John Rebchook is a former Rocky Mountain News reporter with more than 30 years of experience in writing and communications... Denver-area homes placed under contract in July plunged 28 percent in July from July 2009, as the fall-out from the home buying tax credits continued longer than expected.
“I think July was a grim month,” said independent broker Gary Bauer, who prepared a report on Denver-area home sale activity, using Metrolist data. It was the largest year-over-year in July sales since at least 1990.
There were 3,808 single-family homes and condos placed under contract last month, compared with 5,266 in July 2009. The number of home closings from July 2009 fell by 26.6 percent to 4,440. Year-to-date, the 32,203 homes under contract represent a 6.2 percent drop from the first seven months of 2009, which was one of the worst years on record.
“I really am surprised,” by the poor showing, Bauer said. Although he and others knew that sales activity would drop following the expiration at the end of April of the tax credits, which provided provided as much as $8,000 to qualified first-time home buyers, he thought the market would have improved, especially since mortgage rates are at record lows and sellers typically are more willing to deal on prices.
“I thought we would see a little larger momentum,” Bauer said. “If you look at consumer confidence, it just continues to decline. Making a long-term purchase such as home, has just fall off the radar screen for a lot of people.”
Jeff Bernard, a RE/MAX broker who concentrates on business and technology consulting, said that the 28 percent is huge, and does not bode well for the future.
Market fell off the cliff
“Wow,” said Bernard, principal of Bernard Analytics and other companies. “A 28 percent drop is falling off the cliff. I wouldn’t want to fall off this cliff without a helmet on. And this could be a turning point, as we are headed into a period that sales tend to drop off for seasonal reasons.”
Bernard said that he thinks the country is moving into a deflationary cycle, something that hasn’t been experienced in the U.S. since the Great Depression. He said that people aren’t buying, because they think that both interest rates and home prices will fall even lower, which is a classic sign of deflationary thinking.
However, Dave Liniger, the founder of RE/MAX International, isn’t losing any sleep over deflation.
“It’s not going to happen,” Liniger said last Sunday. “Our government likes to spend money too much.”
Meanwhile, the Metrolist data also shows that the number of unsold homes on the market rose 14.6 percent from July 2009 to 23,933 form 20,890. And the average price of a single-family home that closed in July rose to $297,216 from $299,375 a year earlier. The median price of a single-family home rose to $240,000 from $229,900. The average price of a condo closed fell to $154,209 from $165,530 and the median price of a condo fell to $129,00 from $145,500.
Tax credit debate
Bernard remains a big defender of the tax credits. He believes there are too many other dynamics in the market to blame the downturn on the demise of the tax credits.
But Lon Welsh, principal of Your Castle Real Estate, is not sure the tax credits worked out the way the government expected. He said research indicates 80 percent or more of the buyers who took advantage of the credits planned to purchase anyway, “and this just was a free gift from the government. ”
He said one of the Realtors in his company represented a first-time home buyer who was planning to buy a home this month when his lease was up. But the $8,000 tax credit more than made up for the $1,000 cost of breaking his lease.
Welsh compared the program to cash-for-clunkers.
“This stimulated a lot of demand,” Welsh said. “However, after that credit expired, sales for cars dropped significantly. If you compare the size of the mountain of “excess sales” before the cash for clunker credit expired and the valley of “lost sales” after the credit… they turn out to be about the same size. There was essentially no net change in the total number of cars sold. But the taxpayers have a larger deficit to pay off down the road. I think we’ll see the same thing with this home tax credit. We’ll see a “hangover” of low sales volume for three to six months to make up for the excess sales in November to December 2009 and the first few months of 2010. I’ll go out on a limb and forecast that total home unit sales in Denver will be lower in 2010 than they were in 2009. ”
More bad news on the horizon
He also expects prices in the fourth quarter will be lower than in the fourth quarter of 2009.
“Expect to see some negative headlines coming up,” Welsh said.
Al Latham said that this is the worst real estate downturn he has seen during his four decades in the business. ”This is worse than the late 1980s, by far,” said Latham, the president and founder of with Distinctive Properties.
He said that in areas such as Cherry Creek, some homes have dropped in price by $800,000 or $900,000, and that has led qualified buyers to think they may drop even more. ”The thing is, a home that was at $1.9 million and is now on the market for $950,000, never should have been priced at $1.9 million,” Latham said. “They were grossly over-priced.”
He said there is a huge disconnect between buyers and sellers, especially in the luxury market. He said his wife, Debbie, has shown one couple, looking for a home in the $800,000 range, about 50 homes in the past six or seen months.
Latham, however, supports the tax credits.
