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Housing market catching steam

4% more homes, condos sold than year ago in Denver area

By John Rebchook, Rocky Mountain News (Contact)

Published March 6, 2008 at 11:16 a.m.
Updated March 7, 2008 at 6:15 a.m.

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Record foreclosures continue to keep a lid on overall prices of previously owned homes sold in the Denver area, but home sales activity picked up in February.

"Activity continues to be brisk," said independent broker Gary Bauer, who released a report Thursday based on data from Metrolist, a Realtor-owned organization.

A total of 5,126 single-family homes and condominiums sold by Realtors were placed under contract in February, a 4 percent increase from the 4,929 in February 2007, according to reports based on Metrolist data. And in the first two months of the year, 9,676 homes were placed under contract, a 4.9 percent increase from the 9,221 placed under contract in January and February of 2007.

"This is very encouraging because it is indicative of strength in the Denver-area market, which will lead to a healthy spring market," said Larry McGee, president of the Berkshire Group, who also released a report.

Bauer said several brokers he spoke to said sales activity was strong last month.

"That's encouraging, especially in light of $104-a-barrel oil," he said.

There were 25,037 unsold homes on the market last year, 0.8 percent more than the 24,838 in 2007.

Bauer said he would have expected more, given the rising number of foreclosures.

"Where are they?" Bauer asked.

Part of it, he said, is that people aren't putting their homes on the market if they don't have to, if it means they will be competing directly with foreclosures.

Greg Steele, principal of Ease Realty Preferred Brokers in Arvada, said most of the sales activity is for homes priced below $200,000 and above $500,000. For homes priced in between sales have been sluggish.

Most of the lower-priced homes are either foreclosures, or short-sales, in which the lender accepts less than the mortgage amount.

"Most of the buyers are owner- occupants because the banks are not yet willing to give them away at low enough prices for investors," Steele said.

Steele said there are a lot of foreclosed homes in the pipeline.

"I think we're going to see a steady stream of them enter the market but not a surge at all," he said.

He said well-priced foreclosures sell quickly, especially when the banks provide money to fix them up.

rebchookj@RockyMountainNews.com or 303-954-5207

Nationally, housing slump takes break

The number of Americans signing contracts to buy previously owned homes was unchanged in January, signaling a pause in the housing slump that's causing the economy to stumble.

The National Association of Realtors' index of signed purchase agreements held at 85.9, higher than forecast and the second-lowest level since the Chicago-based group began keeping records in 2001.

* Mortgage rates sank this week, reflecting investors' worries about the country's economic health.

Freddie Mac, the mortgage company, reported Thursday that 30-year fixed rate mortgages averaged 6.03 percent for the week ending March 6.

* Home foreclosures soared to an all-time high in the final three months of 2007 and probably will keep rising, evidence of homeowners' suffering and the economic danger from the meltdown.

The Mortgage Bankers Association said Thursday the proportion of all mortgages that slipped into foreclosure set a record, 0.83 percent, from October through December.

Comments

  • March 7, 2008

    5:58 a.m.

    Suggest removal

    oceanview78382 writes:

    Wasn't the average price per home LOWER than the year before? If so this is not an honest story after all if one heavily discounts something more people will want to buy it.

    This is a key fact in any housing analysis and maybe its too early in the am here, but I don't see it.

  • March 7, 2008

    9:41 a.m.

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    WarrenJimmyBuffett writes:

    I hope these buyers understand that when extremely high foreclosures continue to increase (as they are doing), prices have to fall. As Econ 101 will tell you, when supply greatly exceeds demand, price will fall until supply and demand reach equilibrium. To exacerbate the situation, when the supply is increased by foreclosures (distressed properties), prices will fall even faster as banks are motivated to sell as quickly as possible at the sacrifice of price. Therefore, people who buy today are at great risk of buying a quickly depreciating asset. Please don't listen to your realtor, it is not a good time to buy. A good time to buy will only occur once foreclosures stop flooding the market and pushing prices down. Until then, you buy now and you lose money. Probably lots of it. (By the way, when anyone argues that the fundamentals of supply and demand do not apply, do not trust them. They do not know what they are talking about.)

  • March 7, 2008

    9:59 a.m.

