Forget about March Madness. The real action last month did not take place on college basketball courts, but came from home buyers snapping up houses in the Denver area.
The number of previously owned homes placed under contract in March jumped by 49.2 percent compared with March 2011, while they rose 28.4 percent from February. Closings were up 39.3 percent from March and 8.3 percent from a year earlier, according to reports released on Thursday. Single-family home prices rose by 5 percent from February, with an average price of $284,035 in March, were up 5 percent and 4 percent on a month-to-month and year-over-year basis, respectively.
While the inventory of unsold homes is still extremely low with only 10,325 unsold homes on the market – 47.7 percent fewer than the 17,707 in March 2011 – levels have risen by 2.4 percent from February, according to the report by independent broker Gary Bauer. The report is based on Metrolist data.
“It’s a very good market,” Bauer said. “There is pent-up demand in the market and brokers are increasingly seeing multiple offers on homes.”
By the numbers:
- Buyers placed 5,328 homes under contract in March, compared with 4,150 in February and 3,571 in March 2011.
- Year-to-date, 12,964 homes have been placed under contract, compared with 10,411 in the first quarter of last year.
- There were 3,475 home closings last month, compared with 2,495 in February and 3,209 in March 2011.
- In the first quarter, there were 8,440 closings, compared with 7,954 during the same period last year.
“The numbers confirm what practitioners in the field have been saying since the beginning of the year: the Denver metro market is officially past the bottom and in full-swing recovery mode,” said Lane Hornung, president, CEO and co-founder of 8z Real Estate and COhomefinder.com.”In fact, the market is gathering strength faster than I would have predicted as seen by the forward-looking under contract numbers which are up significantly.
“An acute lack of inventory remains a challenge in some local markets,” Hornung continued. ”However, this inventory shortage may resolve itself as sellers stop paying attention to the dire national headlines about housing and come to realize that along the Front Range, many local markets have already shifted from buyers’ markets to sellers’ markets, hot sellers’ markets in some cases and now is a great time to list.”
Deviree Vallejo, a broker with Kentwood City Properties, know first-hand how hot the market was in March. She sold a home in West Highland before it was officially listed. The three-bedroom, four-bathroom home with a giant deck and 3,362 square feet, is under contract for close to the asking price of $599,000.
“It’s been quite awhile,” since she has sold a home before it was in the MLS, she said. “I was working with these buyers when Greg (the owner of the condo) called and asked me to list his home.” She showed it to her buyers and it was love at first sight and the rest is history.
“It is crazy out there,” Vallejo said. “There is no inventory and the competition is driving up the price.”
She said that one home in West Highland, an 1,100-square-foot bungalow recently hit the market at $525,000, which Vallejo thought was over-priced, even though she described it as “just adorable.”
Soon after, she heard that a bidding war broke out and it now under contract for $535,000. ” I hope they are paying cash, because I can’t imagine it will appraise at that price.” Vallejo said.
Vallejo said “Highland is without a doubt the hottest neighborhood. We’re selling the new stuff under construction when it is still being framed. But it is everywhere. Whether it is Congress Park or Mayfair, brokers are saying if you hear of anything coming on the market, let us know first because there is nothing out there.”
Chris Mygatt, president of Coldwell Banker Realty in Colorado, said that he is most pleased by the increase in home prices.
“There had been a lot of talk and concern about eroding home sales prices,” Mygatt said. “But we really are coming out strong this year. Even the luxury market is showing signs of some appreciation. Overall, we are seeing agents being very optimistic about this market.”
Scott Webber, president and owner of Fuller Sotheby’s International Realty, agreed the Metrolist numbers are consistent with what he and his brokers are experiencing in the market.
Still a buyer’s market
“There is some serious frenzy buying going on in some markets right now,” Webber said, although he hesitates in calling it a “seller’s market,” because he doesn’t want to give the wrong impression. “I would not call it a seller’s market yet,” Webber said. “In some pockets, it is moving that way, with multiple offers and few homes to choose from. But it’s not a strong seller’s market. It is more a market moving toward balance. And for the overall Denver metropolitan market, I would say it remains a buyer’s market.”
On the other hand, the market is showing new signs of life, as the spring market kicks off.
“What we are seeing is four-years of pent-up demand,” Webber said. “Really, it’s moving up the price ladder. It’s not just the lower-priced homes that are selling. We are seeing some major demand right now in the $1.5 million-plus market.”
It’s not just in the Denver area, he added.
“We’re seeing better activity right now in the Vail Valley,” Webber said. “Some of the product in Vail that people should have bought is now gone. The Vail Valley market is on the rebound.”
Webber said he recently returned from a meeting with other Sotheby’s real estate companies in places such as Washington, D.C., New York and Dallas. “All of those markets are in a little better shape than they were seeing,” Webber said. “But I think Denver is in a bit of a unique situation. The other markets are seeing an 8 percent or 10 percent or 15 percent pick-up – but nothing like we are seeing here in Denver and in Colorado.”