“It helped kids get into homes priced under $250,000,” Latham said. “It was a great way to get young people into the loop of homeownership, which will help them in the long-run. Mark my words, and I base this on 40 years of selling homes, in two or three years, people are going to regret not buying today at these prices and these interest rates.”
Market poised for rebound
David Binkowski, principal of Prudential Real Estate of the Rockies, said that he thinks the 28 percent drop in sales was only a lull in the market, which he believes is poised to rebound.
“I think a drop off is expected whenever you end a program like this,” Binkowski said. “But the truth is, if you do the math, home are better priced today because of the lower interest rates. I think some people are waiting because they think there might be another government incentive program or something like that. I think things are looking up for August. It all comes down to jobs and a sense of urgency. I would like to see the government do more to create jobs than offer another incentive program.”
Summer time, buyers are sluggish
One thing that could have cooled July sales was the hot weather, said Stephanie Prather, of 8Z Real Estate.
“It has been a really hot summer,” said Prather. “You can’t overlook the impact of weather. When it is really hot, it just plays havoc with people’s minds. It crates a bit of a summer doldrums. Maybe we will see some pick up in September, when things are cooler and people who don’t have to worry about kids and school will be back in the market.”
September sale surge?
Corey Wadley, the co-owner of Nostalgic Homes, said that in its Northwest Denver market where it does the bulk of its business, overall, transactions were down 42 percent from July 2009; sales volume is down 41 percent; while the average sales price is up a fraction.
He said that across the market, sellers appear to lack confidence in selling their homes. But he noted that his wife, Jenny Apel, is staring to see a pick up in listings. Apel is the top broker and one of the owners of Nostalgic Homes.
“It feels like confidence is back,” Wadley said. “It takes a couple of months, unfortunately, for that to turn into volume, so we are feeling good about September and beyond.”
Contact John Rebchook at JRCHOOK@gmail.com or 303-945-6865.
Interesting theory blaming the drop in sales to the effects of Global warming. The only problem with that is, people looked at the homes in May, 45 day before closing in July. But you knew that. What you meant to say was, it was so hot in July the buyer did not show up to inspection and the contract terminated or it was so hot, the lender did not come to the office so the buyers were unable to get a loan. Possible you meant, it was so hot in July, sitting in a title company for 2 hours, with cookies, water and air conditioning would be unbearable so the buyer just did not show up and lost earnest money. I would have done the same thing. Well at least after real estate, you can continue your career as an economist.
. In any case I think you have hit the reason for sales falling off the cliff right on the mark!
Lon: “He said research indicates 80 percent or more of the buyers who took advantage of the credits planned to purchase anyway…” YIKES!
Another way to state that statistic is as follows: One out of five people who purchased a home did so as a direct result of the home buyer tax credit. The economic multiplier effect from obtaining federal funds and distributing them locally provided an incredible boost to our local economy. The positive ancillary effect of dollars spent on improving those homes that were sold as a result of the tax credit, including: home improvement supplies, furniture, appliances, consumer electronics, and more truly provided a wide range of local economic stimulus. Lower housing inventories, which keeps prices more stable were another benefit of the tax credit. And that’s before we consider the present value of the money spent on all of that economic activity.
Let’s have a glass of wine and talk further…but right now I need to get ready for the meeting you and I have at 3:00 today.
What is clear from reading all of the analysis is that statistics lie and opportunists use statistics to try and put lipstick on a pig.
The uncertainty that prevails in the real estate market is one that prevails in all of the markets. Political uncertainty! There is NO stability that can be sensed from what is going on in Washington. New taxes, no taxes, expiring tax relief, housing tax credits, imposed fees instead of taxes, unfunded federally mandated programs pushed onto already strained lesser governments, corporate and state bankruptcies, government hiring and the Pentagon laying off 5,000 people, off-shoring jobs ……. and on and on. Whether you agree or not with any piece of the change is irrelevant. Liken it to moving all of the pieces of a jigsaw puzzle continually while trying to put the puzzle together. The seismic shift occurring creates a lack of confidence at all levels of decision making; corporate moves to real estate moves. When will it stabilize? When this country decides who and what it wants to be. Don’t look for that to happen anytime soon.
In the meantime; play with the numbers.
Highlands Ranch saw a 63% increase in sold homes for the month of July vs July 2009! Don’t worry, the Highlands Ranch market isn’t immune. While the 124 homes sold in July represent a 63% July over July increase it is a 17% decrease vs June and a 27% decrease vs the month of April.
Days on market definitely decreased with the tax credit. Find out more at AroundHighlandsRanch.com |Highlands Ranch Real Estate| Highlands Ranch Realtor
Consumer confidence is low and taxes will be high unless GOVT./NObama gets a clue!
The market will be soft for the next 6 months much of it based on………..JOBS!