John Rebchook is a former Rocky Mountain News reporter with more than 30 years of experience in writing and communications... The Denver home market last year was a little bit like being the valedictorian of your class - a remedial class, that is.
Most metrics for the housing market in 2009 when compared to 2008 – from the number of homes sold, prices and dollar volume – were underwhelming, shows a report released today.
Still, Denver is a shining star compared to much of the nation, although the housing bar is pretty low elsewhere.
Indeed, he said “if there is anything sunny about 2009, which was a very challenging year, not only in Denver but all across the country, it all took place in the last quarter. We know what drove the lower-end home activity – it was people trying to get under the wire and close homes in case the tax credits went away. But in November we also started to see some improvements in the $1 million market for the first time in 20 months. We will be watching the first quarter very carefully to see if this trend continues into 2010.”
Under contracts down 10%
The report by independent broker Gary Bauer showed that 56,174 homes were placed under contract last year, down 10.3 percent from the 62,647 in 2008, which was also a weak year for sales. Bauer bases his report on information obtained from Metrolist. And sales volume is at a 10-year, falling by $1.75 billion from 2008, which itself was a lackluster year.
“While the Denver numbers aren’t particularly impressive, when you compare them to Arizona, Nevada and most other states, the Denver and Colorado numbers look pretty good,” said Jeff Thredgold, economist for Vectra Bank.
Bloodbaths in other markets
“We may be flat, but overall we were not down 40 percent or 50 percent, or so, like Las Vegas, Phoenix and San Diego,” he added.
That may be little consolation to someone who lost their job and can’t sell their home because the mortgage is worth far more than the house.
“I think it is a case of misery loving company,” Thredgold said. “We saw some real bloodbaths in other markets. As bad as things were here, just be glad you didn’t buy a house in Las Vegas, Nevada, a few years ago.”
Byron Koste, head of the CU Real Estate Center in Boulder, is on the same page as Thredgold, when it comes to the Denver-area housing market.
“It is not pretty,” Koste said. “Anyone who thought it was going to be pretty, was smoking something. It reflects the general economy and the general economy is flat, at best. We were all hoping it was going to be better than the general economy, and it was better than the general economy, but it still wasn’t very good. To think we are out of the recession is being very optimistic. But it could have been a lot worse. And a lot of places are worse, a lot worse.”
Hopeful signs emerge
Chris Mygatt, president of Coldwell Banker Colorado, said “no one is going to be terribly surprised by the numbers.
David Simonson of RE/MAX Professionals released a similar report and focused on December compared to November and to December 2008, which showed improvements.
The average price of a single-family home sold and closed last year, for example, was $281,756, 6.1 percent higher than $265,498 in November and 13.6 percent more than the $240,945 in 2008.
That shows that more move-up homes are selling in recent months, and not just the starter homes as was the case earlier in the year, Bauer said, not that housing prices are appreciating.
But only 3,028 homes were placed under contract in December and 2,959 closed, a 7.9 percent and 8.5 percent drop, respectively, from December 2008. “Seasonality came into play in December,” Bauer said.
There were 3,444 closings in November, 12.1 percent more than in December, but such a drop is expected for seasonal reasons. Closings fell by 17.8 percent in December from the 3,599 in November. Closings reflect sales that occurred in previous months.
The number of homes sold and closed fell 12.1 percent to 42,070 in 2009 from 47,837 in 2009.
Fewer closings and lower prices translated into the the lowest sales volume in a decade. Almost $10.2 billion in homes sold last year, down 14.7 percent from $11.95 million in 2008.
“Ten billion is still a big number, ” Bauer said, but added the drop of $1.75 billion from 2008 impacts the economy far beyond the housing market, as other industries also depend heavily on a robust housing market.
Both Bauer and Thredgold said the market would have been hammered even more, if not for the $8,000 tax credit to first-time buyers. They also believe the $6,500 credit for qualified existing home owners will help this year.
Tax credits role
Both think that Congress will extend the credits beyond the current deadline April 30 to continue to drive demand for the market. “I think they’ll be extended until the end of the year, given we have a Democratic Congress,” Thredgold said.
Last year, most of the interest was in lower-priced homes, with multiple offers driving up prices. Financing was tough for those buying expensive homes.
Jim Nussbaum, a broker at the Kentwood Co., who specializes in selling top-end houses, saw the impact first-hand.
“I’m entering my 40th year in the business,” Nussbaum said. “Last year was the most challenging in my career.”
He sold about $10 million in homes last year, about half what he did in 2008.
“The issue for the higher-priced homes is that banks are reluctant to make non-conforming loans because they can’t sell them to Fannie Mae and Freddie Mac,” Nussbaum said.
