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The Denver-area housing market will not suffer a double-dip in housing prices, the chief economist for Wells Fargo predicted today.
John E. Silvia, chief economist for the largest lender in Denver by a number of metrics, including deposits and mortgages served, also said that there is no chance that Congress will eliminate the mortgage interest deduction.
Silvia made his comments to InsideRealEstateNews and the Denver Post, following a presentation regarding the bank’s 2011 Economic Outlook in front of about 300 people attending a breakfast meeting at the Grand Hyatt Denver hotel in downtown Denver.
The most recent S&P/Case-Shiller Price Indices report showed that Denver housing market was extremely close to a double-dip, re-visiting low prices set in 2009. Before Silvia’s wide-ranging talk, one builder in attendance said he expects that the next Case-Shiller report will show a double-dip for Denver-area home prices.
Silvia doesn’t see it, although during his presentation he noted that nationally, the anemic housing market is one of the biggest forces holding back the overall economy.
Denver fares well compared to other cities
Although Silvia didn’t elaborate greatly why he thought Denver’s housing market would not suffer a double dip, during his presentation, he displayed one chart by the government’s Federal Housing Finance Administration showing only a 0.6 percent drop in Denver housing prices from the fourth quarter of 2010 from the fourth quarter of 2009.
He also presented a chart from Case-Shiller, showing that Denver home prices on average are down 12.5 percent from their peak. Only Dallas, off 9.8 percent from its peak, fared better of the 20 cities tracked in the index.
Even Washington, D.C, which has recently had the most robust housing market in the nation, was down 26.8 percent from its peak. Las Vegas was the worst of the 20 markets tracked by Case-Shiller, down 57.7 percent
“What makes Denver so odd is that people are still moving here,” Silvia said. People without jobs, particularly young people, are drawn here for other states because of the qualify of life, skiing and camping and other outdoor activities, driving up the unemployment rate beyond the national average, he said.
By contrast, people in places such as upstate New York are leaving in droves, he said
Silvia said that the Denver metropolitan statistical area is diversified to weather the beaten-up economy better than most places in the country.
Denver’s economy diversified
What is especially good about Denver is that it has a good employment representation in fields such as education and health services, and profession and business services, where there is still contrast.
Silvia’s talk addressed topics including inflation, profits, growth, interest rates and the dollar .
But he said housing, suffering from “significant structural challenges,” such as low starts, declining values and still high foreclosures, remains one of the largest single drags on the overall economy. And the notion that people held for decades that home prices, while they may drop in value for brief periods of times, always bounce back, has dealt a blow to “the American psyche,” he said.
Still, Colorado and Denver are in better shape than many housing markets, he said.
“Colorado is not even close to being one of the worst markets,” he said, while showing a chart tracking markets with “negative equity.”
1 out of 5 homes has negative equity
The chart ranked Colorado No. 14, with 19.8 percent of the houses with negative equity – that is, their houses are worth less than their mortgages.
By contrast, in Nevada, Arizona and Florida, 65.4 percent, 50.9 percent and 47.3 percent of the homes with mortgages, respectively, suffer from negative equity.Another chart Silvia displayed showed that 2.7 percent of the homes in Colorado have mortgages that are at least 90 days delinquent, which often is the first step in a foreclosure. Nationally, the rate is 3.3 percent and in Nevada is stand at 8.3 percent.
Those are the markets that are truly underwater and have “no chance” of recovering anytime in the near future, Silvia said.
No political will to eliminate mortgage interest deduction
After his presentation, in answer to a question from InsideRealEstateNews on whether he thought that Congress would eliminate the mortgage interest deduction, he didn’t hesitate in answering.
“Zero chance,” he said. Given the weakness of the housing market, there is no political will to hammer it even more, he said The National Association of Realtors, for example, projects an across-the-board reduction of home values by 15 percent, if the deduction were eliminated.
Silvia did say he thinks it is possible that Congress might consider limiting the mortgage deduction on second homes to $500,000, which he said would be of concern in Colorado because of the mountain resort market.
Contact John Rebchook at JRCHOOK@gmail.com
