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Denver area sees 20% drop in unsold-home inventory

By John Rebchook, Rocky Mountain News (Contact)

Published September 10, 2008 at 12:05 a.m.

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The number of unsold homes in the Denver area plunged by 20 percent in August from a year earlier, the largest percentage drop in five years.

There were 24,648 unsold homes on the market last month, compared with 30,827 in August 2007, according to reports released Tuesday based on Metrolist data.

"This is very positive news," said Larry McGee, principal of the Berkshire Group. "A declining inventory eventually indicates that housing prices will rise."

But that's not the case yet.

Both the median and average prices of single-family homes sold last month showed double-digit percentage drops.

The average price of a single-family home was $284,531, down nearly 14 percent from $329,783 in August 2007.

And the median price of a single-family home was $225,000, down nearly 13 percent from $257,500 in August 2007.

"Clearly, we are not at the end of the influx of foreclosed homes entering the market. But in my mind, we are getting back to a normal market where we are going to be seeing a standard inventory of 22,000 to 26,000 homes available each month," said independent broker Gary Bauer.

McGee's analysis of the data found that 15 percent of all the single-family homes sales in August were for homes priced at $100,000 or less, while they accounted for 5 percent of the sales a year earlier.

McGee said an increasing number of investors are buying homes priced from $50,000 to $100,000 and are paying cash or making large down payments so they can rent them for a profit.

"That's also a good thing, because it's taking a lot of these lower-end properties off the market," McGee said.

Sarah J. Hays, a broker with Metro Brokers/Colorado Investors Real Estate Services, said she knows many homeowners who want to sell their homes and move up, but they don't want to compete with all the foreclosed homes on the market.

"They do not want to jump into this market," Hays said. "They either can't or aren't willing to take the loss on their current homes. I tell some people they would be better off renting their home until the market recovers. But some people don't want to be a landlord."

Bauer said the recent bailout of mortgage giants Fannie Mae and Freddie Mac might cause an influx of first-time buyers for the rest of the year.

Mortgage rates have fallen since the announcement Sunday, but Bauer said there is no guarantee that trend will continue. Overall, Bauer said he thinks prices will be flat, or slightly down, for the remainder of the year.

He expects prices to rise next year, although there's a possibility they will fall slightly in downtown Denver because of continued construction.

National index of homes sales falls in July

Pending U.S. home sales fell more than expected in July as the housing market's struggles continued, an industry group said Tuesday.

The National Association of Realtors said its seasonally adjusted index of pending sales for existing homes fell 3.2 percent to a reading of 86.5 from an upwardly revised June reading of 89.4.

The index was 6.8 percent below year-ago levels.

Wall Street economists surveyed by Thomson/IFR had predicted the index would fall to 88.6.

Lawrence Yun, the trade group's chief economist, forecasts U.S. home sales are on a pace to fall 11 percent from last year to just over 5 million in 2008.

Comments

  • September 10, 2008

    7:32 a.m.

    Suggest removal

    jlgraybill writes:

    This decrease in inventory isn't "good news" if the reason is that people are deciding not to throw their house in the mix given the lower prices. That's what I'm seeing with some of my neighbors. Maybe it's not across the metro, but I really think the reason the Inventory has fallen is because a lot of home owners don't want to compete with the foreclosures. This looks good on the Inventory figures, but it won't lead to a price increase. Instead, it will create a pent up inventory of homes which are just waiting in the wings to be added to the market. I just don't see or know of many buyers who are out there feeding a high level of demand either. This could actually keep the market flat or declining for a very long time. That's just my opinion with what I see at a microeconomic level. Hopefully it's not the case for all of Denver, but only time will tell.

  • September 10, 2008

    9:44 a.m.

    Suggest removal

    FightJobs writes:

    100% agreed....its just a way of shifting "inventory" numbers as a whole - opposed to categorizing the types of properties for sale to gain a true representation of the inventory.

    Also something to mention here is the stifling credit criteria....

    As long as the credit criteria for either purchasing or refinancing is as stringent as it is....we will not see any improvements to the housing crisis.

  • September 10, 2008

    3:36 p.m.

    Suggest removal

    can_do writes:

    I also agree.

    The drop in inventory is due to the increased pace of foreclosure sales, which is also causing the downward drag on median and mean prices. The market for homes $150K and below is booming. Bidding wars on these homes are not uncommon right now. In this price range, some markets, like Aurora North, have seen a steady decline in inventory from nearly 5 months to under 3 months since the beginning of the year, which indicates a shift from buyers to sellers market.

    However, homeowners are holding out. For many people, now is a horrible time to sell. Additionally, the drought in the mortgage market has made qualifying for loans the biggest hurdle for many families looking to purchase.

    The good news is that investor confidence in Denver is high. Investors will probably keep the prices in our market from dipping much lower. Also, with rates dropping as we speak, more people will qualify and want to purchase, which should help stabilize the market.

    None of us can predict the future, but if you pay attention, you can see the market shifting.

  • September 11, 2008

    9:59 p.m.

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    denvernorthwest writes:

    none of you seem to understand pent up demand. there are so many people who want to sell their homes and move up the market but are waiting for the perfect time. once the inventory decreases a little more there will be a shortage of good homes and prices will start to increase. the smart ones will get in sooner than later and will see a great opportunity to time the market.

  • September 12, 2008

    7:58 a.m.

    Suggest removal

    jlgraybill writes:

    Denvernorthwest: You just mentioned that we don't understand pent up demand. Perhaps you don't understand the economics of Real Estate Supply & Demand based on your note.

    You stated "there are so many people who want to sell their homes and move up the market but are waiting for the perfect time". That doesn't create an increase only to Demand. You have to sell a house to move up. By selling their homes (or trying to sell), these homeowners would be increasing the Supply as well, and a market will not increase based on this course of action.

    What you need to increase Demand is for a chain effect to occur, beginning at the bottom. The non-homeowners (either the 20-somethings, lower income who rent, or investors) need to continually be added to the marketplace to increase the demand of the lower priced homes. Then, the homeowners with the lower priced homes will sell and upgrade their home, and this will lead to a cascading effect all the way up.

    Right now, tight lending standards are keeping many of the renters and investors out of the market. Also, for the lower priced homes which ARE selling, it's not the homeowners who are benefitting. It's due to foreclosures and a dump of properties by the banks. This does not create a market where people are able to upgrade. The existing homeowners would have to sell their homes at a loss to compete with the foreclosures, and this doesn't give the leverage to create an increase in demand in the mid-markets.

    Look at your history. There has never been a Real Estate market crash immediately followed by a period of Real Estate expansion and growth. Crashes are followed by plateau like periods of stability. A growing Real Estate market is not right around the corner, no matter what you may think.

    I'm not saying that we haven't hit bottom, because we may be there. But for those who actually understand the Real Estate cycle (and aren't just listening to their Realtors who want the homeowner to buy so they can feed their families), there's no rush to buy a home if our personal lives don't dictate a purchase. The two possibilities are that the market will continue to decrease, or that the market will stabilize and follow a plateau for a while. Neither environment facilitates an increase in pent up demand.

    Just my opinion based on my Economics background and training, and what I see in my Microeconomic world.