The big question is: how long can the rally last?
“I just hope this is sustainable,” Webber said. “We’ve had other good months and then the market retreated. It will be interesting to see if this can be sustained.”
Stars aligning in Denver
Peter Niederman, CEO of the Kentwood Co., is pleased, but not surprised, by the strength of the market.
“It’s impressive,” Niederman said. “I think it is a reflection of pent-up demand, a growing sense of urgency among buyers and an improving economy. People are feeling more comfortable in their jobs and more companies are hiring. And the weather was fairly mild in March, which helped. We have seen a lot of people at open houses, which is a leading indicator of sales activity.”
Niederman said he thinks people who buy during this real estate cycle, will be very pleased with their decision to sign on the dotted line. Those who don’t buy, will be kicking themselves, he said.
“People are starting to talk that interest rates could go back and clearly, prices are rising,” Niederman said. “If you are secure in your job and you are in a position to buy, I think you will be very pleased with yourself in the coming years.”
One thing that may help the market sustain the rally is increased activity from buyers from countries outside of the U.S., said Jason Beck, a broker with Coldwell Banker.
Peck recently sold a condominium near Green Valley Ranch to a doctor from Australia and a single-family home to an engineer from Germany. The doctor plans to live in the condo while looking for a single-family home for his family and then keep the condo as an investment. Peck also is working with four engineers from Canada who are in the energy business and will be moving to Colorado.
“You have quite a few Canadians moving here because of the oil-and-gas business,” Peck said. “They find homes they like online and we email them videos on the homes. Like everyone else, they know that in the market they have to make decisions quickly.”
FHA fees rising
One thing that could slow the market’s march is that on Monday, FHA loans will become more expensive.
The Upfront Mortgage Insurance Premiums on FHA loans will increase by 75 basis points to 1.75 percent, from 1 percent. The new fee is the equivalent of or $1,750 per $100,000 borrowed, while previously it was $1,000 per $100,000 borrowed.. Upfront Mortgage Insurance Premium is paid at closing and typically is added to a FHA borrower’s loan.
Meanwhile, annual FHA mortgage insurance premiums are rising. All new FHA-backed loans will be subject to a 10 basis point increase in annual mortgage insurance premiums, costing homeowners an extra $100 per $100,000 borrowed per year.
One reason that the fees are rising is to assure that FHA has enough reserves.
Mygatt said the government, rightfully, also believes it has too big of a share of the mortgage market and wants the private sector to get back in the game.
“In some areas, FHA accounts for 60 percent or 70 percent of all the loans being made,” Mygatt said. “That is too much. It needs to change. The only way it can change is if conventional loans become less expensive or government loans cost more.”
Borrowers that have credit scores of 680 or higher and can come up with a down payment of at least 5 percent, will be better off with conventional loans, said Jocelyn Predovich, owner of the Limetree Lending Group. “That has been true for a while, but it is going to be more so when the upfront mortgage costs go up on Monday,” she said. She has put together a “cheat sheet” for borrowers and Realtors that compares FHA with conventional loans on her website. A link to it can be found at the end of this blog.
Webber said that while the new FHA fees will have some impact, he thinks there are enough options from private sources to make up for more expensive government loans. “There is much more liquidity in capital markets now than there had been a couple of years ago,” he said.
Niederman, however, said he doesn’t think the new FHA fees will have that much impact on the market, although he is against them. “Those are incremental increases,” Niederman said. “Philosophically, I don’t like them. I think they are wrong. But I don’t think that is the big potential roadblock that could really slow the market in the coming months.”
He said he thinks the biggest threat to the market is going to be over-cautious appraisals.
While appraisals always tend to lag the market when it is heading up or down, Niederman said he thinks it could be more pronounced this time, given the housing crisis that left the national real estate market in shambles. Denver is recovering at a much faster pace than most metropolitan areas, Niederman and others say. But Niederman said that appraisers may be unwilling to go out on a limb on prices, even when there are buyers willing to pay the price.
“I think that appraisers took so much blame, much of it undeserved, and because there were a few instances where appraisers colluded with Realtors on prices,” Niederman said that he thinks appraisers will be overly cautious in valuing homes in the coming months.
“I think Realtors, as much as they can, need to supply the data to appraisers to justify the price,” Niederman said. “When you have multiple offers for houses that is creating a true market. It shows what people are willing to pay for a home. Appraisers shouldn’t just look at comparable sales of six months ago in determining the value. Maybe they should be looking at the contract prices and not just the sale prices. In many neighborhoods, values may have risen 5, 10 or even 15 percent from six months ago.”
For information about the new FHA fees, please visit this Limetree Lending Group link.
Contact John Rebchook at JRCHOOK@gmail.com