John Rebchook is a former Rocky Mountain News reporter with more than 30 years of experience in writing and communications... For a snapshot of market activity in any given month, I prefer under contracts as opposed to closings.
The reason is because closings reflect sales activity that took place in earlier months, so it does not tell you how active the market was in that market in a precised point of time.
For example, in January, all of the closing activity will be do to sales activity that took place in 2009, so the under contracts will be a far better barometer of the health of the market than the closings.
I look at under contracts as a spring that feeds a river of closings. Ironically, sometimes the river can be rising because the flow had been dammed-up by problems such as appraisals, inspections, and trouble getting financing. And when the logjam breaks, there’s a flood of closings, even if sales (under contracts) are at a trickle that month.
Metaphors aside, in a tough market you might see a lot of closings in some months because a large number of homes that were placed under contract in June, for example, are closing in September and October, instead of in July and August, like they would in an easier market.
In addition, I think the typical consumer considers putting a home under contract the same as selling it. When they come into the office on Monday and say they sold their home on Friday, they’re usually talking about placing it under contract.
“I finally closed on my home,” they then will wearily say three months later, after surviving a brutal inspection, when the prospective buyer gave them a laundry list of things they want fixed before they will consummate the deal.
That said, closing are obviously extremely important – they are the real thing. Although not a good metric for monthly activity, they represent actual money changing hands. A certain number of under contracts will never close, so in one respect, they are always making the market look better than it is.
And there is no denying that last month was a banner November for closings.
There were 3,599 closings in the Denver metro area last month, shows data from Metrolist compiled by independent broker Gary Bauer. That is a 23.25 percent increase over November 2008.
An analysis of November closings by InsideRealEstateNews.com, using information supplied by Bauer, shows that last month represents the third best year-over-year, percentage increase for a November since 1990.
Last month also was the largest percentage increase for a November in five years. In November 2004, there were 4,545 closings, a 23.64 percent increase from the 3,676 closings in November 2003. And in November 1992, closings rose by a whopping 44.3 percent from November 1991. (Indeed, it is interesting to note that in 1991, there were 3,107 closings, only 15.8 percent fewer than last month.)
Perhaps most encouraging, last month’s closings represent $859.63 million in sales, a 29.7 percent increase over the $662.53 million in home sales in November 2008. That is because not only were sales up, but so was the average price. The average price for all homes and condos closed stood at $238,852 last month, compared with $226,895 in November 2008, Bauer’s report shows.
Another way to look at it: That’s almost $200 million more in home sales last month than in November 2008.
That means a lot more money flowing in the Denver-economy, just in time for the holiday season.
Contact John Rebchook at JRCHOOK@gmail.com or 303-945-6865.
