Metro Denver: Average Apartment Rent Growth Sets New Record During Second Quarter

Third quarter multifamily vacancy and rent data will be coming out in a about a month, but let's have a closer look at the second quarter's numbers. If current trends are any indication, the third quarter — which tends to be the strongest quarter of the year for multifamily — will be another period of low vacancies and high rent growth.

The first graph shows the overall apartment vacancy rate in metro Denver through the second quarter of this year. The rate was 4.5 percent for the second quarter. that's down from the first quarter rate of 4.9 percent, and down from 4.7 percent during the second quarter of 2014. So, vacancies are low, given that 4 percent is pretty much as low as the vacancy rate ever goes in the metro area. From a tenant perspective, it's about as easy to find an apartment now as it was during the final days of the dot-com boom:

And when vacancy rates get low, we generally expect rent growth. But this time around, we're seeing some of the largest rent growth we've ever seen since the survey was first initiated in the early 1980s. The average rent in metro Denver during the second quarter was $1,265, which is the highest rent ever recorded in nominal terms. It's also the highest rent ever recorded in real terms, but I'll have to adjust the rents for inflation in a future post. The current acceleration in rents outpaces the 1990s:  

In fact, the past three quarters, when measured in year-over-year comparisons, show by far the largest YOY growth in rents ever recorded.  The second quarter's average rent of $1,265 was up an enormous  13.2 percent from the second quarter of 2014 when the average rent was $1,117. The YOY increase was over 12 percent for both the fourth quarter of 2014 and the first quarter of 2015:

Thanks to continued in-migration and a relatively small amount of new single-family construction, multifamily housing remains the most feasible option for many households. Those seeking affordability will move outward from the urban center to more affordable C-class units in further out neighborhoods. Some households will double up or take on roommates. 

The population growth data, though, won't come in for a year after the fact, so it's hard to know to what extent a lack of affordability is impacting in-migration at this time.

Compared to to other markets, the Denver market is experiencing some of the highest rent growth rates in the nation. But, of course, rent level remain well below those in San Francisco. 

Note: The report also tracks median rent, although, at this time, there is no significant difference in the trend between median rents and average rents. the median rent during the second quarter of 2015 was $1,225, which was up 14.7 percent from the 2nd Q 2014 median rent of $1,067. The median rent during the first quarter of 2015 was $1,203.

Colorado One of the Best States for Property Tax

This map from the Tax Foundation shows that Colorado has some of the lowest property taxes in the nation:

This should not be interpreted as a proxy map for which states have the lowest overall tax burden, for example. Note that Texas has relatively high property tax. But, Texas has no income tax so there's little we can discern about taxes in general from this map.

But when thinking about property taxes, it is useful to note that property taxes are especially damaging to people on fixed incomes like retirees and disabled people. Old people with low incomes, for example, would do fairly well in a state with high income tax and low property tax. But if property taxes are high, those seniors would get pummeled by repeated increases  in the property tax.

Denver Continues to Outpace the Nation in Latest Case-Shiller Home Price Index Data

Case-Shiller released new home price index data for July this week. As has been the case since 2012, the data shows continued increases in home prices. The first graph shows the index value for both the nationwide 20-city composite index, and the metro Denver index:

 

While the trend has clearly been upward in recent years, we are now seeing that a plateau has been hit in both the Denver metro area and in the composite index. Of course, the metro Denver plateau around ten percent points to continued strong gains in prices, and is a reason for current homowners and landlords to be happy. first time homebuyers, on the other hand, have less reason to be happy. 

At the national level, though, the composite index suggests more of a cooling in the market. Growth rates are clearly down from where they were back in 2013, and outside of Denver and San Francisco, price growth has moderated throughout many of the cities covered in the index.  Index growth is now flat around 5 percent, and has been so since last September. With interest rates at historic lows, this further suggests an inflexibility in the market that refuses to take off in spite of high accomodative monetary policy. 

In Denver, however, in-migration continues to drive strong price increases, though. The second graph compares the rate growth of the composite index and the Denver index.  Denver is clearly outpacing the nation overall.

Note also that the 2-city composite index is still below its former peak level. July 2015's index number was still 11.9 percent below the peak level, reached during July 2006. Metro Denver's July value, however, was well above its former peak and is at an all-time high. During July, the metro Denver index was 22.1 percent above the 2006 peak achieved during August 2006.

Comparing Whole Countries on Murder Rates Is Often Misleading

We often see the United States compared to a variety of other countries in terms of life expectancy, murder rates, and more. But, it's a bit dishonest to compare a country the size of Portugal, for example, with the United States.Portugal has ten million people and is not geographically diverse. The United States has more than 300 million people, and is extremely diverse in its geography.

So, it makes much more sense to compare the particular states within the US with foreign countries, and most people tend to underestimate the diversity in factors such as life expectancy and murder rates among states.

For example, the murder rate in Oregon (2.0 per 100,000) places it about 160th among 218 countries measured. That's quite low, and well below the US overall rate of  4.7 (per 100,000), which places it at 91st in the world. In other words, there are many places in the US that are well below the national murder rate, including Iowa, Wisconsin, and Colorado. If we were use this more detailed analysis, we would find that, in spite of claims that the US is a relatively high-crime country, much of the US is actually quite moderate, or even low, in this regard.

Were we to do this, we would then be asking ourselves not why the US murder rate is what it is. We would be asking ourselves what it is about Maryland, Louisiana, and South Carolina that are driving up the US murder rate.

Indeed, this should be done for other large countries as well. Mexico is a large country, so it's of little value to simply speak of the murder rate in Mexico as high. The question is this: where is the murder rate high in Mexico?

If we look at this analysis from The Economist, we find that the murder rate in much of Mexico is on a par with Costa Rica and the Bahamas.  And almost no one ever says "don't go to the Bahamas, or you'll be beheaded!" The perception of Mexico is as a high-crime area, and the Bahamas are seen as a serene place to vacation. But the answer is really more complicated than that.

The murder rates in Mexican states vary so widely that Yucatan state has a murder rate equivalent to the very low-crime country of Finland, while Chihuahua state has a rate equivalent to El Salvador, one of the alleged murder capitals of the world.

And if you want to take a vacation soaking up some sun in Cabo? No problem, amigo, because the murder rate in Baja California Sur is lower than the murder rate in Texas.

The overall murder rate is 18, but note the diversity:

 Source: The Economist.

And here are two wonderful maps I came across, which appear to be from an earlier version of the UNODC Global Study on Homicide.  Russia is another case where it's obviously useless to talk about the country-wide murder rate.

Colorado Foreclosures Down 19 Percent During Second Quarter

Foreclosure totals in Colorado during the second quarter of 2015 remained well down from the 2009 peak totals. There were 2,282 foreclosure filings during the second quarter of this year, which was a drop of 19 percent from the second quarter of 2014. There were 1,063 foreclosure sales at auction during the second quarter of this year, dropping 34 percent from the second quarter of last year.

Back in 2009, filings had peaked at 12,135 during the second quarter, and sales peaked at 6,686 during the first quarter of 2010:

Foreclosures are on schedule to end the year way down from 2014. So far, this year, there have been 4,154 filings and 2,208 sales at auction, which means at mid-year, filings and sales are both down 33 percent from where they were at mid-year last year. 

For more, see the state of Colorado full report:

2015_2ndQ Foreclosure Report by Ryan McMaken

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.