Friday, August 28, 2015

A Quick Look at Median Household Income Up to 2013

The Census Bureau won't release 2014's median household income for another month or so, but we can have a look at trends up through 2014, for now. These numbers are not adjusted for inflation.

For 2013, the median household income in Colorado was $63,371. In the US for the same period, it was $51,939.

As we can see in the first graph, the Colorado median income level has been above the US level since 1990.

We can also see that over time, this gap has been growing. The second graph shows the gap between the Colorado median income and the US median income: 

The gap was negative from 1986 to 1989 when Colorado's median income was lower than the US. But since then, the gap has generally grown, and reached $10,000 for the first time in 2007. In fact, 2013's gap was the largest ever recorded with Colorado's median income coming in at 11,432 above the US level. 

The final graph shows percentage change in median income for each area. Colorado's YOY changes are much more volatile, as would be expected from an area so much smaller than the US overall. The sheer size of the US and its economy prevent large swings. However, there is a slight downward drift in the US median income increases over time. In other words, US median income seems to be going up by a smaller amount over time. In Colorado, what was a downward drift during the 1990s, appears to have stabilized somewhat since 2003. The YOY change in Colorado from 2012 to 2013 (10.6 percent) was the second largest ever recorded, second only to 1990's growth rate of 14.6 percent. The US rate of change for 2013 was 1.8 percent.


 

COTD: Metro Denver Home Prices Head Up in FHFA Index

The Federal Housing and Finance Agency has released it Expanded-Data home prince index data through the second quarter of 2015. The latest data shows the largest year-over-year increase in Colorado home prices since 2001.  The first graph shows the YOY change for both Colorado and the US. note that home price growth in larger in Colorado than is the case nationwide. 


In Colorado, the YOY home price growth, according to this index, was 11.2 percent from the second Q of 2014 to the same period of 2015. That's up from 9.9 percent for the 1st Q of 2015. YOY changes in the index for Colorado has generally been above 9 percent since the 4th Q of 2012.   

For the US overall, the YOY change for the 2nd Q of 2015 was 6.2 percent, which was up from 6.1 percent measured during the 1st Q of 2015. 

The second graph shows the index values themselves since 2001. We see that both the US and Colorado have generally followed the same growth pattern over the past 15 years, but since 2012, Colorado has increasingly been outpacing the US. 

With a relatively small amount of new home construction, coupled with a continuing inflow of new residents, it is no surprise that home prices have begun to outpace the nation since the nation overall is not sustaining the type of population growth has experienced in recent years.



Monday, August 10, 2015

Worker Participation Rate Falls to 37-Year Low in July

The conservative media (specifically Breitbart and CNS) are reporting that labor participation rates are at a 38 year low:
A record 93,770,000 Americans were not in the American labor force last month, and the labor force participation rate remained at 62.6 percent, exactly where it was in June -- a 38-year low, the Labor Department reported on Friday. 
In 1975, when the Bureau of Labor Statistics began keeping such records, 58,627,000 Americans were not in the labor force...
Rather than just take their word for it, let's look at the trend over time. Here’s what that looks like in a graph (BLS data):



So, yes, the trend is rather unmistakably upward.

The number of people not in the labor force is calculated by comparing  the number of people working to the total population over the age of 16.

I prefer to use numbers that aren’t seasonally adjusted, so in the NSA numbers, the total number of people not in the labor force in July 2015 was 92,349,000 (slightly different from the CNS number).
So, as the population has increased, the number of people who are working has gotten smaller. Taken as a percentage, it looks like this:



As of July 2015, the labor force participation rate was 63.2 percent. Again, these are not seasonally adjusted. But, just a quick look at the graph tells us that we have to go back to the late 1970s to find similar labor force participation rates.

Obviously, there are seasonal cycles in employment, so for the sake of making sound comparisons, we should only compare July’s numbers to previous July numbers, though, so if we look back at the same month in previous years, we find that we have to go back to July 1977 to find a comparable rate. Specifically, in July 1977, the labor participation rate was 63.4 percent.

