Larimer Square, three blocks from the Pepsi Center

While 40,000-plus convention visitors were taking in the café scene and nice weather on the Mall, the Case-Shiller Home Price Index issued by Standard & Poor’s arrived showing the Mile-High City leading the entire nation in home appreciation–up 1.5% May to June–the only major market, save for Boston, headed upward.

“The reason we’re having success is that the downward trend in inventory is already affecting prices,” Jack O’Connor, managing broker at Prestige Real Estate Group, told me. O’Connor, who authors a widely read report, is predicting price increases for 2009, particularly in the under-$300,000 range where listings are disappearing fastest.

“The Case-Shiller report is really good news,” added Buz Koelbel, president of Koelbel and Company. “It reaffirms that unlike other parts of country, we’ve maintained a rational, stable market in tough times.”

Koelbel told me that the impressions we made on all of those visitors will echo back in coming months. “Anytime you put that many eyes and ears experiencing this special place, we’re always going to win on esthetics and quality of life.”

Steve Shraiberg, whose DTC-based Urban Esprit builds along the I-25 corridor as well as in other markets, says builders are already experiencing one sign of confidence–more buyer traffic. “We’re seeing people here more optimistic,” he said. “They’re waiting for positive signs, and the attention brought by the convention has been positive.”

Shraiberg and other builders are waiting to see whether that mood translates into sales…but having a good impression out there, most feel, is a big plus. “The thing that’s great for Denver is that we get to give this gift to the country,” said Joe Blake, Denver Metro Chamber of Commerce President and CEO. “It’s about all of these people who came here for first time, and who then come back.”

Don’t expect rising prices right away, particularly in the higher ranges, Prestige’s O’Connor cautions. “It takes time for a trend to work its way through the entire range of inventory.”

Prestige, in a report released today based on Metrolist data at the end of July, shows market-wide inventory in the 7-county area standing at 26,864 units, down 119 units from June, the first time in five years that the mid-summer monthly total has fallen.

Meanwhile, home sales took an un-seasonal jump upward to 4,433 sold units, 146 more than were reported in June, and the first time in five years that the mid-summer figure showed an increase. At the height of the market in 2005, metro-wide sales at mid-summer stood at 5,290.

“These are the final two building blocks in a pattern that suggests a return to a healthier market,” O’Connor said. “We’ve seen similarly suggestive data through the earlier part of the year with respect to year-over-year inventory and rising numbers of contracts, now up 6.9% year-to-date over 2007.”

The rising sales figure, particularly poignant during a month when sales generally decline, is generally the last indicator to show a trend, whether headed into a rise or a decline, O’Connor noted. During early 2006, the exact opposite situation occurred when the market showed a record pace of closings, even as increased inventory and fewer contracts suggested that the market had actually slowed.

“At that point in time,” said O’Connor, “many people had a hard time seeing that we really were slowing down. We didn’t see the decline in sold data until it strongly impacted the market in August 2007.”

Now, says O’Connor, the opposite is likely occurring. Home inventory has fallen consistently, even into the summer months when sales typically slacken. The supply of homes (how fast the market absorbs inventory based on current rate of sales) has dropped…particularly in the lower price ranges that are often the first to recover from a downturn. Numbers of contracts are up from the same month’s figures during 2007.

O’Connor projects that if sales continue at present levels (on track for a projected 44,700 sold properties), inventory figures will drop toward 22,000 units in the first half of 2009. That level would mark the arrival of a seller’s market that would be accompanied by generally rising prices.

One qualifier should be added to the brightening picture, O’Connor noted. Homes priced above $750,000 are not keeping pace with the increases in sales at lower ranges. “We can attribute the slower upper-end market to difficulties obtaining financing and large levels of inventory. This price point will likely follow behind as lower price points see appreciation and as sellers use that equity for purchasing into the upper-end market.”

“Considering Denver has had between 1%-per-year and 2%-per-year appreciation for the last seven years, it’s inevitable that the higher level will take time to catch the pace that has been exhibited in the lower ranges,” O’Connor added.

Prestige’s president Leeann Iacino notes that other factors are pointing toward a favorable market ahead. Prestige agents are providing anecdotal reports of shorter turnarounds and of competitive bidding in some neighborhoods. National analysts are noting Denver’s relatively stable home values in comparison to sharply falling numbers posted by California, Florida, Nevada and other states that experienced booming growth over recent years; and are predicting Colorado could help lead a recovery.

Prestige agent Bonnie Wing prepares a new listing in Denver’s popular Highlands neighborhood near downtown. Key to a quick sale, Wing says, is a listing that is staged properly and given any necessary repairs.

“The continuing decrease in supply we’re seeing at the low end is exactly what you would expect from the earliest stage of a general recovery,” said Jack O’Connor, Managing Broker of Prestige Real Estate Group and author of the new report.

According to the data, the 7-county metropolitan area has 7,849 single-family homes and 4,119 condos currently active at prices $250,000 and below. Using those values in conjunction with year-to-date sales figures for homes in that price range, the report projects that the market inventory for both home types has now dropped beneath a five-month supply: 4.7 months for single family and 4.8 months for condos.

“We are getting closer to a robust sellers’ market in this price point, and our agents are reporting that in some neighborhoods we serve, we’re already arriving there,” O’Connor added.

The projections are particularly poignant with respect to the affect of foreclosures, says Prestige President Leeann Iacino. Area foreclosures, which are overwhelmingly centered in the lowest price ranges, are not significantly stalling the market’s progress in recovery.

The falling inventory in the low range has stabilized pricing there, O’Connor said. When supply dips to three months, he predicted, buyers can anticipate a resulting increase in price of 4% to 6% for that range over the following 12 months, with price increases in the $250,000-to-$500,000 range and higher ranges following sequentially.

O’Connor noted the newest Metrolist data show that over the past 12 months the Denver area experienced a 9.45% drop in inventory to 27,295 total units (inventory in June 2007 was 30,145 units). Meanwhile, homes now under contract total 8,382, a 13% increase over June 2007—the highest number of homes under contract in June in five years.

The favorable trend in contracts runs counter to the latest numbers for homes closed, down from 2007; but agents see that as a consequence of backups in the processing of new sales, resulting from personnel reductions by the mortgage industry. “The contracts you see in place now will overwhelmingly be converted to closings over the next two months,” O’Connor noted. The mortgage market itself, he added, has showed signs of loosening the restrictions on financing particularly in the lower price ranges.

Iacino adds that the new market picture contains important messages for buyers and sellers. “What we’re seeing is a market that has less and less to do with the foreclosure dominated market we read about in other parts of the nation,” she said. Current estimates of the foreclosure rate in Colorado show the state having fallen to the nation’s 9th highest; however, discrepancies in comparing actual foreclosures between different states suggest that Colorado may have dropped far below that.

“If you’re selling or buying a house priced $250,000 or lower, you’re probably looking at an exceptional opportunity this summer,” Iacino added. “If you’re anticipating moving from a lower to a higher price range, you’ll be gaining even more potential to benefit as the recovery takes shape.”

Some 300 Prestige Real Estate Group agents serve the Denver area from offices in the I-25/Tech Center corridor, Highlands Ranch, Cherry Creek, Castle Pines North, and Conifer/Evergreen. For a copy of the newly released data, contact Leeann Iacino at (303) 874-1316.

-END-