In the June 2018 CoreLogic report “The MarketPulse”, they look at home values and try to identify areas that may be overheating.
“The CoreLogic Market Conditions Indicator is an early warning signal for bubbly markets,” says Dr. Frank Nothaft Executive, Chief Economist, Office of
the Chief Economist. “It should be used in concert with other metrics, such as a comparison of prices with local rents, to determine if values
have become untethered to market fundamentals. And while it shows that the U.S. is not in a valuation bubble yet, there are many urban areas where
prices appear to have become delinked to their long-term relationship with income.”
Here is what he says about the Denver-Metro area:
“When viewed by location, most of today’s frothy metros are along the seacoast or in the western mountain states. To illustrate, the CoreLogic Home
Price Index for the Denver metro area was about 30 percent above the pre-Great Recession peak, even after netting out inflation. In contrast, real
per capita income in Denver has grown by less than that pace since 2006.”
In the report the average equity gain for homeowners in Colorado from Q1 2017 to Q1 2018 was more than $20,000. The Home Price Index shows a year-over-year
appreciation of 8.7%.
Colorado is also tied for the fourth spot (with Massachusetts), as the state with the most high-cost counties.
However, even with the costs of housing increasing, delinquency rates have fallen year-over-year. March 2017, 30-days or more delinquency rate in the Denver-Lakewood-Aurora
areas was at 1.9% and serious delinquency was at 0.6%. In March 2018, the rate was 1.6% and 0.5% respectively.
Overall, The MarketPulse Report for June of 2018 shows the Denver-Metro area is overvalued, but they also show expected appreciation at 6.2%.
Here is how Dr. Nothaft puts it in his report:
“The CoreLogic Market Conditions Indicator provides a gauge to identify urban areas that may be overheating. The Indicator is based on straightforward
intuition: home prices should generally rise in line with income growth of local residents. If prices grow too fast, then homes are less affordable
and price growth should slow while incomes catch up.
“We found that 32 percent of MSAs in the U.S. were potentially ‘overvalued’ by our metric in March. The last time that one-third of metro areas were
overvalued in a rising price environment was Spring 2003. While many metros were frothy 15 years ago, the valuation bubble was still localized and
not national; however, rapid price growth during the following three years led to 67 percent of markets overvalued by 2006. Thus, while we do not have
a national valuation bubble today, continued rapid price growth raises the specter of a new bubble forming within the next few years.”