Housing market posts weak September

John Rebchook, Rocky Mountain News

Published October 6, 2006 at midnight

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Denver-area home sales and prices were weak in September, according to reports released Thursday.

In addition, the housing market may be in even worse shape than the monthly reports based on Metrolist data indicate because of the way the statistics are being collected and because of rampant fraud, a top real estate executive said.

"The (real estate) industry's biggest problem right now is loan fraud," said Chris Mygatt, president of Coldwell Banker Residential, the largest residential real estate company in Colorado.

In September, 4,740 previously owned homes were placed under contract in the metro area, a 23 percent drop from the 6,158 placed under contract in September 2005, according to Metrolist, a tracking service owned by local Realtor groups.

The sales also were down 16.4 percent from the 5,673 homes under contract in August, although sales typically drop during that time for seasonal reasons.

The Metrolist data also show that the median price of a single-family home fell to $243,500 in September, a 2.6 percent drop from $250,000 a year earlier, according to reports from Coldwell Banker, independent broker Gary Bauer and Jerry McGuire of RE/MAX Professionals.

Mygatt said one problem with the data is that most homes in Boulder, for example, have not been included in the Metrolist numbers because northern Colorado has been served by its own version of the MLS system called Information and Real Estate Services.

But Metrolist "is beginning to grow its geographic market" by including more homes from Boulder and other areas, he said.

As a result, the numbers of homes under contract and closed homes tracked by Metrolist are increasing.

It might also be having an effect on the average and median, or middle, prices of sold properties.

If that's the case, "the market would definitely be softer than the data is showing," Mygatt said.

But Pat Bybee, president and CEO of Metrolist, said her group's analysis of the data shows that any homes listed from outside Metrolist's border are statistically insignificant.

Because of problems with Metrolist, there's an ongoing push to consolidate many of the MLS services to provide better data.

Bauer said that while the actual numbers likely are off, the trends they are showing are probably on target.

Still, he thinks the data-gathering should be more accurate.

"The best thing that could happen is a more regional MLS," Bauer said. "Metrolist shouldn't be playing king of the data."

But perhaps an even worse problem is mortgage and appraisal fraud, Mygatt said.

"We have been seeing many more homes on the market, and average prices (in most months) are going up, which does not make any economic sense," Mygatt said.

Two days ago, a Coldwell Banker broker severed a listing agreement with the seller of a home priced at $850,000 because the broker suspected he was involved in a fraudulent sale.

"For five or six months, the home received zero offers," Mygatt said.

Out of the blue, the seller received an offer for $1.1 million, $250,000 above the asking price.

However, the seller would then contribute the additional $250,000 to a nonprofit limited liability company, so the seller is effectively receiving the $850,000 he wanted, Mygatt said.

The beneficiary of the nonprofit group is the buyer, Mygatt said.

Mygatt suspects the buyer will pocket the $250,000 and let the house go into foreclosure. But before that happens, the home will be listed as a $1.1 million sale, helping to skew the Metrolist numbers higher, he said.

He said these kinds of deals, often with lower-priced homes, are becoming increasingly common.

"This could not work without appraisal fraud," Mygatt said.

Appraisal fraud is being targeted by Erin Toll, the new head of the Colorado Division of Real Estate.

Toll said Thursday she has received more than 200 e-mails and phone calls about suspected appraisal fraud since the Rocky Mountain News reported on Sept. 27 that she is going after shady appraisers.

"Erin is right on the money," Mygatt said. "Erin is very tough and will do an excellent job."

Mygatt said he thinks about 25 percent of the near record 31,450 unsold homes on the market will "statistically never sell" because their mortgages are higher than their potential sale value.

That means those houses eventually will end up in foreclosure, he said.

There are, however, pockets of strength in the area, said Rob Horton of Metro Brokers' Absolute Real Estate Services in Lowry.

One of them is Stapleton.

In the first nine months of the year, 127 previously owned homes have been sold in Stapleton at an average price of $585,000, he said.

That is 46 percent more than the 87 homes that sold for an average price of $515,000 in the first nine months of 2005, he said.

Economist Michael Kone of Housingmetrics Inc. said his research is showing "inconsistent" pockets of strength and weakness throughout the metro area.

But he said overall he thinks the housing market is at an important crossroads, locally and nationally.

"It could get a whole lot worse or it could get better," thanks to a slight drop in mortgage rates, he said.

Rates are now hovering below 6.5 percent for a typical 30-year mortgage.

Some analysts are predicting rates around 6.15 percent in the fourth quarter.

rebchookj@RockyMountainNews.com or 303-954-5207

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