Under contracts drop by 30%, but homes prices up

The extension of the tax-credit for home buyers removed a sense of urgency for home buyers in the Denver area last month, resulting in a record drop in home sales from October.

Only 3,444 Denver-area homes were placed under contract last month, a 29.9 percent drop from the 4,910 homes placed under contract in October, shows a report Tuesday by independent broker Gary Bauer.

That is the largest percentage drop in November from October since at least 1990, shows an analysis of historical data by InsideRealEstateNews.com. While under contract activity typically drops off for seasonal reasons in November from October, in most months it falls by 15 percent or less.

“We stole buyers in October from November,” as first-time home buyers rushed to try to close their homes before the end of last month, the previous deadline for the $8,000 tax credit for qualified first-time home buyers, said Tom Cryer, a broker with the Kentwood Co.

In early November, President Obama signed legislation continuing and expanding the credit to $6,500 for some current home owners .

“First-time home buyers were positively worried that the credit was gong to end, so they were rushing to do transactions in August, September and early October,” Cryer said. “Once they found they were going to have the tax credit extended for (about) six months, they backed off. I personally have had a number of my first-time home buyers say let’s keep looking until we find the perfect home, instead of settling for something less.”

Bauer agreed.

“Most of the first-time buyers would also get FHA-type loans, and under normal circumstances, they typically take 45 to 60 days to close,” Bauer said. “So technically, many of them were finding themselves in sort of a limbo by mid-October. They knew by Oct. 15 they were really pushing it to close by the end of November. We lost some of that momentum when the tax-credit was extended.”

And the number of under contracts also was down 5.3 percent from the 3,637 placed under contracts in November 2008. The under contracts last month were at a five-year low. The last November when fewer homes were placed under contract was in 2004, when only 2,786 homes were placed under contract.

David Simonson, of RE/MAX Professionals, was heartened that closings were up 23.3 percent in November from November 2008. There were 3,599 closings last month, compared with 2,920 in November 2008.

Closings, which reflect sales that took place earlier in the year, were down 9.1 percent from October, when there were 3,958. (For more on closings, please read this blog.)

Meanwhile, there were only 18,061 unsold homes on the market last month, a 17 percent drop from the inventory of 21761 homes in November 2008.

That marks the lowest unsold inventory for any November on record.

“I thought it was going to be even lower, in the 17,000s,” Bauer said. “I’m talking to a lot of people, in a wide-range of price ranges, who have taken their homes off the market and plan to put them back on next year. I think we’re going to see a huge surge in home listings starting in January.”

The average price of single-family homes closed in November rose to $265,498, a 9.45 percent increase from the $242,557 average price in November 2008, and a 1.4 percent increase from $261,771 in October.

The median, or middle price – considered a more accurate assessment of the market than average prices, because the median isn’t as easily as skewed by a few expensive sales – also rose in November from November 2008.

The median price of a single-family home last month was $218,000 in November, 11.8 percent higher than the median price of $195,000 in November 2008. However, the median price was down 1.8 percent from October’s overall median price of $222,000, according to Bauer’s data.

Much of that has to do with the mix of homes being sold, Bauer said.

“There is only a 10-day supply of homes priced under $100,000 on the market,” Bauer said.

He said that in January, 38 percent of the homes in the Denver area that sold and closed were priced under $150,000. The percentage of the homes in that price range selling has since dropped to 21 percent, he said.

And houses at the high-end of the market are being sold, as owners slash their prices.

“I’m seeing a number of sales of significantly depressed prices in Cherry Hills and Greenwood Village,” Cryer said. “Our market has done very poorly all year in the seven-digit price range, and we’re starting to see that break. ”

Last month, he said his office has placed under contract seven properties priced at more than $1 million. And one home that had been priced at more than $4 million at one time, sold last week at an auction for $1.6 million.

“You don’t need to many homes that had been priced at $6 million selling for $4 million, to start to move the overall average price,” Cryer said.

And Cryer said that jumbo loans, those above conforming rates of $417,000, have become more readily available in recent months “if you have stellar credit and work histories, with credit scores of at least 720. And you can expect to put down at least 20 to 25 percent.” It also helps if you have a relationship with the bank, he said.

In the first 11 months of the year, 39,111 homes have closed, a 12. 3 percent drop from 44,603 in 2008.

Fewer home sales represents almost a $2 billion drop in home sales.

“In the first 11 months of this year we have had $9.4 billion in home sales, while last year at this time we had $11.2 billion,” Bauer said. “And in 2007, it was $13.2 billion. So we are down almost $4 billion in two years.”

The impact of the reduced sales volume ripples throughout the economy, note brokers such as Bauer and economists.

November Under Contracts

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

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