If historic trends hold true, Denver’s housing market could be poised for a turnaround.
Real-estate broker Lon Welsh recently conducted an analysis comparing the number of days homes spend on the market to price appreciation. The data, going back to the 1970s, indicated that a change in days on the market often precedes a change in price appreciation.
Welsh, managing broker of Your Castle Real Estate, says a recent drop in the number of days homes are spending on the market offers a glimmer of hope that prices could be headed for improvement.
Between January and May, metro-area homes spent an average of 89 days on the market, down from 100 last year.
“It’s too early to call this a trend yet, but I’m optimistic that this is a leading indicator that our market is going to improve its rate of appreciation in two years or so,” he said.
He pointed to similar changes in previous housing cycles to back his conclusion.
For example, in the 1970s, when Denver’s housing market was booming, the average price went up 12 percent a year and houses were on the market an average of 56 days.
That all changed in the 1980s, when appreciation slowed to 4 percent annually and the average number of days a house sat on the market jumped to 85.
“That’s when oil walked out of Denver,” independent real-estate analyst Gary Bauer explained. “At that point in time, Denver had a very limited economy.”
The market bounced back in the 1990s, when Denver created a lot of high-tech and telecom jobs. Home values rose an average of 9 percent a year, while the number of days houses sat on the market dropped to 46.
The loss of nearly 30,000 jobs in 2001 had a big impact on the housing market, Welsh said. The average appreciation dropped to 3 percent annually, and the average days on the market leapt to 84.
Jeff Thredgold, economist for Vectra Bank Colorado, agreed that this could be a turning point. It’s also an indication that Colorado’s housing market didn’t get as crazy as in Arizona, Nevada, California and Florida, where prices doubled over the past four years, he said.
“Now, they’re dealing with huge delinquencies and foreclosures,” Thredgold said.
But Bauer cautioned against comparing days on the market to appreciation rates.
“There are other factors that affect appreciation,” he said, citing in-migration, overall pay rates, mortgage rates and consumer confidence.
While such factors are indeed drivers of price appreciation, Welsh said he’s optimistic about the predictive power of days-on- market data: “A major change in the days on market seems to occur before a big change in home-price appreciation.”
Margaret Jackson: 303-954-1473 or firstname.lastname@example.org