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Home buyers have cold feet in hot market

Prices low, but many afraid to make bad move

By John Rebchook, Rocky Mountain News (Contact)

Published September 5, 2008 at 9:05 p.m.

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There were 25,673 homes for sale in the Denver market in July, giving buyers lots of choices, although that's 15.2 percent lower than the unsold inventory a year ago.

Photo by Dennis Schroeder / The Rocky/2004

There were 25,673 homes for sale in the Denver market in July, giving buyers lots of choices, although that's 15.2 percent lower than the unsold inventory a year ago.

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Sarah Stansbury, 23, has a great job, doesn't have a house to unload in a tough market and has lots of homes to choose from.

But after spending months looking at dozens and dozens of houses in the Denver area, about half of them foreclosures, she threw in the towel a couple of weeks ago and decided to rent.

"I did feel a sense of urgency," when she began her search for a home about nine months ago, said Stansbury, a mechanical engineer at Lockheed Martin.

But after being outbid on some homes and disappointed by many others, she finally decided that if she gave house- hunting a break for even a year there would still be plenty of choices if she decides to re-enter the home-buying market.

There's also a possibility that Lockheed Martin might transfer her outside of Colorado in three to five years, so she's not sure that owning a home in the Denver area would be such a sage investment.

Stansbury isn't alone. Many people in the Denver area have decided not to take the home- buying plunge now.

"I really, really think people are in a state of panic," said Michelle Potter, a broker with Prudential Colorado. "They are absolutely terrified of making the wrong move. Everyone wants to get an absolutely screaming deal. And there are some screaming deals out there.

"I think people will be kicking themselves even next spring for not buying now."

Potter and other brokers say the fundamentals of real estate in Denver - unlike the rest of the country - are stronger than they have been since the aftermath of the energy bust in the late 1980s.

Mortgage rates, still hovering at around 6.25 percent for most qualified buyers, remain low by historical standards.

There were 25,673 unsold homes on the market in July, giving buyers plenty of choices, although that's 15.2 percent lower than the unsold inventory a year earlier.

And while a smaller supply of homes usually means higher prices, that is not the case in this market, as foreclosed homes drive down prices. The average price of a single-family home sold in July was $283,650, about 10 percent lower than a year ago. August data will be released Tuesday by Metrolist.

While falling prices are not good news for prospective sellers, they are excellent news for buyers. Yet few people are breaking down doors to buy a home.

The first seven months of the year saw 28,594 home closings, a 6.2 percent drop from the 30,493 during the same period in 2007.

"In a vacuum, that all makes sense why now is a good time to buy," said Byron Koste, director of the CU Real Estate Center. "But you have to take the decision out of a vacuum and put it on a big canvas."

He said while a strong case can be made to buy now, there are just as many reasons to wait.

First, this is an election year, and it is normal for home-buying activity to slow until there is more certainty about who will be leading the country, he said.

And while the Denver area economy is relatively strong compared with the rest of the nation, "it's not as robust as we had been accustomed to for a number of years."

Also, with the demise of the subprime mortgage market a little more than a year ago, many loan programs for first-time buyers have disappeared, making it harder to buy a home.

"And then there is the problem of selling your existing home," Koste said.

Lou Barnes, principal of Boulder West Financial, said unless people must sell their homes, most today would rather "go to the movies," than compete with the record number of foreclosures on the market.

However, there are signs that home prices could be poised to rebound, he said.

"One thing is that a lot of homes can be bought for less than the cost to build it," Barnes said. "We've all been trained to look at comparable sales, rather than replacement cost. But the replacement cost is a broad indicator of intrinsic value."

The last time people were able to buy homes for less than the replacement cost was during the late 1980s, which was followed by a housing boom that only slowed with the tech crash of 2000 and 2001, and the terrorist attacks on Sept. 11, 2001.

Also, apartment vacancy rates are low and rents are rising, a sign of pent-up demand to buy homes, Barnes said.

Eli Buzas of Colorado 1st Properties in Niwot said that when prospective buyers say they like another home better, he thinks there often isn't another home waiting in the wings that has a better floor plan, a nicer yard or a better price. It's more likely they have cold feet, he said.

He's also noticed that an increasing number of people are using home inspections as a way of backing out of a contract.

"I don't know if it is buyer's remorse or what," he said. "I just don't think there is much of a sense of urgency on the buyer's part."

Chris Mygatt, president of Coldwell Banker Colorado, said that fewer people can buy expensive homes these days because jumbo loans - loans for mortgages that exceed Fannie Mae and Freddie Mac limits - are more expensive and it's harder to qualify for them.

Jumbo loans are hovering at around 7.4 percent, about a point higher than conventional loans. Once the jumbo market returns, there will be a surge in people buying expensive homes, he said.

Roger Reinhardt, executive vice president of the Home Builders Association of Metro Denver, said consumers lack confidence that now is the time to buy.

"Everybody wants to buy at the bottom," Reinhardt said. "But you never know when you have hit the bottom until long after it has passed."

rebchookj@RockyMountainNews.com or 303-954-5207

7 reasons to buy

* Sellers are motivated and willing to cut deals.

* You can find bargains in foreclosures, especially if you're willing to fix them up and put up with the hassles of dealing with red tape.

* Interest rates are still relatively low.

* Lots of inventory to choose from.

* Even if you sell your home for less than you might have received two or three years ago, you probably can make up the difference by buying right.

* You often can buy homes for less than the replacement cost, a signal that home prices are more likely to rise than fall.