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    DeimosJB writes:

    Ocean - All the article said is "activity picked up". The article made no claims, explicit or implied about pricing, and consequently made no claims that the housing market is suddenly rosy. To fill in the gaps and counteract your "deep discount" statement, let me explain what has traditionally happened in real estate market in America over the last 20 years, as well as what has happened to prices in Colorado over the past years. First let me address your price claim. "Average" real estate values dropped 1.8% across metro Denver from 2006-2007, and dropped 3.5% from 2007-2008. This is indeed a non-negligible price drop, but hardly a deep discount. Also noteworthy - real estate values are typically lowest right after the holidays, and pick up through the Spring and Summer. Continuing, real estate is driven by supply and demand. FIRST supply of unsold homes raises, and then as excess supply builds, competition becomes fiercer and prices go down. Converserly, excess supply must be sold off first, and then AFTER that, prices begin to pick up. We now appear to be at the point of the trend where activity is increasing. As the activity increases this will cause descrease in the supply glut. This will not generate an IMMEDIATE jump in prices over the next few months, but it will generate a CERTAIN jump in prices. As such, the article is not in the least "dishonest", one only has to understand the real estate market to understand exactly what the article is saying, what this means, and what to do about it.

  • March 7, 2008

    10:16 a.m.

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    Diff writes:

    opportunity is knocking - IF you can - this is a good - NO GREAT time for first time buyers - and there may be some good deals for investors as well - buy now - rent - sell in 2-3 years when things turn around. If they do not turn around with all the foreclosures I would expect the rental rate and market to remain fairly strong so .. you really can't loose!

  • March 7, 2008

    10:34 a.m.

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    reader2 writes:

    If everyone stops buying it will be a self fulfilling prophecy. No buyers equals no demand equals prices will continue to drop until someone starts buying. For the sake of our economy please buy.

  • March 7, 2008

    10:34 a.m.

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    gkh writes:

    Good points Demios - one must also realize that not all metro areas are flooded with foreclosures. Many markets, particularly in the urban core/se denver, are holding steady; while other, predominantly NE metro areas are still suffering (and will continue to do so). I believe that traditional injections of supply, being new home construction and discretionary move-ups have tapered significantly as builders and homeowners wait out the storm. Increases in supply are coming primarily from distressed properties. Having been actively scanning the market for a new home in my area, I notice the supply is very stale.

    The metro area has strong economic fundamentals overall and was the first market to feel the brunt of sub-prime. Fortunately, our market did not experience rapid appreciation that other speculative markets did, so the pain we will feel is significantly lessened. Combined with high oil cost, which drive additional investment in Colorado, (see today's artice on the sale of a large residential project in Rifle), a new focus on alternative energy (see purchase of Storage tek campus) and the very high profile DNC this summer, I feel Colorado as a whole is well poised to emerge stronger than most markets throughout the country. Nationally, people are looking for the bright spots where they can put their money, Colorado is one of the few.

    Are we at the bottom? - Don't know, but it's always tough to catch the proverbial falling knife. Should you buy now? I was thinking about this the other day, as we need to move - I thought about renting for a year to let things calm down, but throwing $20,000 away on a rental, vs. the risk of a 5% decline in value of a say $500k home, combined with the tax benefits of owning vs. renting, then factoring in the headache and time involved in making two moves vs. one, and I'm leaning toward buying. The nagging question is how deep and painfull is the national recession and national fallout from credit turbulence going to be, and how dos it impact us locally? I fear the unknown - of which there is a lot.

  • March 7, 2008

    10:38 a.m.

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    WarrenJimmyBuffett writes:

    "Diff" is a prime example of somebody who doesn't understand fundamentals, the costs of owning, and investing priniciples. Let's see. I "invest" now, so I buy 3 homes. Then I rent out each house for about 2/3 of my mortgage payment. Additionally, over those 3 years of "holding for appreciation," I must pay maintenance costs and taxes which are both often significant. Finally, in three years, when I my business plan tells me it is time to sell, I find out that home prices have gone down 20% due to the oversupply problem that has persisted for the previous three years. If each home cost me $200,000, I am down $120,000 (3 x $40,000). Also, I am out $18,000 in mortgage payments (36 x $500 deficit in rent each month). Finally, I have spent about $28,000 on taxes and mainenance ($4,500 per house on taxes and $5,000 per house for maintenance). That means I have lost $166,000 in just three years. Not to mention my lost time and the divorce the financial stress caused. What a great investment! Investing in real estate during a period of falling prices is fun, isn't it?

  • March 7, 2008

    10:48 a.m.

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    mark79trans writes:

    It is a horrible time to buy investment property. My house in the city is renting for $200 less then the mortgage; the rental market is actually down as well. The house I have is worth less now completely renovated then it was when purchased six years ago. There is a glut of homes of out there...hopefully, some of the older depressed developments will be demolished. Too many homes were built in the metro area; there are not enough responsible home owners that actually pay their mortgage to occupy all the homes. This mess is not going to turn around in three years. Our energy problems compounded by our over reved economy, poor immigration policy, and debt will result in a depression; we may be able to delay it, but it will come sooner or later.

    On a side note: I am still trying to figure out why the homes in Erie are built 15 feet apart. I never thought this day would come, but I can see some merit in growth management especially now that so many non-Coloradoans have flooded this poor state.

  • March 7, 2008

    2:04 p.m.

