For homeowners in Denver, tepid housing boom turns colder

Appreciation slows to 3 percent from annual rate of 17 percent


PARKER, Colo. - Tom Woods, a 37-year-old defense industry consultant, wanted to build a nest egg for one of his young sons' college tuition. Inspired by rising prices for homes in this Denver suburb, three years ago he invested in a new three-bedroom townhouse for $155,000. His hopes were that renters would cover most of his mortgage and that the property would appreciate by at least $10,000 a year.

But last October, when Woods put the townhouse up for sale to help pay some unforeseen medical bills, there was more pain than gain: The house sat on the market for eight months. He found a buyer in June, but to seal the deal he had to make big concessions, including paying the buyer's closing costs. After handing over the keys on Friday, he ended up with a $10,000 profit for his three-year investment.

Even as prices for homes in frothy markets like Las Vegas; Riverside, Calif.; Miami; and Washington are still jumping by more than 20 percent a year, Denver's homeowners are learning the hard way about living through the real estate doldrums. Five years ago, median house prices were rising at an annual clip of nearly 17 percent. By the first quarter of 2005, the increase had slipped to 3 percent, according to an analysis by, a research firm.

Still, some Denver homeowners have read reports in the news media of skyrocketing prices elsewhere and assume that they are accumulating wealth in their homes at the same rapid pace.

"I was surprised," Woods said. "My expectations were higher."

Although sellers continue to profit, houses are sitting on the market longer, buyers are negotiating harder, and some owners, particularly young buyers who may have been counting on rapid appreciation, are postponing dreams of renovations, moves to larger homes and big savings for their families.

Warning for others

With economists warning that prices in hot markets cannot continue to rise as sharply as they have in the past few years, the experience of Denver's homeowners may foreshadow what could happen if those markets start to cool. Denver's circumstances are in some ways particular to the area, driven largely by job losses in the telecommunications sector, but they illustrate how a moderate slowdown could play out for homeowners in other parts of the country and stand as a potent reminder that galloping price appreciation is not the norm.

Economists are divided as to whether certain markets will simply cool off, or whether they will actually melt and send prices plummeting, as happened in parts of California, New England and New York in the 1980s and early 1990s.

Optimists point to Denver as a model of an adjusting real estate market. "I think it's a good example of when a market softens, what happens," said David Lereah, the chief economist of the National Association of Realtors, a trade association. "You see double-digit price appreciation go down to 4 percent or even 1 percent, and then it starts coming back to a historical norm of between 4 and 6 percent. That's very healthy. That's wonderful. It beats inflation."

But many analysts take a gloomier perspective, suggesting that the most heated markets could suffer more than Denver's so-called soft landing, with prices that actually fall. "I think Denver is a best-case scenario," said John H. Vogel Jr., adjunct professor of real estate at the Tuck School of Business at Dartmouth College. In the case of markets like Naples, Fla.; Miami; Chicago; and New York, he said, "I think you'll see dramatic price decreases because I think the prices have become artificially inflated by trading and speculation."

Denver's housing boom never quite reached the heights of Las Vegas', for example, where home prices increased by nearly 33 percent in the first quarter of this year, according to But from 1998 through the third quarter of 2001, homeowners in sprawling Denver enjoyed double-digit appreciation as telecom employers like Qwest Communications International and Level 3 Communications added jobs - and homebuyers - to the market.

Six percent of jobs are lost

From December 2000 to September 2003, however, Denver lost about 74,000 jobs, about 6 percent of its job base, according to Increases in home prices stalled, then started to taper off. Houses lingered on the market, and sellers were forced to cut prices.

Touring a development last week in Castle Rock, a southeastern suburb, Tom Santilli, an agent with Re/Max Alliance, pointed out a four-bedroom house that he had been unable to sell for five months, despite its impeccable condition. The price had been lowered to $396,500 from $419,000, but because of a few flaws - a smallish family room, and white kitchen cabinets instead of wood and glass - the sellers had "not even had a low-ball offer" after showing it to 65 people, Santilli said.

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