Lo­ca­tion Inc. sees 9.9 per­cent de­cline in home prices over next five years

The Denver Post - - FRONT PAGE - By Aldo Svaldi

Signs that the hous­ing mar­kets along the north­ern Front Range are cool­ing may leave some buy­ers fear­ful of buy­ing at the top and get­ting stuck with price de­clines.

Pre­dic­tions are hard to come by, but Lo­ca­tion Inc. of­fers some ad­vice for the next five years based on its Scout Vi­sion com­puter model: Stay away from Boul­der, ex­pect to take a hit on prices of around 10 per­cent in Fort Collins and metro Den­ver, and if ap­pre­ci­a­tion mat­ters, buy in Gree­ley.

“We still pre­dict that the mar­ket will go down, more in some mar­kets than in oth­ers,” said An­drew Schiller, CEO of the Con­necti­cut­based an­a­lyt­ics firm.

In April 2017, Lo­ca­tion Inc. cre­ated a stir by warn­ing that homes prices along the Front Range were go­ing to peak in the fourth quar­ter of 2019 and de­cline 15.6 per­cent over a five­year win­dow. Given how ro­bustly home prices were ris­ing at the time, that fore­cast was met with skep­ti­cism, to put it mildly.

A stronger­than­ex­pected econ­omy has caused the model, which is ad­justed quar­terly, to push out and tem­per its fore­cast, Schiller said.

Lo­ca­tion is now call­ing for a 9.9 per­cent de­cline in north­ern Front Range home prices over the next five years, with the price peak re­gion­ally com­ing in the sec­ond quar­ter of 2021.

The model looks at dozens of vari­ables, but one of the most im­por­tant is af­ford­abil­ity — to what de­gree can in­comes sup­port home val­ues. Along the Front Range, homes prices have never been more mis­aligned with in­comes, Schiller said.

So far, mi­gra­tion has de­layed the day of reck­on­ing, Schiller said. Peo­ple have moved here from more ex­pen­sive mar­kets, help­ing push up prices. But that will taper off, es­pe­cially as the econ­omy con­tracts.

“You need enough earned in­come in a mar­ket to sup­port the costs of houses,” Schiller said. “You can’t al­ways sup­port it from peo­ple car­ry­ing a black bag of money from other places.”

The Scout Vi­sion al­go­rithm is call­ing for homes prices across metro Den­ver to fall an av­er­age of 10.5 per­cent over the next five years. It pre­dicts the peak will come in the first quar­ter of 2021, not the fourth quar­ter of 2019 as fore­cast in early 2017, and that prices will dip be­low cur­rent lev­els in the sec­ond quar­ter of 2022.

Fort Collins and Larimer County will see a sim­i­lar de­cline, 10.1 per­cent, but it will start later, in the third quar­ter of 2021. On av­er­age, some­one who buys to­day will drop be­low the pur­chase price around the fall of 2022.

Boul­der and Boul­der County face an im­mi­nent read­just­ment, ac­cord­ing to the model, which ex­pects a peak in prices in the fourth quar­ter and an 18.9 per­cent price de­cline over the next five years.

“The va­cancy rate has been climb­ing while the hous­ing added con­tin­ues to climb,” Schiller said. “The pop­u­la­tion is grow­ing, but things are sit­ting va­cant.”

The best bet for buy­ers look­ing to get in and still hold a gain come 2022 is to buy in Gree­ley and Weld County. Prices there are ex­pected to be up 4 per­cent five years from now, and not peak un­til the third quar­ter of 2021.

Schiller cau­tions the fore­casts are a mov­ing tar­get and that price fluc­tu­a­tions will vary from neigh­bor­hood to neigh­bor­hood.

Tru­lia, in a sep­a­rate study, es­ti­mates 14.3 per­cent of metro Den­ver sell­ers have had to re­duce their list­ing price in the 12 months through Au­gust, but in Ar­vada’s Wood­land Val­ley neigh­bor­hood, close to a third had to back off, an early warn­ing sign of fu­ture price de­clines.

A lot can hap­pen in five years, not to men­tion five days. The model hasn’t cal­cu­lated what last week’s spike in in­ter­est rates will do for af­ford­abil­ity. The pas­sage of larger drilling set­backs in Novem­ber could blow up the pre­dic­tions of a more re­silient hous­ing mar­ket in Weld County. And Boul­der County has re­peat­edly de­fied pre­dic­tions that its hous­ing mar­ket would fall.

Count Nick Bai­ley, pres­i­dent and CEO of Cen­tury 21, among those who dis­pute pre­dic­tions of price de­clines. Metro Den­ver has a ro­bust econ­omy. Job gains, wage hikes and pop­u­la­tion growth re­main well ahead of other ar­eas.

Den­ver also has an aboveav­er­age share of mil­len­ni­als, and af­ter a long de­lay, they are start­ing to buy homes in larger num­bers. Bai­ley thinks they will pro­vide a strong sup­port to the mar­ket in the months and years ahead.

“We have such a short sup­ply in the me­dian and af­ford­able price ranges, there is pent­up de­mand there,” said Bai­ley, who lives in Parker. “Buy­ers need a chance, es­pe­cially in the me­dian price range, es­pe­cially in Den­ver.”

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