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    smith writes:

    It may be a horrible time to buy an investment property, but I think its a pretty good time to buy an owner-occupied home. As long as you stay in the established areas which seem to be holding ground (above mentioned City core and SE) and out of the places which will never recover (Montbello, Aurora) I think you can make out OK.

    I saw a stat this morning where Denver was one of only five cities in America where the median home price dropped from 2003-08. Others on that list include Detroit, Cleveland, and St Louis. While our economy may not be roses, I dont think we belong in that company either

  • March 7, 2008

    2:53 p.m.

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    WarrenJimmyBuffett writes:

    smith,
    As I recall Denver lost about 85,000 high paying jobs during the telecom and tech bust from 2000-2003. Not that many of those jobs have returned. Furthermore, housing related jobs (a huge percentage of jobs in the area)are in crisis as many people lose their high paying positions or their income is dramatically reduced. Finally, once this final wave of commercial construction wave ends, those jobs will go away for several years. Energy will help add jobs, but the rising price of fuel pushes many people over the edge as their home equity lines are tapped out, their credit card bills are maxed out, and they begin to flip out. Anyone in the Denver area who is pinning their hope on the value of their homes increasing rather than decreasing is a fool. Fight the urge to give people questionable advice unless you understand the whole picture. Buy now and lose money.

  • March 7, 2008

    3 p.m.

    Suggest removal

    rin470 writes:

    Mmmm. Let's see. We have committed pessimists like warren posting, and clueless outsiders like mark79trans. gkh actually has a grasp on what is really going on. He understands investing at the bottom of the depreciation/appreciation curve. Nice post. The reality is that Denver is 8 years into a real estate downturn from a macro view, although sections of the city were fairly healthy until 2005 when the foreclosure spike began. Now we have segments of the city dealing with a glut of REO and therefore rapidly falling prices because of oversupply while other parts are showing solid stability or signs of the beginning of the recovery. The underlying economic curve (job growth, office space leased, etc) looks strong and has for 7-9 quarters which portends the rapidly approaching rebound. The struggling areas with falling prices will attract investors because the properties purchased today will CASH FLOW now and appreciate later therefore absorbing the excess inventory and hastening the recovery. These areas will also offer opportunities for fix n flip strategies for eagle eyed investors with sharp pencils. The classic investment strategy of buy low and sell high never goes out of style, and this is the "low" boys and girls. You don't have to listen to a real estate agent, you just have to understand Econ101. My prediction: Denver is identified by the investor class as the next great place to invest and they arrive with bulging checkbooks and create their own weather by snapping up properties in bulk that fit the formula in a city that matches the proper profile. Denver is perfectly positioned for the next run through the appreciation curve with major capital improvements (new airport, larger convention center, a clean safe and fun downtown, quality of life, mountains and nature, the new lightrail system poised for completion and the x factor of being a cool and hip place to live). Jump in boys and girls, the water's fine! These are the good ol days!

  • March 7, 2008

    8:51 p.m.

    Suggest removal

    WarrenJimmyBuffett writes:

    rin470,
    Good luck. You're like the people picking up the fish on the sand just before the tsunami kills them. Enjoy your 30 seconds.

  • March 10, 2008

    4:57 p.m.

    Suggest removal

    rin470 writes:

    Mmmm. Let's see. We have committed pessimists like warren posting, and clueless outsiders like mark79trans. gkh actually has a grasp on what is really going on. He understands investing at the bottom of the depreciation/appreciation curve. Nice post. The reality is that Denver is 8 years into a real estate downturn from a macro view, although sections of the city were fairly healthy until 2005 when the foreclosure spike began. Now we have segments of the city dealing with a glut of REO and therefore rapidly falling prices because of oversupply while other parts are showing solid stability or signs of the beginning of the recovery. The underlying economic curve (job growth, office space leased, etc) looks strong and has for 7-9 quarters which portends the rapidly approaching rebound. The struggling areas with falling prices will attract investors because the properties purchased today will CASH FLOW now and appreciate later therefore absorbing the excess inventory and hastening the recovery. These areas will also offer opportunities for fix n flip strategies for eagle eyed investors with sharp pencils. The classic investment strategy of buy low and sell high never goes out of style, and this is the "low" boys and girls. You don't have to listen to a real estate agent, you just have to understand Econ101. My prediction: Denver is identified by the investor class as the next great place to invest and they arrive with bulging checkbooks and create their own weather by snapping up properties in bulk that fit the formula in a city that matches the proper profile. Denver is perfectly positioned for the next run through the appreciation curve with major capital improvements (new airport, larger convention center, a clean safe and fun downtown, quality of life, mountains and nature, the new lightrail system poised for completion and the x factor of being a cool and hip place to live). Jump in boys and girls, the water's fine! These are the good ol days!