So the CNS article is more or less correct. Labor participation is at a 37 or 38 year low, depending on how you look at it.

But what does this mean for the economy? Part of the decline in the labor is simply attributable to the increased number of retirees in the economy. The Chicago Fed claims that “just under half”of the decline in the work force since 1999 can be attributable to demographic trends such as retiring baby boomers. Fair enough. But what about the rest?

That’s where discouraged workers come in, who have given up looking for work. The ranks of discouraged workers should also include people who retired earlier than they would have had they been able to hold onto their jobs after 2009. Other phenomena driving an exodus from the work force will be people going back to school in an attempt to get a better job, and also people who used to be wage earners in a two-income household, but now have concluded that wages are no longer high enough to justify the opportunity cost of working. These people may have quit work to offset costs such as child care, which is only worth it if your wages come in well above the cost of daycare.
When we consider all of this, there’s good reason to suspect that the job market really is quite lackluster. If wage growth were performing well, people would be enticed back into the labor force, and the participation rate would rise.

Now, one could make the argument that fewer people need to work because, perhaps, wages are going up. After all, if worker productivity (and thus wages) are going up, then households will not need as many wage earners to maintain an acceptable (to them) standard of living. Theoretically, if the economy were really humming along due to increases in worker productivity, we would also see people leaving the workforce.

But that’s unlikely in the current economy, because if we look at real hourly compensation (which reflects productivity), we don’t see much reason to believe that productivity and wages are going up:



Real compensation has really gone nowhere since 2006, so there’s little reason to believe that people are leaving wage work behind because they don’t need it anymore. (This is portrayed as an index with base year of 2009, so if all recent values are around 100, then we know that there's been little movement.) If we look at the percent change, year over year, we see that real wage growth is about where it was during the early 1980s, which is certainly nothing to get excited about. The overall trend seems to point toward more of a clustering around a zero-percent rate of growth in compensation during the past decade:



The falling labor participation rate is often mentioned with the assumption that declining labor participation proves that the economy is withering. This is not necessarily true, given that automation can increase worker productivity and thus reduce the need to work as much to achieve what the workers deems to be an acceptable standard of living. Indeed, many urban workers today work fewer hours than urban workers 80 or 90 years ago, and have a much higher standard of living. Also, increases in the labor force during the 70s were partially driven by women entering the labor force in large numbers.

But, looking at the past thirty years and at current wage data, we can guess that people are leaving the work force now, not because they are so satisfied with their standard of living, but because they are discouraged workers, have retired earlier than they might have, have gone back to school, or have just resigned themselves and their household to a lower standard of living. The falling number of workers belies that continued claim in the media and by government press releases that things are getting better and better, and that with just a little more patience, happy days will be here again.
Moreover, with a declining work force and flat wages, who's going to finance all those Social Security and Medicare payments that are paid out relentlessly to an increasing retiree population, but financed by a shrinking workforce?


Mini Book Review: Bourgeois Frontier by Jay Gitlin

Several years ago, I wrote a short article called "Speak English, or Else" (also "Back When America Was Multilingual") which examined the true complexity and variety of linguistic traditions in the United States. The idea that English was, until recently, the so-called "dominant" language in the United States, greatly oversimplifies matters. As an example (among others), I looked at Colorado's original state constitution from 1876 which stipulated that the constitution (and all new laws) be distributed in English, Spanish, and German "to supply that portion of the inhabitants of the State who speak those languages and who may be unable to read and understand the English language."

Then as now, Spanish speakers were common in Southern Colorado, and German speakers were common, especially in the northeastern part of the state. 

And while French was never spoken outside a small minority in Colorado, the Francophone world was also important in Colorado, especially in the world of trade and commerce.  

This forgotten world of Francophone traders, property owners, and settlers is examined in some detail in Jay Gitlin's new book Bourgeois Frontier: French Towns, French Traders, and American Expansion

Most readers unfamiliar with this period in history will assume that Gitlin is writing primarily  on the period before the so-called "French and Indian War" which ended in 1763. And of course, that is a reasonable assumption since we have long been taught that the French ceased to be important on the American frontier after the 1760s. 

