Denver trails national surge in home closings

Denver-area home sales are in the doghouse, when compared to the surprisingly strong national market.

National existing-home sales   soared 23.5 percent in October from October 2008, at a time when year-over-year closings in the Denver area dropped by 7.6 percent.

And nationwide home sales rose 10.1 percent to an adjusted annual rate of 6.10 million from 5.54 million in September, according to a report released today by the National Association of Realtors.

By comparison, Denver-area home closings were up only 2.9 percent to 3,958 from 3,946 in October from September in the Denver area, shows an earlier report released by independent broker Gary Bauer.

Nationally, there were 4.94 million home closings in October 2008.

Bauer isn’t worried about the disparity between Denver and the national numbers. (For my analysis, go to this blog.)

“At this point in time, we are trailing,” what is happening nationally, Bauer said. “We led earlier in the year, and now other regions are catching up. There’s a lot of pent-up demand in other regions.”

Also, many other metropolitan areas across the country have shown much greater percentage drops in prices than in Denver,  Bauer said has led to bargain-hunters in other parts of the country seeking to sign on the dotted line.

Gregg Stratton, a research economist for the NAR, said that last point is an important one, when Denver is compared to the rest of the nation.

“I think a lot of the interest from buyers is coming in areas where there are a huge number of distressed properties, selling for huge discounts,” Stratton told me. “Denver is not so much experiencing the huge number of distressed properties or the huge discount in prices in Phoenix, or Las Vegas or a lot of other markets. People in these markets, especially first-time home buyers, are taking advantage of these huge price discounts.”

Bauer agrees with national leaders who say that the national surge was due in large part to first-time home buyers that wanted to take advantage of the $8,000 tax credit.

“We didn’t know until about three weeks ago that it was going to be extended, and the previous deadline was to buy your house by Nov. 30,” Bauer said.

“A lot of (the national increase in sales) is being driven by first-time home buyers taking advantage of the tax credits,” added economist Stratton.

Nationally, sales activity is at the highest pace since February 2007 when it hit 6.55 million.

Lawrence Yun, NAR chief economist, was surprised by the size of the gain.

“Many buyers have been rushing to beat the deadline for the first-time buyer tax credit that was scheduled to expire at the end of this month, and similarly robust sales may be occurring in November,” Yun said. “With such a sale spike, a measurable decline should be anticipated in December and early next year before another surge in spring and early summer.”

Now that the tax credit has been extended and expanded, potential buyers have until April 30 to have a contract in place.

“There is still a large pent-up demand that can be tapped before the tax credit expires,” Yun said.  “Our recent consumer survey further shows that 13 percent of successful first-time buyers had a previous contract that was cancelled or fell through – there likely are many more buyers who were attempting to purchase but simply ran out of time.”

Historically low interest rates also are boosting the market, he continued.

“Mortgage interest rates last month were the third lowest on record dating back to 1971,” Yun noted. According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage fell to 4.95 percent in October from 5.06 percent in September; the rate was 6.20 percent in October 2008. Last week, Freddie Mac reporter the 30-year rate dropped to 4.83 percent.

NAR President Vicki Cox Golder, owner of Vicki L. Cox & Associates in Tucson,  said strong demand by first-time buyers is creating some unusual conditions.

“In parts of the country, especially in Southwestern states but also in Florida and suburban Washington, D.C., we’ve been getting many reports of multiple bids in the lower price ranges with foreclosed properties getting absorbed quickly,” she said. That is definitely true in the Denver area, Realtors note.

“In fact, low-end inventory has become very tight in many areas and in some cases buyers are becoming more aggressive.” Golder said.

Total housing inventory at the end of October fell 3.7 percent to 3.57 million existing homes available for sale, which represents a 7.0-month supply2 at the current sales pace, down from an 8.0-month supply in September. Unsold inventory totals are 14.9 percent below a year ago. In the Denver-area, the unsold inventory stood at 18,945, an 18.1 percent drop from a year earlier and down 4.5 percent from September.

“The supply of homes on the market is now at the lowest level in over two-and-a half years – we’re getting closer to a general balance between buyers and sellers,” Yun said. The last time the relative housing inventory was this low was in February 2007 when it also was at a 7.0-month supply.

The national median existing-home prices for all housing types was $173,100 in October, down 7.1 percent from October 2008. Distressed properties, which accounted for 30 percent of sales in October, continue to downwardly distort the median price because they usually sell at a discount relative to traditional homes in the same area. The median price of all homes in the Denver area in October was $238,807.

“In the second half of 2010, if home values show consistent stabilization or even a modest increase, then home sales could remain at normal healthy levels because consumers would no longer be worried about a price over-correction,” Yun said.

He added that low home prices also are contributing to extremely favorable affordability conditions.

“With the abnormal drop in home prices over the past few years, the price-to-income ratio has fallen below the historic trend line,” Yun said. “This is adding to the buying power of the typical family, with affordability conditions this year at the highest on record dating back to 1970, but prices are beginning to flatten and are poised to rise next year.”

Single-family home sales rose 9.7 percent to a seasonally adjusted annual rate of 5.33 million in October from a pace of 4.86 million in September, and are 21.4 percent above the 4.39 million-unit pace in October 2008. The median existing single-family home price was $173,100 in October, down 6.8 percent from a year ago.

Existing condominium and co-op sales surged 13.2 percent to a seasonally adjusted annual rate of 770,000 units in October from 680,000 in September, and are 40.8 percent above the 547,000-unit level a year ago. The median existing condo price4 was $172,900 in October, which is 10.4 percent below October 2008.

Regionally, existing-home sales in the Northeast rose 11.6 percent to an annual level of 1.06 million in October, and are 27.7 percent higher than October 2008. The median price in the Northeast was $235,400, down 2.6 percent from a year ago.

Existing-home sales in the Midwest surged 14.4 percent in October to a pace of 1.43 million and are 28.8 percent above a year ago. The median price in the Midwest was $146,600, a gain of 1.1 percent from October 2008.

In the South, existing-home sales rose 12.7 percent to an annual level of 2.30 million in October and are 25.7 percent higher than October 2008. The median price in the South was $151,100, down 6.3 percent from a year ago.

Existing-home sales in the West increased 1.6 percent to an annual rate of 1.31 million in October and are 12.0 percent above a year ago. The median price in the West was $220,200, which is 14.7 percent below October 2008.

Contact John Rebchook at JRCHOOK@gmail.com or 303-945-6865.

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