June 7, 2007 12:21 PM

John Rebchook on Denver's real estate market

Mark_Wolf(Q) Welcome John Rebchook, Rocky Mountain News real estate editor. Lawrence Yun, the chief economist for the National Association of Realtors, says metro Denver housing prices could rise by as much as 10 percent by the end of 2008. What makes him so optimistic about the area?
John_Rebchook(A) Every market goes through cycles. Denver's market has been in a flat to down cycle for about five years. During most of that time, many other parts of the country were booming. Denver never became as over-heated as markets that are now cooling rapidly. We're also starting to see modest job growth and inmigration.

NW(Q) Hi John, as far as existing homes go (in the suburbs) , how long do you think it will take before values start going up instead of remaining flat like they are now? I have heard that the end of 2008 to the beginning of 2009 is when we'll see it. What do you think?
John_Rebchook(A) I think that's a pretty good bet. I think the best thing that is happening in the suburbs is that home builders aren't constructing as many homes as they had been doing.

Mark_Wolf(Q) At the end of May thre were a little more than 29,000 unsold homes on the market in metro Denver, down 4.6 percent from last year. Seems like a good sign.
John_Rebchook(A) Yes it does. The supply probably will go up each month through August for seasonal reasons. But it will be interesting to see how we compare with last year.

Mark_Wolf(Q) What does the National Association of Realtors say about the national market?
John_Rebchook(A) The NAR is looking for a downturn, overall. That is not surprising, considering how speculation has been driving up prices in places such as Las Vegas and Phoenix in the last few years. It seems like everyone had been forecasting a reversal. The question always had been when, not if. This was a prime example of the "greater fool" theory.

Mark_Wolf(Q) OK, explain the "greater fool" theory.
John_Rebchook(A) There's always a greater fool waiting to buy something, so the price you pay doesn't matter. It's happened with everything from real estate to gold to tulips.

Mark_Wolf(Q) We're read about the high rate of foreclosures. How do they affect the numbers?
John_Rebchook(A) I think foreclosures are having a huge impact on the numbers. That is going to slow our recovery, but it also is going to make some people a lot of money. The people who really made a lot of money in real estate during the last downturn, were those who bought up foreclosed homes. Unforuntately, from the perspective of investors, foreclosed homes haven't dropped as much as they did in the late 1980s. But from what I'm hearing, since the beginning of the year, lenders are more anxious to get these homes off their books than they were last year.

NW(Q) The foreclosure numbers don't seem to be getting any better and rising interest rates (see 10 yr note today) don't help. To me, this spells future disaster for existing home sales.. Will the lack of new building and increased demand be enough to overcome this?
John_Rebchook(A) Not overcome it, but help to mitigate the impacts. Interest rates have been rising. No one likes to pay more, but they are still low by historical factors. Certainly, though, every bump in rates knocks a certain number of people out of the market, so it can't be considered a good thing. But I think job growth is the most important factor. I think if we have more jobs, especially well-paying, that trumps the impact of higher rates and foreclosures. And I think that lenders are going to become more aggressive in unloading their REOs, which will make them more attractive to investors. Also, I think Denver, for example, is going to start buying foreclosed homes in places such as Montbello and sell them with deed restrictions.

Mark_Wolf(Q) Sales of expensive homes were up 18.4 percent in May and 90 homes priced at $1 million or more were sold. What does that indicate for the market?
John_Rebchook(A) I think it indicates several things. One, it shows that people with money have confidence in the economy. Two, I think they might be finding some baragains out there for homes in the stratosphere. I heard of one house in the Temple Buell community in Cherry Hills that was on the market for $2.95 million and I think sold for $1.8 million.
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Mark_Wolf(Q) You get your bid in for that $13.9 million condo for sale across from Denver Country Club?
John_Rebchook(A) Yes, I'm offering cash.

Mark_Wolf(Q) What effect does the meltdown of the subprime mortgage market have on the housing market?
John_Rebchook(A) I think it is going to knock some lower-end buyers out of the market. Short-term, that is bad. A healthy market has lot of people buying entry level homes. But I think it will mean fewer future foreclosures, which is good.

Mark_Wolf(Q) How does the brokerage community feel about the new law to license mortgage brokers?
John_Rebchook(A) It's mixed, but I think the long-term opponents knew that it was going to happen, so they put threw their support behind it. Opponents worried that it was anti-small businesses, and will drive up costs that will be passed to consumers. And they say states with strong licensing laws still have bad actors in the business. Proponents argue that every state requires you to get a driver's license, but there are still traffic accidents. And if you license a beautician, shouldn't you be licensing people involved with the biggest purchase most people will be making.

Mark_Wolf(Q) The vacancy rate for rental condos, single-family homes and other small properties in metro Denver fell to a five-year low in the first quarter. How does that affect the real estate market?
John_Rebchook(A) It's good news if you are a landlord. Ultimately, it will mean you can raise rents. It's interesting that rental rates haven't gone up very much, and in inflation-adjusted dollars are far below their peaks. Right now, I think the spread between owning a home and renting is pretty big, with apartments being the better short-term deal. But as rental rates go up, more people will look at buying instead of renting. People disagree whether it is happening yet, but eventually the apartment market will be helped by people who lose their homes in foreclosures.
Mark_Wolf(P) Thanks to John Rebchook for his time and insight into the Denver real estate market.