Colorado foreclosures fell 8.4 percent in 3rd quarter

During the third quarter of 2015, Colorado public trustees reported 2,058 foreclosure filings and 1,089 sales at auction (completed foreclosures).  During the third quarter of 2014, there were 2,246 filings and 1,433 sales. Comparing year-over-year for the third quarter, foreclosure filings fell 8.4 percent and completed foreclosures fell 24.0 percent.

Comparing the third quarter of 2015 to the second quarter of 2015, foreclosure filings fell 9.8 percent from 2,282 to 2,058. Foreclosure sales rose 2.4 percent from 1,063 to 1,089 during the same period.

During the first nine months of 2015, there were 6,212 filings and 3,297 sales. For the same period of 2014, there were 8,505 filings and 4,760 sales. Comparing year over year, filings fell 27 percent and sales fell 30.7 percent.

Below is a time series showing quarterly totals in foreclosure filings and sales. The large dip in sales shown during the second quarter of 2008 can be attributed to a change in the foreclosure time line that took effect on January 1, 2008 and led to a large temporary dip in the number of foreclosure sales during March, April, and May of that year.

There are not large seasonal changes in foreclosure activity in Colorado, although the third quarter tends to be the most active quarter for foreclosure sales in Colorado.

Statewide, there was approximately 1 completed foreclosure (foreclosure sale) per 1,897 households for the third quarter of 2015. The map shows that there are few hot spots for foreclosure left in Colorado, and those that remain, such as San Juan County, are very small markets where a single foreclosure can move foreclosure rates up quickly.

No metropolitan county was found among the top ten counties for foreclosure sales rates. Most of the counties in the top ten were mountain and rural counties including Delta, Las Animas, and Fremont counties.

Pueblo and Mesa counties reported the highest foreclosure rates of the metropolitan counties. Pueblo County reported a foreclosure rate of one foreclosure per 665 households while Mesa County reported a rate of 1 foreclosure per 654 households. See Table 3 for full listing.

Boulder County reported the lowest foreclosure rate among metropolitan counties with 1 completed foreclosure per 10,435 households.

For a detailed list of each county, see the full report:  

2015_3rdQ Foreclosure Report

Denver-area multifamily housing permits peaked back in 2014

Measured in new building permit activity, multifamily building in the Denver-aurora metropolitan area appears to have peaked in 2014, and has been slowly declining since.

Using the Census Bureau's residential building permit data for this metro, we can look at how many permits were for buildings with more than one housing unit. In other words, this data is NOT for single-family houses, although townhouses are included. (This also includes for-purchase condos, so we're not talking only of apartments here.)

Since month-to-month swings are so large for these types of units, I've put it together looking at three-month moving averages (includes data up through December 2015). All the graphs in this article are for the Denver-Aurora metro area:

What we see here is that the 3-month average through December 2015 was 500 units which was down from the 3-mo average for November 2015, which was 713. This is all down from the peak of 983 units reached during October of 2014. Overall, we do appear to be seeing a slow downward trend that's been in place since the fall of 2014.

Generally, permit activity remains above what it has been over the past decade, although not equaling the huge multifamily housing boom that occurred at the very end of the dot-com boom back in 2001-2002.

Measuring the percent change year over year, we find that December's three-month average was down 37 percent, year over year. That's the largest drop recorded since August 2010, or 65 months ago:

In fact, 8 of the past months have shown negative growth by this measure, suggesting multifamily builders are definitely pulling back from the big-growth period that lasted from 2010 to 2013.

Building permits can be seasonal as well, although multifamily tends to be less season than single-family. However, let's look at the totals separated out by month so we can better take seasonal factors into account.

Looking at the 3-month average for December 2015 we see that the month's total of 500 was the lowest December total in 4 years, coming in behind the December total for 2012, 2013, and 2014. We find a similar trend with September and August, which were both also at a 4-year low. October 2015 was at a 3-year low for that month, and November was at a 2-year low for that month.  Overall, we can say that the second half of 2015 shows real declines in overall multifamily permitting activity.

