November was a bit of a turkey for the Denver-area housing market, with the worst closing activity of previously owned homes for the month in almost two decades, the fewest number of under contracts for a November since 2004, and almost a 13 percent increase in inventory from November 2009.“Gobble, gobble,” replied Kentwood broker Tom Cryer, on whether he thought last month’s housing activity merited a comparison to the holiday bird. As far as the 2,666 closings last month – the worst November since the 2,153 in 1991 – Cryer summed up that metric with one word: “Abysmal.” The metro-area’s population has grown by about 42 percent since 1991. Cryer said the 3,101 under contracts last month, compared with 3,444 in November 2009, isn’t that dire. “A 10 percent swing in one month compared to the other isn’t such a significant swing,” as it represents a difference of only 343 homes.
No slump in sale prices
Gary Bauer, the independent broker and business consultant who prepared the report based on Metrolist data, said it may be too harsh to describe November as a home-selling turkey. After all, the average price of a single-family home at $281,466 is 6.5 percent higher than the $256,498 in November 2009, and the median price is up 7.3 percent to $233,990 from $218,000. The price increases are primarily due to the fact there are few super low-priced homes on the market, as well as more activity at the middle and upper-end of the market, Bauer said.
“I guess it depends on how you define turkey,” Bauer said. “This is not the worst November on record (a dubious distinction that goes to 1990, he said.) And I really expected it to be worse than it is. It was better than I expected.”
Several factors bode well for a better December and beyond, he said.
Job growth in the Denver metropolitan area seems to be moving in the right direction, cash registers are ringing at restaurants and many retailers, and some neighborhoods – such as Highland and Washington Park – are bucking the overall downward trend in the market, Bauer said.
That is not to say that November was high-flying, by any metric.
“The seasonality hit us extremely hard in November,” Bauer said. “Consumers do not have home purchases anywhere on their radar screens. But in a way, I think that is very positive. Consumers are focusing on what they can touch and feel, rather than on any arm’s length transactions. They are taking care of their families and getting back to basics.”
For seasonal reasons, sales almost always drop in November from October. And the 16.3 percent month-over-month decline in under contracts was much smaller than the October-to-November drops of 29.9 percent and 19.2 percent, respectively.
Bauer, however, was surprised that there were 20,392 unsold homes on the market, a 12.9 percent increase from November 2009,when there were 18,061 unsold homes on the market. There were 21,851 unsold homes on the market in October.
“I would have thought more people would have started to take their homes off the market,” Bauer said. “Some of the increase in inventory may be because of bank-owned and real estate owned properties being put on the market.”
The increase in inventory could result in falling prices, said Jeff Thredgold, chief economist for Vectra Banks. “Supply and demand does work sometimes,” Thredgold said. “Increasing the supply can put some downward pressure on prices.”
On the other hand, the rising supply can be misleading, because not all of the homes on the market are competitive, said Kentwood’s Cryer.
“When you’re driving around looking at homes in the $350,000 to $400,000 price range, you would be surprised how many are in terrible condition,” Cryer said. “”Six or seven out of every 10 will have some fatal flaw.” The lack of choice of choice properties come at a time when prospective buyers only want the cream of the crop, he said. “No question that expectations are extremely high,” Cryer said.
Shadow market lurks
On the other hand, Cryer said there may be thousands of unsold homes waiting in the wings that aren’t being reflected in the data. He recently attended a presentation by Ryan Lantz, whose company, Claremont Information Systems has developed a subscription service called Short Sale ProLogic to help Realtors and others identify short sales, indicates the so-called “shadow market” of available homes waiting to hit the market. Their data indicates that the shadow market could increase the supply on unsold homes by more than 70 percent in its 10-county market, Cryer said. (For an earlier story about this company, please visit Short Sale Software Aimed at Realtors.)
“Could you imagine the impact if it is even 40 percent? What would happen to car dealers, if their supply of unsold cars suddenly jumped by 40 percent?”
Economist Thredgold said that the Denver-area’s economy has not bounced back as quickly as some other areas, which is one of the reasons that demand for housing remains soft. But more than anything it is being buffeted by macro metrics.
Thredgold said uncertainty on a number of national issues are making consumer reluctant to shop on the dotted line, including:
- Tax rates
- Health care
- The ability of Democrats and Republicans to work together
“Even thought mortgage rates are still extremely attractive, despite recent increases, people are keeping their money very close to their vest, so to speak,” Thredgold said. “Plus, for many people, they have a house to sell before they can move up to a bigger one. And it is difficult to sell a home right now.”
Jason Miller, principal of Milan Realty, said the market should “see a small bump in December under contracts and Janury sales, because of the big jump in mortgage rates from 4 percent to close to 5 percent today,” as some buyers get off the fence in fear that rates will rise more.
Running on empty
Still, Miller said the November home sales activity numbers were so gloomy, he finds it hard to believe anyone could a positive spin on it.
“It looks to me like we have run out of qualified buyers,” Miller said. “To have mortgage rates at 4 percent and November sales the weakest since November of 1991, this is very weak. Condo sales are down 38 percent year over year, tell us there are very few first-time buyers.”
Miller takes no pleasure in being negative on the market.
“I wish things were better,” Miller said. “I just like to call things like I see them. Buyers deserve to know both sides.”
Year Under Contract Closings Average Price
2002 2,022 3,641 $273,304 $222,500
2003 2,074 3,676 $283,517 $229,500
2004 2,786 4,545 $289,934 $236,500
2005 4,709 4,225 $309,030 $248,250
2006 4,266 2,843 $306,982 $245,000
2007 4,007 3,482 $297,812 $229,500
2008 3,637 2,920 $242,557 $195,000
2009 3,444 3,599 $265,498 $218,000
2010 3,101 2,666 $281,466 $233,990