But the groundbreaking work that Gitlin is doing here helps to open up new knowledge of how French families and a Francophone culture continued to serve many important roles on the frontier well into the 1830s and 1840s. 

The French in the Trans-Mississippi West

Richard White and others have done some new work on examining the role of the French settlers in the Great Lakes area, but Gitlin's work is the first I've ever seen that takes a detailed look at the French on the Great Plains and the Southwest after the Louisiana Purchase in 1803. 

Much of the misunderstanding about the French role in the region stems from the long-standing Anglo chauvinism that portrayed Anglo settlement as the only settlement that mattered, while downplaying the contributions of Hispanophone and Francophone settlers to the region. And of course, Indians are generally ignored as well. The arrival of the Anglos, we've long been told, was a sort of  "end of history" situation in which all other groups merely paved the way for the final and "correct" stage of settlement, which was the Anglo and Protestant phase. Much of this narrative is handed down from Frederick Jackson Turner's vision of the Frontier, and much of it was formed along the lines of old anti-Catholic narratives which assumed the Spaniards and Frenchmen, being Catholics, must have been lazy, passive, and authoritarian. The explicit anti-Catholicism has long disappeared, but the general image of the non-Anglo settlers remains. 

The truth, of course, is something else entirely. The French settlers, Gitlin tells us, had already put a commercial infrastructure in place long before the Anglos had arrived. It was the towns, forts, villages, supply lines, and commercial trading patters of the trans-Mississippi West that opened up the region for later settlers and which set settlement patters for generations to come. 

Moreover, the French had much more complex, friendly, and fruitful relationships with the Indians than the Anglos did, and these relationships were key in putting together treaties, and negotiating commercial relationships with the Indian tribes. 

In these relationships, Gitlin reminds us, the French employed a different settlement pattern than the Anglos. While the Anglos represented wholesale conquest of lands and a state of apartheid with the Indians, the French frequently intermarried with Indians, producing many  mixed families, in which extended French families and Indian tribes were both commercially and culturally intertwined. Unlike the Anglos, who relied on expropriating large amounts of agricultural lands, the French functioned more on an urban merchant model, relying much more on moving goods through towns and trading posts, than on producing agricultural goods themselves. 

Thus, the old French families became urban institutions that relied on trade, negotiation, and private property, rather than on the Anglo model of large-scale seizure of Indian lands, military domination, and total replacement of the existing frontier culture. 

(In this, some readers might be tempted to think of the "Ostseidlung" settlement in Eastern Europe, in which the Germans moved into Eastern Europe. The Germans also employed a non-Anglo model based largely on life in urban centers and management of trade lines, rather than expropriating the local inhabitants and taking their lands.) 

For their divergence from the quasi-religious Anglo model of creating a new and ethnically pure promised land on the frontier, the French were denounced as collaborators with the Indians, as traitors, and as (even worse) as retrograde Papists who needed to be purged. 

In spite of all of this, however, Gitlin reminds us, the French settlers tended to be economically, successful, politically influential, and excellent and making the best of the new political and economic realities of the frontier.

The French in the Rocky Mountain West 

Those (like myself) with a particular interest in Colorado history will be especially drawn to chapter five, "Beyond Saint Louis" which examines the role of the French along the Santa Fe Trail which was a major trade route sunning through southeastern Colorado, and which was partially dominated by Bent's Fort on the Arkansas River east of what is now Pueblo, Colorado. 

The Bent family is well known for its close connections to local Hispanophone and Indian settlements. Gitlin, however, adds in a new French dimension, noting the close alliance between French patriarch Ceran St. Vrain and Charles Bent. Both the St. Vrain and Bent families worked together managing trade from New Mexico and Colorado and back to Saint Louis which was the center of Francophone world in the American west. 

Other French families, such as the Robidoux family, were active even deeper into the Colorado frontier, being instrumental in the founding of Fort Uncompahgre on the Gunnison River, and also with trade lines running from fort Laramie in Wyoming and south to Santa Fe and Taos. 

