Posted: February 25, 2009
If this isn’t the bottom, what is?
'Coolest seat in hell' not a bad place for Colorado to beBy Mike Cote
Editor’s note: This column was adapted from a presentation this week made to the a group of 150 real estate professionals at a quarterly briefing by the Genesis Group, a real estate market research and analysis firm based in Englewood.
We’d all like to think that we’ve seen the bottom, but I don’t think we’ve seen it yet and you don't either. For example, new home starts were down 17 percent nationwide in January.
John Laing Homes, which built my house in Erie, filed for bankruptcy protection and stopped building in metro Denver. My mortgage was with Wachovia, which is now owned by Wells Fargo. I’m thinking that buying a couple of Toyotas was a good idea. Otherwise, I could be living in a home built by a bankrupt company financed by a failed bank and driving cars by auto companies hoping for a bailout.
Wells Fargo predicts metro Denver’s unemployment rate will hit 7.2 percent this year, and home prices will drop 5.2 percent. That sounds bad, and it is, but we’re still faring better than the rest of the country. Local bankers say the biggest risk to the Denver economy is slower tourism and the continued deterioration in the residential and commercial real estate markets, Wells Fargo reports.
We’re publishing a story in March issue of ColoradoBiz about the second home market that says sales in mountain communities like Vail and Aspen have dropped one-third to one-half, but so far, prices have remained fairly steady. So that market has shown some resilience.
The 4 percent drop in home prices during the 12-month period that ended in December was the smallest decline of 20 metropolitan areas, according to the S&P/Case-Shiller Home Prices Indices (as reported in the Rocky Mountain News on Wednesday.)
“We’re fortunate in many respects to be in Colorado because we have this diverse economy that hasn’t experienced the worst of the downturn,” Gov. Bill Ritter said in a recent interview taped for ColoradoBiz TV. “And certainly the real estate market has been buffered from some of the worst parts of the downturn that they’ve experienced in other places in California, Arizona and Florida.”
Colorado foreclosure activity fell last year for the first time since the state began collecting data in 2003, according to a report released Monday by the Colorado Division of Housing. Completed foreclosure sales were down about 16 percent and filings were down 2 percent.
Sure, the per capita amount of money coming to Colorado from the stimulus package is lower than just about any other state (as the Rocky reported). But we’re getting a huge push for our new energy economy -- the kind of publicity that you can’t put a price on. We’ve seen companies like wind energy producer Vestas pump up the economies of such unlikely places as Windsor, Brighton and Pueblo. And the president of a tiny solar company from Boulder (Read about Namaste Solar) was invited to introduce the president of the United States when he came to Denver this month.
Another plus for Colorado is that the global economy of the future largely will rely on the strength of the creative class, one of Denver’s strengths. As Tom Clark of the Metro Economic Development Corp. says, when CEOs lose their jobs in Colorado, they don’t leave, they start new companies.
Richard Florida, author of “The Rise of the Creative Class” included the city of Boulder as an example of an innovation center -- the kind of city that attracts talent -- in the March cover story in the Atlantic titled “How the Crash Will Reshape America.”
We may not have hit the bottom, but we’re probably not going to fall as deeply and be hit as hard as many other parts of the country. But as you can see in one of the videos we taped with Tom Clark, it’s like having the coolest seat in hell.
We taped the video with Clark after he made a presentation at the Vectra Bank Colorado Economic Forecast in Denver, which we’re told was an instant sellout. Clark shared the stage with Patty Silverstein of Development Research Partners and Jeff Thredgold, an economist for Vectra Bank. All three (click their links to watch the videos) were able to see a glimmer of hope ahead but some tough times in the interim. But Ritter said the commercial real estate market can expect some more pain.
“There are still some credit extensions in the commercial real estate market that will see some correction,” he said. “The real estate market in Colorado hasn’t experienced the same kind of significant downturn that the markets have in other places. We were hoping that there’s a place that we find that is the bottom in this, but the real estate market in Colorado is in better shape than it is in many other places.”
As for the bottom? The market surged Tuesday after Federal Reserve Chairman Ben Bernanke told Congress that the recession might end this year. But not everyone is singing that song.
“We’ve talked to economists, stock brokers and stock analysts, and they say that it could be that 2009 is not the place where we find the bottom of this downturn and up again,” Ritter said. “It could be into 2010. So people have to hold onto their hats. We’re in for a bit of a tough ride.”
Mike Cote is the former editor of ColoradoBiz. E-mail him at email@example.com.