The most recent vacancy and rent data for the metro area suggested that demand is softening, with the vacancy rate hitting a six-year high. There were questions about whether or not the industry had overbuilt. It's possible, although, even with condos included in this data, it seems that the industry has already been in the process of winding down from peak levels for more than a year. 

Metro Denver Rents and Vacancies: Vacancy hits 5-year high, rents flat

The apartment vacancy rate in metro Denver surged to a five-year high during the fourth quarter of 2015. According to the latest vacancy survey from the Metro Denver Apartment Association, the metro-wide vacancy rate during the fourth quarter of 2015 was 6.8 percent, which was the highest vacancy rate recorded since the fourth quarter of 2009 (measured in %):

Much of the increase in vacancy stemmed from vacancy rates over ten percent in Downtown Denver where an enormous amount of multifamily building has occurred in recent years. The vacancy rate was 5 percent during the third quarter of last year, and 4.7 percent during the fourth quarter of 2014.

Meanwhile, the average rent in metro Denver flattened off with a metro-wide average rent of $1,292 during the fourth quarter of 2015. The average rent was 1,291 during the third quarter of 2015 and 1,168 during the fourth quarter of 2014 (measured in $). 

Although the average rent was essentially unchanged from the third quarter to the fourth quarter of 2015, it remained up significantly, year over year. From the fourth quarter of 2014 to the fourth quarter of 2015, the average rent in metro Denver was up 10.6 percent. Yes, that's a drop off from the previous four quarters — all of which had YOY increases over over 12 percent — but a YOY change of over 10 percent still shows very strong growth (measured in %): 

And for those interested in the median rent, we don't see much of a difference in the trend here. The median rent did actually fall, however, from the third quarter to the fourth quarter, unlike the average rent. This fact does suggest, though, that what's driving the fall in rents is not just drops in the newest and most expensive units. Rents were falling in median-priced  units as well. If falling rents were being driven only in the most expensive units, we'd see more of a fall in average rents that was more comparative to the change in median rents (measured in $). 

Here are the two measures compared (in $): 

While the industry will likely scoff at the idea that there's any real softening in the market, the fact is it's too early to know how global trends will affect local markets. With collapsing oil prices affecting northern Colorado, and weakening economies in most of the US's biggest trading partners, including Canada, Japan, and China, there are reasons to be cautious. 

Real estate markets have continued to benefit from demographic changes, however, as population growth, and growth among the educated and employed have helped demand for real estate. 

Bank of Canada Holds Overnight Rate at 0.5%, Following Multiple Cuts in 2015

Last week, the Bank of Canada announced it would stay at 0.5 percent for its target overnight rate (the equivalent of the Federal Funds Rate in the US).

Many had believed that the BOC was leaning toward another rate cut, but those seeking an additional cut to stimulate Canada's troubled economy were disappointed. The dropping oil price has heavily impacted Canada's economy, just as it has been taking its toll on oil-industry-heavy Western states in the US.

The overnight rate was cut twice in 2015. From 1.0 to 0.75 in January 2015 and again to 0.5 in July. While the recent hold-steady policy provides a respite from 2015's cuts, the overnight rate has been at very low levels since 2009. the BOC has been relatively hawkish compared to the Fed, although not by much:

Now, unless you count the EU as a whole, Canada remains the US's largest trading partner. (And Canada is one of Colorado's largest trading partners.) So what happens to the Canadian economy does indeed matter to American investors and consumers.

Fortunately for Canadians, and for Americans who are adept at investing in Canada, Canada's economy has been relatively stable in recent years. Canada avoided the a collapse in housing markets, and in the wake of the 2008 financial crisis, Canada was said to have "gotten things right."

Indeed, Canada's central bank had pursued easy money less aggressively than the US in the early years of what would become the US housing bubble, possibly lessening the effects of malinvestment into the housing sector.

And the BOC has generally been more stable in terms of its overnight rate:

Nowadays, however, there are genuine concerns about the Canadian economy "headed off a cliff." Given that the US exported more than 260 billion dollars worth of goods to Canada last year, that's not great news for the USA, either.