Culturally, this world of Spanish, French, and Anglo merchants was complex and multifaceted with frequent intermarriage between the French families, Spanish families, Anglos families, and Indian tribes. William Bent, for example, is known for his marriage to the Cheyenne Princess Owl Woman, and Kit Carson's first two wives were Indians. He later converted to Catholicism and married Josefa Jaramillo who was the sister of Maria Jaramillo, the common-law wife of Charles Bent. 

Members of the Bent and Jaramillo families were famously murdered in an uprising in New Mexico exacerbated by the American war against Mexico in the 1840s, but connected to all of this was the Beaubien family which was an important and influential family in New Mexico under both the Mexican and American regimes. The French families, Gitlin frequently reminds the reader, were marked by family loyalty and economic ties and not by loyalty to any particular nation state. The ability of the French networks to move seamlessly between Spanish, French, British, and American spheres was a notable reason for their economic success in a time of frequent political change. 

Gitlin explores this multicultural world with an eye to the economic and political infrastructure it formed well before large numbers of Anglos ever began homesteading wheat farms on the high plains in the late 19th century. Private property, negotiation, family connections, and civil society, Gitlin contends, were far more central to the Francophone world than to the Anglophone world which was marked more by military conquest and state-imposed settlement patterns and economic patterns. 

Bourgeois Frontier is a short book (only 190 pages, not including notes and bibliography), and it is easy reading for readers who are already familiar with the basic historical outline of frontier history. Novices in frontier history may find the historical narrative more difficult to follow, but anyone interested in understanding the history of the American frontier beyond the usual tropes and simplifications will find much to enjoy here. 

Sunday, June 21, 2015

Releases of Deeds of Trust in Colorado Go Nowhere for Nine Months


Releases of deeds of trust during the first quarter of 2015 were up in Colorado compared to the first quarter of 2014, although release activity has been flat since the middle of 2014.

During the first quarter of 2014, there were 64,632 releases of deeds of trust in 21 Colorado counties surveyed. During the same period of 2014, there were 50,128 releases, for a year-over-year increase of 28.9 percent.

A release of a deed of trust is an event that occurs when a deed of trust (often referred to as  a mortgage) is paid off, either through refinance, sale, or when all payments have been completed on a home loan. It is a "positive" economic indicator in sense that areas with improving economies tend to generally also report increases in releases of deeds of trust. Mortgage rates tend to be a major factor in release of deeds of trust activity since release trends tend to reflect refinance and home purchase activity.

Compared with the last quarter of last year, release activity declines slightly from 65,842 to 64,632 — a decline of 1.8 percent.

As the first graph shows, however, total release activity has changed very little of the past three quarters:


The chart shows the totals for each county surveyed, with a year-over-year comparison. We see that only Alamosa County reported a decline in release activity. So, overall, we can say that real estate transaction activity has been generally increasing across the state, with the possible exception of the San Luis valley. All other regions show increases, however.


So, how does the first quarter compare? If we compare the first quarter of this year to other first quarters, we see that 2015's first quarter is about in the middle. Totals were down considerable from 2013's very high numbers, but up compared to 2009, 2010, and 2014:


Over the past three quarter, though, activity has changed little. Only Eagle County has shown a large swing in recent quarters with the rest of the counties surveyed reporting very muted changed, none of which exceed 10 percent movement in either direction:


Why so little change? What's surprising is how little release activity has moved in recent quarters in spite of new declines in the mortgage rate. Historically, release activity increases when mortgage rates fall. However, in recent quarters, we see that the 30-year conventional mortgage rate is falling with very little reaction in terms of releases. This suggests a couple of things: It tells us that loose monetary policy is having a diminished effect on real estate activity, and it also suggests that inventory is very low. Moreover, it also suggests that those who have been eligible for refinance in recent years have already done their refinancing. In other words, the households who are likely to buy new homes or refinance have already largely done so. The sorts of release activity we'd expect from a mortgage rate below four percent haven't been showing up. 
Finally, let's compare all the counties surveyed taking population size into account. If we look at the total number of households per release, we find that Summit county has the most release activity while Alamosa had the least (a lower number in the right column indicates less activity.) As is often the case, we find that mountain areas and more high-income areas show the most activity while lower-income and areas with less fashionable real estate shows less release activity. This isn't a rock-solid rule, but in general, it is often the case: 

