more apparent both for real estate consumers and the professionals who assist them.

A buyer¿s market?

Often designated by community, region or some larger geographic areas in today's economy, buyer's markets usually include high inventories, slow appreciation, flat or falling prices and more sellers than buyers in the real estate market. Generally speaking, if more than half of the houses 'for sale' remain on the market a month or more before selling and, if most of them sell for less than asking, it's more or less considered to be a cool buyer's market. A cool market freezes over when the supply of houses for sale continues to increase, sales continue to slow and prices actually decline. More specifically, a market with nine or more months-of-inventory is considered a buyer's market says Ted Jones, chief economist at Houston-based Stewart Title Company, who studied 23 national markets' trends.

Months-, weeks- or days-of-inventory is a theoretical measure of the time it would take to sell all available homes if no more listings came to market and the current sales pace continued for the duration. Generally speaking, if there is more than 180 days (about six months) of inventory, the market is considered a buyer's market.

UCLA's Anderson Business Forecast last year predicted 2001 would bring a 60 percent chance of slight negative economic growth of the gross national product in the second and third quarters this year. Anderson hedged its forecast by saying there's a 40 percent chance the slow down could be milder. The down turn is forecast to include a corresponding deceleration in rising residential real estate values -- though not a reversal of fortunes. No one has yet forecast a full-fledged national buyer's market, but more pockets likely will emerge where buyers rule. A seller's market doesn't become a buyer's market over night, but you can see it coming if you watch the trends.

Market trends

A recent and more telling report offers a previously unforeseen trend for the nation's hottest housing market -- prices will drop in California. Historically speaking, as goes the California real estate market, so goes the nation. Some experts in California say there's enough built-in resilience in the market to allow a retreat without surrender, but the Washington, D.C. based Kiplinger.com forecast isn't so bullish. The Kiplinger.com report says while all San Francisco homes won't lose value, high-end sales will likely slow enough to put downward pressure on the median price while moderately priced homes will continue to see value spikes. Kiplinger.com says buyers elsewhere are also scorning high prices and raising the white flag over bidding wars forcing home price increases to more closely match the march of inflation.

The Kiplinger.com report calls for an average nationwide home price increase of just 2.6 percent for the year 2001, the most modest price gain since 1995. For 100 large metro areas tracked by Standard & Poor/DRI, the price change ranges from a high of 12.3 percent in Boston to a low of the minus 6 percent in San Francisco. (Note: S&P/DRI expects high-end sales to slow so significantly that the median price in the San Francisco area will fall even as the prices of more moderately priced houses continue to rise.) The S&P/DRI report numbers are for median home prices (meaning half the houses sell for more, half for less) and are based on actual home sales during the first three quarters of 2000 and projections of fourth-quarter prices. Last year, 13 of the report's 100 cities enjoyed double-digit price increases. According to the S&P/DRI report, Denver enjoyed a 14.1 percent price increase in the year 2000 for a median home price of $194,110. As for the 2001 Forecasts, Boston topped the S&P/DRI list at 27.2 percent. The Kiplinger.com/S&P/DRI also forecasts California price drops in Los Angeles, Orange County and San Diego as well as declines in Greenville, NC and Omaha, NB. Additionally, they forecast that many Mid-Western City home prices will not appreciate as much as they did last year.

Optimism Prevails

Can we once again believe that 'the sky is the limit' for Denver in 2001? In the good news column, the Mortgage Banker's Association and Fannie Mae predict that interest rates in 2001 will drop to 7.5 percent; however, affordability remains a nagging issue in Metro Denver. According to Kiplinger.com/S&P/DRI, Denver home prices are forecast to appreciate 5.4 percent for a median price of $204,512. The Wall Street Journal's Home Price Forecast is a bit more optimistic and predicts that Denver's median single-family home price will increase from $195,000 to $217,000 in 2001 and that housing will appreciate by 10.2 percent during the year.

In summary, the high-tech shakeout and a slowing National economy is expected to dampen Colorado's economy in 2001, although employment will remain strong and households will increase. Optimism continues to prevail even though there are a few storm clouds on the horizon. Economists and housing forecasters agree that the Denver 2001 housing market will cool because of the national slowdown; however, in the long term, the Denver housing market is well positioned to prosper because of its balanced economy, low unemployment and positive growth potential. I'm personally looking forward to another exciting year in a more settled and saner Denver housing market.

Kelli Lanphere is a Broker Associate/Co-owner of Re/Max of Cherry Creek, Inc. She is also the contributing writer for the real estate section of The Cherry Creek Times and is recognized as a proven expert in residential real estate. The Cherry Creek Times is a monthly community newspaper serving our local neighborhoods (Cherry Creek, Denver Country Club, Hilltop-Crestmoor,Belcaro, Bonnie Brae,Washington Park, Congress Park, Park Hill, Mayfair & Lowry).

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Denver 2001 - Optimisim Prevails

... in the Denver 2001 Real Estate Market!

Economic indicators

A buyer¿s market?

Market trends

Optimism Prevails