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In the spring of 1991, a woman called me at the Rocky Mountain News, complaining that she was tired of Realtors saying now is the time to buy.
She had bought a home in Denver just before the collapse in the mid-to-late 1980s, which was then the worst housing market in the metro area since the Great Depression.
Colorado was one of the so-called COLT states that also included Oklahoma, Louisiana and Texas, whose economies and housing markets had been hammered by falling energy prices.
The Denver-area housing market was horribly overbuilt on speculation that oil prices were headed for $65 a barrel from around $30. Instead, they plummeted, briefly falling below $10.
HUD once Denver’s largest landlord
Thousands of people left Colorado for states where there were still jobs, such as California. While at the Rocky, I broke a story that the U.S. Department of Housing and Urban Development was Denver’s largest landlord, because it owned many foreclosures. The Rocky used to run a weekly listing of HUD properties that was thicker than today’s Denver Post.
The irate caller had taken a check to the closing when she sold her home in Denver, because the sales price was less than her mortgage. She left Denver, moved East and bought a home in Washington, D.C. The real estate gods were not smiling on her. The nation was gripped in a recession when she sold her home in D.C., and once again she lost money when selling her house, before returning to Denver.
At the time, I was quoting people such as Dennis Hipp, president of a company called Perry & Butler, and Bill Moore, owner of Moore and Co., the largest locally owned realty firm in Denver at the time, who said that now is a good time to buy and people will be kicking themselves down the road if they passed on the unique opportunity to buy.
After all, mortgage rates were low at 9.5 percent — the first time in a decade they had been below 10 percent —and homes were selling below the cost of building them.
The average home in the Denver area in May 1991 sold for $97,925, the equivalent of $165,426 in today’s dollars.
The woman, however, was having none of it. She assured me that she was not even going to consider buying a home until prices fell at least another 20 percent.
I told Hipp about my conversation.
Timing is difficult
He said he hoped she landed the bargain she was hoping for, but she thought she was wrong. Hipp added that it is incredibly hard to time the market. Despite what so many people believe, Realtors do not set the price of houses, he said. The market is set by the market, Hipp said. That is, home prices are determined by what a willing buyer pays a willing seller. While Realtors tend to be “half-full” glass people, no matter how bullish they are, they lack the power to drive up prices, he said.
Yet, at that time in history, Hipp and other were prescient.
Market on a tear
A year later, the average price of a home sold in the Denver area was $105,418, the equivalent of $172,880 in today’s dollars. Demand out-stripped price appraction. In the first five months of 1992, 12,051 homes closed, a 28 percent increase from the 9,408 in 1991.
“Homes are still reasonably priced,” I quoted Hipp as saying at the time. “We’re seeing more multiple offers, sometimes with people offering more than the asking price.”
Sounds like today’s market.
Hornung strikes a nerve
I thought of this recently after I published a question-and-answer article with Lane Hornung, CEO, President and Co-founder of 8z Real Estate.
Hornung provided consumer tips for prospective buyers in the current market, who increasingly are being out-bid for homes. He cautioned that the conditions of incredibly low supply and increased demand may not last, but they are the reality of today’s market. Many would-be buyers are disappointed after being out-bid multiple times.
A reader named Peter, who seems sophisticated and intelligent on financial matters, responded in a missive that he found it “shameful” that brokers are such cheerleaders.
Peter, who is renting a million-dollar home for far less than what it would take to buy it, went on to write that he gives the market’s recent bounce another six to 12 months. After that, he sees a double-dip, which is when home prices retreated to new lows. He also thinks a recession and possibly even a depression, are waiting in the wings.
Shaky home sales foundation?
“Stop feeding the real estate greed and learn from recent history,” Peter wrote. “Your belief is that the recovery is here and the market has bottomed. That is the new buyers’ belief and that I believe is built off a very false premise.”
Recently, while attending Universal Lending’s 30th anniversary celebration, I sat next to man who had been a mortgage and real estate broker for more more than three decades.
I asked him if he thought the housing market had hit bottom, or the dreaded other shoe would kick the market’s butt.
“Anything is possible,” he told me. “Could home prices double-dip and fall another 10 percent or 20 percent? They could. But I don’t think they will.“
Modest appreciation predicted
He thought the odds were far greater than the Denver-area housing market in the next few years will enjoy modest appreciation, of perhaps 4 percent or 5 percent, if the annual inflation rate continues to hover around 2 percent.
That would have a big impact on the market, he predicted, because in two or three years, many homeowners who are itching to sell their homes, but can’t because they are still under water, will be able to sell them and move-up.
Back in the 1991-1992 era, I used to do get a call every Tuesday morning from a radio reporter, who would ask me about the real estate market. I told him exactly the same thing – my best guess was that home values would slightly out-pace inflation.
I was wrong. Home prices registered double-digit price increases, almost unabated for the next 15 years, although the market never got as crazy as once-high flying markets such as Phoenix and Las Vegas, before succumbing to the first national real estate downturn since the Great Depression.
I’m wondering what other people think.
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