* If you wait, someone else may snap up your dream home.

7 reasons to wait

* The slide in housing prices might continue. Why buy now if you can get the same house at a 10 percent or 15 percent discount in a year?

* You may not be able to sell for the profit you need.

* After years of lax lending, it's more difficult to qualify for a loan than anytime in the past 30 years.

* If you fear losing your job or face a big cut in income, you could end up owning a home you can't sell for a profit.

* If your company might transfer you from Denver in the next few years, you may have the hassle of selling a home that has not risen in value much.

* If you bought in a place that has a lot of home construction, your house is probably worth less than your mortgage.

Comments

  • September 6, 2008

    11:10 a.m.

    Suggest removal

    athought writes:

    The Realtors are dreaming that the good times are going to come back anytime soon. The tax rebate given to first time homebuyers will be a major boon on future home sales. Basically the Govt will loan you 7500 for buying a home this year or next but then you have to pay it back in 750 increments in your income tax over the next 10 years. If you sell your home before then, you have to pay the whole amount back. Since so many Americans are good at saving money (SIC), this will cause huge tax bills for anyone who uses this bad gimmick. Affordability indexes for most major cities are still over 100 indicating the lack of income by most people to afford housing. Rents are still depressed according to the historical ratios so why buy now?!? We are still in for another 10% cut next year and most of the option arms are set to burst next year. Pain is coming for those who bought what they could not afford.

  • September 6, 2008

    11:50 a.m.

    Suggest removal

    denvernorthwest writes:

    it is $500 a year over 15 years. I laugh at all of the people who think they are economist. Nobody really knows when the shakeout will end only that it will. For Dear Sarah you are a moron, 3 to 5 years for a possible transfer? If you lose money, you did a poor job of house hunting. It's called pulling the trigger, just do it. Some people overthink everything.

  • September 6, 2008

    3:41 p.m.

    Suggest removal

    cdmdenver writes:

    HOT REAL ESTATE MARKET NOT FOR LONG!

    I personally think Colorado was ahead
    of the Nation on foreclosures (Short Sales).

    The Real Estate Market is near bottom, there
    are Good, and the "Occasional Fantastic Deal"

    Like Everything else in life, you make your money
    "WHEN YOU BUY",house or ANYTHING else for that matter...
    Cars, Homes, Property, BUY LOW-SELL HIGH.

    If you buy Anything at the right price you will
    always come out, because you did not OVERPAY!

    The R.E market will Rebound! Guaranteed.

  • September 6, 2008

    4:03 p.m.

    Suggest removal

    WarrenJimmyBuffett writes:

    cdmdenver,
    I believe your guarantee is worthless, just like your opinion. Learn something about fundamentals and then tell us something useful.

  • September 6, 2008

    6:31 p.m.

    Suggest removal

    cdmdenver writes:

    Warren Jimmy Buffet:
    cdmdenver,
    I believe your guarantee is worthless, just like your opinion. Learn something about fundamentals and then tell us something useful.

    Warren Jimmy Buffet:
    You should stay safe and use your financial fundamentals
    and preserve your way of life in your trailer!
    Don't hide behind other peoples names, fundamentals??
    Don't kid yourself , people who understand fundamentals
    make their own financial decisions!

  • September 7, 2008

    8:18 a.m.

    Suggest removal

    WarrenJimmyBuffett writes:

    cdmdenver,
    Nice response. Your wit and reasoning is good for a 3rd grader. I expect you to leverage yourself silly, lose everything, and then go play 4 square at recess.

  • September 8, 2008

    1:12 p.m.

    Suggest removal

    can_do writes:

    Useful Information: don't pay attention to Buffett.

    In my opinion, Buffett is a pessimistic, negative thinker with too much spare time. If you explore the real-estate section online, you will see many comments from Buffett. Comments are gloomy and usually refer to the incompetence of others, a sure sign of someone with low self esteem.

    Offer your pity: Buffett obviously has made some poor investment decisions and feels the need to cast shame on anyone who doesn't share his/her remorse and gloomy outlook.

    Buffett: savvy investors make money whether the market is going up or down. So, don't waste the keystrokes, none of us are buying into your drama.

    FYI - due diligence, combined with a solid understanding of fundamentals, reveals that cdmdenver is correct on several fronts, ie. -
    - "buy low & sell high" - nobody will disagree with that
    - the market has rebounded after every downturn, ever, and will rebound again, guaranteed, it's just a question of when

    Fundamentals also show us that leverage has the potential to magnify investment returns, so if you don't utilize leverage, your returns are inherently limited. Even Berkshire Hathaway uses debt financing. However, I agree that over-leveraging is silly.

    Additionally, if you tracked more than 400 local market data points on a monthly basis, like I do, you would know the state of the market, which you obviously don't.

    Oh, and, recess taught us how to release stress and bond, positively, with our peers.

    Maybe you should write this stuff down.

    I look forward to ignoring your gloomy, doomsday response (as usual), have a great day!

  • September 9, 2008

    8:34 p.m.

    Suggest removal

    WarrenJimmyBuffett writes:

    can-do, Hope is a bad reason to invest.

    When there is a storm outside, it is not pessimistic to say there is a storm outside. However, it is foolhardy to tell everyone it is perfect weather to get a sun tan.

    Being a positive, can-do person during a downturn is dangerous. If you encourage people to buy a house now, you are either foolish or perpetrating fraud. So, what are you, a fool or a criminal?