Overall, release activity is moderate, as might be expected in relatively high-demand real estate markets as are found across much of Colorado. However, if we look at longer historical trends, we find that activity is down considerable from the days of the 2003-2007 housing bubble in spite of rock-bottom mortgage rates (2015 is 1st Q only): 





Saturday, June 20, 2015

Monthly Foreclosure Data for Metro Counties in Colorado: Foreclosure Filings Down


From the March 2015 monthly foreclosure update: 

During March 2015, both foreclosure filings and foreclosure sales were down, year over year, and both remained near all-time lows. 
March 2015 foreclosure filings were down 31.4 percent from March 2014, dropping from 981 to 673, year over year. 
March 2015 foreclosure sales (completed foreclosures) were down compared to March 2014 with a decrease of 32.9 percent, dropping from 404 to 271, year over year.
Filings rose 50.2 percent from February 2015 to March 2015, and auction sales were up 7.1 percent over the same period.  
For the first three months of 2015 as a whole, foreclosure filings were down 47.2 percent, compared to the same period of last year. Filings fell from 2,852 for the first three months of 2014 to 1,505 during the same period of 2015. Foreclosure sales were also down during the same period: sales fell 38.0 percent from 1,390 to 862. 
Pueblo County reported the highest foreclosure rate during December, while Broomfield County reported the lowest rate. (See Table 7.) 

See full report: 

Tuesday, May 19, 2015

Colorado and "Greater Texas"

Back in 1992, Carl Abbott published a nice little book called The Metropolitan Frontier: Cities in the Modern American West. It covers the development of cities in the American west since the 1940s. One of the interesting concepts Abbott discusses (on page 160) is "greater Texas."

It's always been true that the United States has been a collection of economic regions rather than a single economy. If Colorado's economy were cut off from Mexico and Canada, it would probably suffer more than if it were cut off from New England. This is because the transportation lines and metropolitan economic system on which we rely point more west and south than they do north and east. Moreover, there is an economic affinity between metros in Colorado and the financial and oil-economy centers of Texas.

In the map below -from Abbott's book- we find this metropolitan network which works it's way up from Houston, through Dallas-Ft Worth, and up to Denver. We encounter this every time we deal with a real estate developer or oil company from Texas. According to Abbot (and according to Nash and Etulain also) this is a well-developed economic habit. 


Friday, May 15, 2015

Was the 2009 jobs bust worse than the 1980s bust in Colorado?

Many people are familiar with this graph from Calculated Risk:


Basically, it shows the number of months it took the job market to return to its previous peak.

I couldn't find a similar one for Colorado, so I created a couple myself. See below.

The first graph uses the Household Survey which measures employment by asking a sample of people if they want to be employed and if they are employed. So, this is a measure of the number of employed persons. I've simply indexed total employed persons as measured from peak to peak. Also, we only have data going back to 1976, so there are fewer recessions to measure here:

We can see that by this measure, the 1991 and 2001 recessions were over quickly, in terms of jobs. In fact, one could argue that the 1991 job losses were cyclical and show no recession at all.

On the other hand, the 1984 to 1988 job losses were very bad, and we find there a full 60 months needed for recovery. That's five years of lost jobs. Everyone who knows Colorado economics history knows the second half of the 80s were not good economically, so this probably won't come as a big surprise. Foreclosures were rampant, and the state actually had zero net population growth in 1990, as a result.

Interestingly, job losses that followed the 2008 financial crises were similar, and also took 60 months to recover. But, given that some of the troughs reached during the 1980s bust were deeper than the most jobs recession, one could argue that the 1980s were worse.

There are two measures of unemployment, however. The Establishment Survey shows different results since it measures the number of payroll jobs at larger employers, and not the number of persons employed.