The most expensive home he sold was slightly above $1 million, accounting for about one-tenth of his sales total. In most years, he sells homes priced well above $1 million. He currently is listing two properties – a condo for $13.9 million and a home for $22.9 million – and if either of them sell close to their asking price this year, it would eclipse his 2008 total.
“I think 2010 is going to be a much better year,” Nussbaum said. “I had four closings in December and I’ve already closed one this year. What we need to see is reasons for increased consumer confidence I still think we have got everything going for us in Denver.”
Economist Thredgold said that now is a a great time for people to buy, especially lower-priced homes. There were only 16,456 unsold homes on the market at the end of last year, a 16 percent drop from the 19,600 on the market at the end of December 2008.
Usually, when the supply goes down, prices go up.
In addition, while interest rates have risen slightly, they are still near record lows, he noted. But he said there is a good chance that the Fed will start to raise rates later this year, which means that home prices and mortgage rates could be higher.
High-end homes in a world of hurt
“I do think there will be more pain at the upper-end,” Thredgold said. “There might be some deals out there, but I would bet that a typical $800,000 house on the market today, will cost less a year from now.”
Koste said the expensive homes that are especially vulnerable, are those only were sold for $1 million because they were big.
“They weren’t built in areas where there were any services around them; there not in traditional high-end communities; and there’s nothing unique l about them. Half the space in the house is never even used, ” Koste said. “Some builder just did the arithmetic and multiplied the square footage by a number and said this is a million-dollar home. You can say it is a bargain because it is now selling for less than $1 million. But it never was really worth $1 million. It never should have even been built.”
But Lydia Lin, owner of One Realty in Denver, said “everyone has heard stories,” about well-heeled buyers getting snapping up high-end homes at bargain prices.
She said she was just talking to a doctor who paid $850,000 for a new home in Arvada. The seller had slightly more than $1 million into it and was sick of owning it.
“I didn’t even know homes sold for that much in Arvada,” Lin said. “But he showed me pictures and oh my goodness, it is pretty spectacular. It is big and beautiful with gorgeous view of the mountains.”
The flip side is she was talking to an older couple who last year bought a 4,000-square-foot home on the golf course in Castle Pines.
“He was making $1 million a year and he lost his job,” Lin said. “The wife is cleaning the house herself and hates it. But I told them if they paid market rate for it last year, and didn’t get a screaming deal, they are better off waiting than trying to sell it now.”
She said they have enough money that they aren’t fearing foreclosure.
Low-end demand continues
But Lin said far more typical is demand for lower-priced homes.
One of her clients, a first-time buyer, recently paid $177,000 for a home in Park Hill. The home was built in 2001 and in 2002 had sold for $249,222, according to public records.
The woman had been out-bid on four other homes, while working with another broker, and was getting worn out by looking at many homes and keep coming up with with losing bids. She also was stressed because she feared the tax credit would disappear before she found her castle.
Lin said that while her sales volume was down in 2009 from 2008, several sales people in her office could boast they had their best year ever in 2009.
“I think you will find that a lot of brokers think 2010 is going to be better than 2009,” she said.
But Koste, of CU, is a lot less optimistic.
“I think 2010 is going to be a lot like 2009,” Koste said. “For the housing market to improve, what it really needs is to have a lot of companies relocating here. And I don’t see that on the horizon. Getting a company here and a company there, doesn’t cut it.”
Bauer, however, thinks the market will start out slow, but will gather momentum later in the year. Buyers will begin to have more of a sense of urgency as they start to see mortgage rates and prices rise slowly, and the risk that the tax credits will not be extended, he said. And hopefully, the economy will start to improve in the second half of the year, as many economists are predicting, he said.
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Denver market sales volume falls by $1.75 billion
Home prices adjusted for inflation
About $10 billion in homes sold last year in the Denver area. Sources: Gary Bauer, Metrolist.
Home sales fell in 2009 from 2008, but many Realtors expect stronger activity this year. Sources: Gary Bauer, Metrolist. (Single family refers to condos and single-family homes, while residential reflects only single-family homes.)
Contact John Rebchook at JRCHOOK@gmail.com or 303-945-6865.
Than you for this post, much better than the Denver Post most recently—depressing.
I think equity on paper is better than no equity on paper, but we will never sustain 4 or 6% annual increases like we did in the early part of the Last Decade. That was then and this Now, and maybe that is a good thing!
Regards,
Niccolo Casewit AIA
The legends on the graphs are wrong.
"Usually, when the supply goes down, prices go up"
But, is supply really down?
Shadow inventory is being ignored. I don't know how large it is in greater Denver, but in parts of California it is huge.
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