Real Estate: Colorado plunges to bottom of home appreciation index

One of the historic measuring sticks of the strength of Colorado’s housing market is the so-called “repeat sale index,” formally known as the Office of Federal Housing Enterprise Oversight’s House Price Index.

Through the late the 1990s, Colorado ranked consistently in the top five of the index. In the latest index, from the fourth quarter of 2003, the state stands at No. 40 (out of 51), reporting just 1.38 percent in price growth from the third quarter. By comparison, the national growth was 3.67 percent.

For all of 2003, Colorado came in at No. 49 — Texas and Utah were worse — with 2.68 percent price growth. The national increase was 7.97 percent.

It’s not all bad news.

It’s appreciation, for one thing. For another, Colorado gained just 0.5 percent in appreciation during the third quarter.

The repeat sale index monitors the sale of any home that’s tied to a federal mortgage agency — Fannie Mae, Freddie Mac. Each time the house is sold, the price appreciation is calculated and processed into the index.

“It’s a much more accurate way to measure appreciation rates than the increase in average sale price,” contends Larry Kendall, chairman of The Group Inc. Real Estate.

Colorado’s plunge on the index is underlined by the standing of some of its cities.

Among 220 cities surveyed for the index, four of the bottom 20 metro markets were on the Front Range. They included Colorado Springs, No. 208 (2.53 percent appreciation); Denver, No. 210 (2.27 percent); Greeley, No. 213 (1.98 percent), and Boulder-Longmont, No. 219 (1.07 percent).

The Pueblo and Fort Collins-Loveland markets stayed out of the bottom 20, but not by much. Pueblo was No. 199, with 2.87 percent appreciation, and Fort Collins-Loveland came in at No. 171 with 3.9 percent appreciation.

The sturdiest local market last year was Grand Junction, at No. 93 with 7.39 percent appreciation.

Kendall, who regularly follows the repeat sale index, said Colorado’s recent results are a sign the market’s adjusted to the rapid appreciation of the 1990s, when annual price growth topped 15 percent in some years.

“We have sellers who remember when their neighbors sold their house three years ago, they put it on the market on a Friday, had five contracts over the weekend, and sold it for above full price,” he said. “That was back when Colorado was in the top five. That’s not occurring today.

“Then there’s the buyer’s side. Buyers think there’s going to be a bubble bursting and they don’t want to pay too much. They’re offering well below the asking price. That’s probably not realistic either.”

A major factor for Colorado’s fall from grace is the depression in the high-tech sector, which helped to fuel the boom years of the 1990s with high-paying jobs. Thousands of high-tech jobs have been cut on the Front Range since 2001, creating enough drag on demand to keep prices nearly flat.

Despite the 2003 numbers, the picture looks better when you stand further back from the wall.

Looking at five years of appreciation 1999-2003, Colorado home sales experienced 42.62 price growth, ranking No. 14 and slightly ahead of the nationwide rate of 41.81 percent.

Commercial market looking up

Brokers at Realtec Commercial Real Estate Services hinted at improved prospects for the industrial sector in Northern Colorado during the firm’s 15th Annual Market Update event late last month.

“Industrial construction will rise in 2004; we’ve already seen increases in productivity,´ said Mark Bradley, a broker for Realtec’s Greeley office. “This will be followed on with increased hiring creating demand for more industrial space to house new employees.”

Some of the strength in the industrial sector is driven by sales of owner-occupied buildings, as companies want to take advantage of the interest rate environment, and beat the predicted rise in rates later this year.

The investment market, very strong in recent years due to high demand and low interest rates, could face a change this year. According to Realtec, demand shouldn’t diminish, but interest rates are likely to climb, raising capitalization rates for investors.

Across the region, Greeley appears to be poised for the best commercial results this year, said Realtec President Steve Stansfield.

“This advantageous economy is going to continue to help Northern Colorado and especially Greeley this year,” Stansfield said. “I think what’s happened there has far exceeded expectations, including those of the people we have working there.”

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