In this case, the 1991 recession was so tiny as to not even be worth plotting on the graph. With payroll jobs, the 1980s bust was over (in terms of payroll jobs) in three years, instead of five. In this case, the 2001 recession was much worse than in the Household survey, and it took about 55 months for jobs to return to peak levels. The 2008-2013 jobs recession was the worst in this measure, and it took 58 months for jobs to return to peak in that case.

Why such a big difference in the 2001 recession? The data here tells us that the number of people employed returned quickly to peak levels and payroll employment struggled. This suggests that people during that period were employed somewhere, but not at major employers, and they were likely taking pay cuts and working fewer hours (i.e., they became part-time workers). But they were employed.

In the 1980s, we see the opposite, where payroll employment recovered faster than in the Household survey. In this case, we might guess that some people were taking on extra work at multiple employers (thus driving up total payroll employment) while many other people were still unable to find employment at all.

In both cases, however, the jobs situation after 2008 was pretty grim, with both payroll employment and persons employed taking at least 58 months to recover.

To answer the question in the title of this article, we could look at many other things, such as the total number of persons who were unemployed, versus the depth of wage cuts, and the other variables. Naturally, the definition of "worse" could vary as well.

But, speaking casually, we might be able to say seriously that the jobs situation of the 1980s was not worse than the post 2008 situation. If felt worse according to many people, and this may be due to a variety of factors including the fact that the rest of the country was doing well during the period of 1984-1988, so Colorado lost a lot of its population to other states where jobs could be more easily had. After 2008, Colorado looked no worse than most other states, so population even continued to grow during the period, making the state seem less beleaguered.

Thursday, May 14, 2015

Chart of the Day: Colorado unemployment vs. US unemployment

The unemployment rate is good for basically one thing: comparing employment conditions in different markets at the same time. The unemployment rate isn't very good for comparing to the past because overall employment conditions have shifted significantly since the last expansion. The number of discouraged workers is much higher now than in, say, 2004, and the rates of under employment are higher as well. Neither of those things are really picked up in the unemployment rate, so it makes it hard to compare the present with the past.

Nevertheless, we can get a sense of how Colorado compares to the nation right now by having a look at the two rates. So here they are, and I've thrown in the past twenty years:

During March 2015, the unemployment rate in Colorado was 4.5 percent, down from 6.1 percent the previous March. Nationally, in March, the unemployment rate was 5.6 percent, down from 6.8 percent the previous March. The national rate fell further to 5.1 percent in April, but the Colorado rate is not yet available for April.

As if often the case, we see that Colorado's unemployment rate is below that of the nation, and in 2014, the Colorado rate dipped well below the US rate. This may have reflected the acceleration of the oil economy before it finally softened , and we began to see the Colorado rate inch back up. Certainly, the energy-related industries (most active in only a handful of states) have been out-performing the overall economy, and northern Colorado's oil jobs certainly are a part of that. Indeed, it was in August that the oil price really started to slip, which over time led to fewer hires in the industry and less production. And sure enough, the unemployment rate began to tick back up in December 2014.

Here's a graph of the WTI oil price:



We can also guess that a lower unemployment rate might also be impacting the larger economy. For example, the fact that metro Denver outpaced all other cities measured in the most recent Case-Shiller home price report may be partially explained by the fact that employment is relatively robust in Colorado. It also helps keep in-migration steady.

Wednesday, May 13, 2015

Chart of the Day: Case-Shiller Home Price Index surges in metro Denver in early 2015

There is reason to suspect that nationwide, home prices may be leveling out. But that certainly doesn't appear to be the case for metro Denver. In the February Case-Shiller index, released in late April, Denver showed the highest year-over-year change in the index (10%), beating out even San Francisco (9.8%). The first graph show's Denver index compared to the 20-city composite index:



It is apparent that the metro Denver index has already well-exceeded its old peak reached during 2007. In fact, the Denver index is now up 14 percent from its former peak. The 20-city index, on the other hand, is still down 16 percent from the 2006 peak.

Fluctuations in the index has generally been less severe in the Denver index than in the composite index, as can be seen in the second graph. In recent months, we see that as the composite index has moderated, the Denver index has shown an acceleration in home prices, and has even reached the largest rate of increase seen in more than a decade.


