First of Four Parts Twenty years ago, local banks were reluctant to make housing loans in downtown Denver, given the seeming certainty that property values would never recover.

Today, lofts in industrial buildings on streets once frequented by homeless people are going for nearly $500,000. The once-seedy neighborhood that gave the banks pause now has sushi bars, art galleries, and its own trendy nickname: LoDo, or Lower Downtown.

Gentrification in Denver mirrors changes taking place throughout the country. Homeownership rates have hit record levels as the flourishing economy continues to pump jobs and wealth into the nation's cities. Housing prices are rising accordingly.

In this four-part series American Banker examines the housing boom- focusing on new groups that are entering the market and examining possible risks the phenomenon creates.

Denver in many ways typifies the boom. The median price for existing homes there nearly doubled between 1991 and 1998, to $149,200 from $88,600. The population rose modestly during those years-to 1.9 million from 1.7 million-but the volume of mortgage originations multiplied by nine, to $28.3 billion from $3 billion, according to data compiled by Regional Financial Associates Inc. of West Chester, Pa.

Nearly 70% of the city's households own the roof over their heads. This beats the 1998 national average, 66.3%, which itself set a record, according to the Bureau of the Census.

The buying boom has virtually transformed Denver, longtime residents say. Once-deserted buildings are being converted into pricey lofts, and the tumbleweed-covered plains on the outskirts of town are evolving into cookie-cutter planned communities.

Meanwhile, Denver is quickly becoming the Western hub for the communications, financial services, and transportation industries. An influx of firms has driven unemployment to its lowest level in more than 20 years and drawn young professionals from neighboring states and across the country.

The newcomers seem eager to pour their generous salaries into real estate. Debbie Laysem, a Denver native who has been a realtor there for 20 years, said her last sale was a $200,000 home to a 26-year-old woman. "And that's not uncommon," she said.

Evidence of a housing boom seems omnipresent in Denver. The highways that crisscross the city are lined with clumps of new residential developments; most are oases of bare wood, waiting to be transformed into 1,000-square-foot, 5,000-square-foot, and even 10,000-square-foot homes.

Along Interstate 25, which runs north from the city, signs for some of these dwellings are staggered Burma Shave-style at roadside: "CUSTOM HOMES ... FOR SALE ... NOW."

Indeed, home building is at a high. In 1998, 14,478 single-family housing permits were issued, up from 10,843 in 1993 and 5,984 in 1991, according to Regional Financial Associates, a consulting and research firm.

The Mile High City, built on a treeless plateau, is not exactly a builder's natural paradise. In the mid-1800s, the lack of local lumber forced many would-be home builders to dig bricks from sod. Today, tons of lumber are shipped in per week to feed the growth of the city's outskirts, according to the National Association of Home Builders.

Some of the most dramatic transformations, residents say, have occurred in the city proper, where home prices are high enough to flabbergast local veterans, and nondescript blocks have blossomed into chic neighborhoods.

LoDo may have seen the biggest changes, according to Ms. Laysem, who now works at Remax International Inc.'s branch in Cherry Creek, another booming Denver neighborhood.

Until housing demand gathered steam in the mid-1990s, the turf belonged to homeless people and "a few pioneers" living in lofts carved from the brick-manufacturing plants.

The blocks between 15th and 20th streets are now peppered with restaurants, coffee shops, and brew pubs. Along the 16th Street mall-an immaculate pedestrian thoroughfare that cuts through the center of downtown-a new Foot Locker outlet vies for attention with 1950s neon signs, and restaurateur Wolfgang Puck has just opened a circuslike outpost.

According to Chamber of Commerce literature, Denver is a "young people's destination"; the khaki-clad crowd strolling at lunchtime on a recent afternoon seemed to fit that bill.

Single women are doing much of the homebuying in the city, said Al Laysem, Ms. Laysem's husband, who also sells homes for Remax. "They have great jobs with the cable companies, or in real estate or law," he said.

Mr. Laysem said many female clients have boyfriends who claim not to be able to afford homes. "But they have great cars," he said with a smile.

Denver enthusiasts say the changes are not just physical: the whole spirit of the city has been transformed by the homebuying frenzy. Inflation is the price being paid for a social transformation that has prodded Denver to a new level of sophistication.

"The huge population growth has brought in a diversity of people," said Susan Barnes-Gelt, councilwoman at large. "Denver is now a much less parochial city. It's more diverse economically and ethnically, and the talent pool is bigger."

The city is still "far from cosmopolitan," Ms. Barnes-Gelt said. But it is a "beautiful, accessible place to live that has begun to develop this sort of texture that cosmopolitan cities have."

Dennis Gallagher, a longtime city councilman, agreed with his colleague's assessment.

"I know a lot of people who have moved in from the suburbs," he said in an interview at Common Grounds coffee shop, smack in the center of LoDo.

"They love these little shops ... they love being able to walk to work," he said.

Despite the influx of espresso machines and yuppies, Denver retains something of a small-town feel. A local lawyer and a waiter from a nearby brewery stop to greet Mr. Gallagher by name, and the councilman still marvels at the sight of a man in his 20s wearing a suit and tie while riding a skateboard.

"Now I ask you, Is that cowboy, or is that cosmopolitan?" Mr. Gallagher said with a chuckle.

Traces of the city's Wild West past may be fading, but have not disappeared. "I'd like to remind you our biggest event is the Great American Stock Show," said Mr. Gallagher, who added that the whiff of cattle "keeps you humble."

Since Mr. Gallagher first took office in 1970, he has spearheaded several bills aimed at so-called "quality of life" issues. In the 1980s, he got a bill passed that substantially lowered homeownership taxes. More recently, he was instrumental in repealing a Prohibition-era law barring breweries from serving.

The city is home to hundreds of brew pubs and restaurants, which employ the largest number of Denver residents, according to the Bureau of Labor Statistics. The Chamber of Commerce says small businesses provide 80% of Denver's jobs.

Homeownership used to be considered beyond reach for Denver's self- employed and the waiters and bartenders whose income is usually not documented fully through tax returns. These applicants "used to have to jump through hoops" to get a loan, Ms. Laysem said.

The climate has changed. Access to credit is easier, thanks to a fresh roster of nonbank lenders and a proliferation of mortgage brokers who offer products from various lenders.

"Why rent when you can buy?" Ms. Laysem said. "People are reading the papers and saying, 'Why am I not getting in on this bandwagon and collecting equity in a home?'"

It was not so long ago when homeownership in Denver looked far less attractive. Nineteen ninety-three was dubbed the "Year of Violence" by local newspapers, partly because of the city's 130 murders. The corner of Arapahoe and 26th Street, just a short walk from LoDo, was pegged as the epicenter of the crime problem.

But the past five years have seen a stark reduction in violent crime. In 1998, there were five murders.

Though Mr. Gallagher gives kudos to the city's mayor and police force, he also cites rising homeownership rates as a factor in the city's impressive safety record.

When dwellers come and go on a block-as is common when rental units prevail-there is little opportunity for a "back-fence community" to spring up, Mr. Gallagher said.

"People come and go, and you don't know them," he said.

But when homebuyers move into the city, they take charge of their neighborhoods, organizing crime-watch patrols and other civic groups.

"I can't tell you how many block parties I've been to in the past month," Mr. Gallagher said.

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