Fed Leaves Interest Rates Unchanged, Markets Head Down

The Fed announced today that, as expected, it will not change the target Federal Funds Rate. This follow's last month's rate change when the Fed increased its target rate from 0-0.25 up to 0.25-0.50, which was the first increase in seven years.

Today's lack of action thus leaves the target rate near what are historic lows:

Given that the markets expected no change, there was little reason to expect any big movements in the markets, but according to observers in the financial media, the Fed's statement is being interpreted as pessimistic, which drove down markets further. 

We've known for years that the Fed has been ill-at-ease with the overall state of the economy, of course. If the Fed had thought the economy was doing well, it would have raised rates long ago. December's rate hike came in many ways as an attempt to send the message that, yes, the economy is strong enough to warrant a rate hike. 

But the Fed knows that even with a 0.25 percent hike, it's pressing its luck given the extensive reliance of the current global economy on easy money. 

Indeed, even when markets began to suspect that the Fed might raise rates, the Dow Jones headed down. As early as August, when it seemed that the Fed might raise rates at its September meeting, the DJIA began to fall. The Fed chickened out in September, but eventually followed through in December. The market subsequently had one of its worst New-Year openings in decades:

Where does the Fed go from here? It seems plausible that any additional rate cut would be seen as a sign that the economy is weakening. Which could itself cause deflation. On the other hand, an additional rate hike would cause deflation as well, for other reasons.

Bank of Japan Goes Negative, "Strong Dollar" Surges

In a surprise move, the Bank of Japan announced last night that it would employ negative interest rate policy for the first time in its history.

The formula for this is rather complex. It's based on interest for bank reserves held with the central bank, and it seems that only new deposits will be charged the negative rate.
We're not talking about a straightforward single rate on overnight lending, as is the case for say, the federal funds rate in the US, or the overnight rate in Canada.

Naturally, the dollar has surged compared to the yen, and the dollar continues to look like a safe haven by comparison. But only by comparison, of course, since central banks, partly due to collaboration, and partly due to internal politics, are engaged in a race to the bottom.

Japan has long been leading the race to the bottom, however, since its overnight rate (the Mutan rate) has been under one percent since about 1996:

It's been pretty close to zero most of the time since 1999. (Since I can't find a good source for historical targets, this graph is not of target rates. Its of observed rates, which nevertheless reflect the target rates.)

The observed rate over the past five years has been around 0.06% to 0.09%.  (Not to be confused with 0.6% to 0.9%).

The target rate has been at 0.1% since 2009, and thus less than half of the US target rate (0.25) during that time. The sheer length of time that the rate has remained near zero is what's especially notable, however. (Graph from this source.)

Following the gospel that 2% price inflation will solve one's economic problems, the BOJ has been desperate to get price inflation up above zero, where it has usually been for the past decade, except for a surge in late 2014 and early 2015 as Abenomics intensified. 

The Japanese economy has continued to weaken, and apparently things have been bad enough to cause the BOJ to follow in the footsteps of the European Central Bank, and do "whatever it takes." 

Bankruptcy cases hit nine-year low in Colorado in December 2015

According to the US Bankruptcy court in Colorado, Bankruptcy filings in Colorado fell to a nine-year low in December 2015,  the lowest level recorded since January of 2007. During December 2015 there were 844 bankruptcy filings in Colorado.  During January 2007, there were 807.

Bankruptcies in Colorado have been generally declining since 2010:

The year-over-year declines have ranged from negative 10 percent to negative 20 percent in most months. Over the past year, changes have remained within this range suggesting little change to the current trend at the moment. during December 2015, bankruptcy filings were down 23.8 percent from December 2014.

It is also notable that December 2015 showed the lowest December total in ten years, coming in below December 2006's total of 874:

With such low interest rates in recent years, and thus, debt so very cheap, it has been easier for both businesses and consumers to stay ahead on their debt service and avoid bankruptcy. debt so very cheap.  We see t his reflected here, and, of course, continued improvement in the job market has helped keep bankruptcies down as well.