If we isolate the Denver index a little more and zoom in, we see just how much the index surged in February. The Denver index had been moderating a little, but then increased substantially from January to February.




But why is this? As mentioned in my post on single-family units, home construction in Colorado (and also metro Denver if we look at that separately (new permitting is at 1992 levels), so the continued demand of new residents and new households continues to drive the price up. Obviously, the typical household did not see a 10 percent increase in wages to match the 10 percent increase in home prices, so concerns about affordability (and bubbles) endure.

Tuesday, May 12, 2015

Chart of the Day: Rent growth hits record highs in Metro Denver

The Metro Denver Apartment Association released first quarter 2015 vacancy and rent data late last  month, and we find that year-over-year rent growth hits exceptionally high levels for the second quarter in a row. The average rent during the 1st Q 2015 was $1,203, compared to $1,073 one year earlier. During the 4th Q of 2014, the avg rent was $1,168

The first graph shows the average rent for all quarters recorded since the survey was initiated in teh early 1980s by Gordon Von Stroh. Obviously, rent growth since 2012 has been significant. If we just eyeball the graph, we can see that the rate of growth in recent years has outpaced most other periods. Even during the late 1990s during the tech boom, rent growth was not as strong as it is now. These numbers are not adjusted for inflation, and during the period from 2003 to 2009, rent barely exceeded the CPI growth rate during many periods. But, rent growth is now well in excess of CPI growth.


If we want to really quantify just how strong rent growth has been, we can look at the year-over-year change for each quarter. The next graph shows this, and we see that for the 4th Q of 2014 and the 1st Q of 2015, rent growth is the highest is has been in 30 years. During the 4th Q 2014, the YOY change was 12.19 percent, which is now the highest YOY increase ever recorded. During the 1st Q 2015, the growth rate came down slightly to 12.11 percent. But, it's a little silly to talk about these estimates out to the hundredths place, so to be more realistic, we can just say that for the past two quarters, rent growth has been tied at a record high of 12.1 percent.


And why so much rent growth? Demand is high. The vacancy rate for metro Denver during the 1st Q 2015 was 4.9 percent. That's up from the fourth quarter (which tends to be a high-vacancy quarter) but year over year, the 1st Q's vacancy rate was below 2014's 1st Q rate of 5.1 percent. For the past four quarters, the vacancy rate has been below five percent, which is quite low for this market. Looking at the past thirty years, we see that vacancy rates are near very low levels, although not where it was during the very tight late 1990s.

But if the vacancy rate is not at record low levels, why is rent growth at record high levels? Part of it is due to the fact that most of the new product is luxury or fairly high end product. (This is average rent and not median rent, so the number are skewed up slightly by very expensive new product. Median rents, however, show similar trends.) Also, with so few homes for sale due to fairly lackluster rates of new home construction and low inventory, there are few options renters have outside renting. Thus, rents continue to move upward rapidly.


Monday, May 11, 2015

Chart of the Day: Is the multifamily construction boom in Colorado tapering off?

The March totals for multifamily permits in Colorado are now available from the Dept. of Commerce.. In March 2015, there were 1,196 new multifamily units permitted. During the same month of last year, there were 1,608 units permitted, which means multifamily units were down, year over year, by 25 percent. As we can see in the first chart, multifamily construction is up considerably from where it was in 2009, and is now at about mid-90s levels, which is a pretty robust pace.


Although they has been talk of immense amounts of building, total construction may be flattening out. If we look at year over year percentage growth, we see that the change in multifamily units was either negative or at zero for eight of the last 12 months. Over the past five months, it's all been flat or downhill. 



I've reduced the time frame for a better look at the last few years in the third graph. The trend here suggests a plateau in multifam construction. Why this should be the case is not immediately obvious. Rent growth continues to be strong with first quarter rent growth some of the strongest ever recorded. On the other hand, with the market so frothy, developers may be encountering supply-side issues such as continued increases in costs and the availability of labor and material. In any case, the enormous increases in new construction seen from 2011 to 2013 appear to be over.