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Adjustment led to record drop in home contracts

Highlights:

  • DMAR releases first report.
  • Report based on Metrolist data.
  • Record under contract drop explained.

DMAR.April-3At first blush, it was a housing head-scratcher.
The number of homes placed under contract in the 11-county metropolitan area plunged by an astounding 37.6 percent in April from April 2013, according to a report by the Denver Metro Association of Realtors. The report, released last Friday afternoon, showed 5,134 homes placed under contract last month, compared with 8,223 in April 2013.

Even Anthony Rael, the chairman of the Market Trends Committee for DMAR, which released its inaugural report using Metrolist data, was taken aback when InsideRealEstateNews.com pointed out what is the largest year-over-year percentage drop on record for under contracts.

“Wow! That is an incredible drop,” said Rael, a broker with RE/MAX Alliance.

The prominent owner of a real estate company, when told of the percentage drop, said: “That’s not right.”

He noted contracts at this company were down maybe 3 percent, not 38 percent.

Pending status gone

In any case, it didn’t take Rael long to get to the bottom of it.

A year ago, Metrolist had a category called “pending,” which included foreclosures and short sales.

Now that distressed properties are no longer a big part of the local housing picture, Metrolist includes the handful of those properties that still surface as under contracts, doing away with the pending status, Rael explained.

What DMAR did, in order to compare apples with apples, was to add back the pending transactions to last year’s under contracts. It will continue to do so for the next few months, resulting in large percentage changes, he said.

“These numbers that look so shocking and alarming on paper, and might be reported by the press, are more of an adjustment in way they are being accounted for than anything,” Rael said.

Distressed properties have faded from the robust real estate market, according to Rael and others.

“We see very few foreclosures anymore and honestly, I can’t remember the last time I saw a short sale,” Rael said.

A short sale is when a lender agrees to take less than the amount of the mortgage.

Home appreciation has just about removed the distressed properties from the market, which at the peak of the housing crisis accounted for 40 percent of total sales, by some estimates.

DMAR.April-3Still, even if the pending contracts were not included in April of last year’s tally, there is still a pretty significant year-over-year drop.

Metrolist reported 6,855 homes (not including pendings) were placed under contract in April 2013, by far a record for any April. In other words, without including pending homes, there were still 25 percent more homes placed under contract in April 2013 than last April. Under contract activity in April 2013 was 20.7 percent higher than in April 2012.

Mortgage rates were near their lowest point ever in April 2013 and with few homes on the market, it created a home buying frenzy.

DMAR added 1,368 homes with pending status to under contracts when restating the April 2013 data, which meant that those distressed properties accounted for 17 percent of the total activity.

Far more concern than the number of under contracts in April, however,  was the shortage of homes to purchase, Rael said.

There were 6,305 active single-family home and condo listings on the market in April, a 9.2 percent drop from the 6,945 in April 2013. Of those, 5,088 were for single-family homes, a 10.1 percent drop from the 5,662 in April 2010.

Experts say reasons for the inventory shortage include fears of finding a suitable replacement home and a reluctance to give up a mortgage with a rock-bottom rate. There is no shortage of prospective buyers.

There were a total 6,529 listings added to the market in April, a 5.27 percent from the 6,892 homes that were added to the market in April 2013.

Less than a 2-month supply of homes

There is currently less than a two-month supply of unsold homes on the market, Rael said.

The shortage of homes is resulting in an increased number of bidding wars, which is frustrating for prospective buyers.

“I don’t have a lot of clients who have a stomach for bidding wars,” Rael said. He has had clients who have bid $6,000 or $7,000 above the list price and still lose. Some people who win the bid have no intention of paying that much, he said.

“There are some people who over-bid with the hope they will get a lower price after the appraisal comes in,” Rael said. “I advise my clients not to do that.”

Other metrics for April include:

  • There were 4,340 single-family home and condo sales in April, a 8.3 percent drop from the 4,762 in April 2013.
  • There were 3,192 single-family homes sold in April, down 15.9 percent drop from the 4,762 in April 2013.
  • The median sale price for all homes was $275,000 in April, up 7 percent from $257,000 in April 2013.
  • The average sales price for all homes was $327,339, up 5.4 percent from $310,686 in April 2013.
  • Total sales volume in April was $1.42 billion, compared with $1.48 billion, about a 4 percent drop.
  • The average days on the market in April for all homes fell almost 30 percent to 40 from 54.

Condo activity was strong in April by several metrics:

  • There were 1,148 condo sales in April, an 18.8 percent jump from the 966 in April 2013.
  • The median condo sales price rose 12.2 percent to $179,250 from $159,763 in April 2013.
  • The average sales price rose 15.21 percent to $226,861 from $196,917.
  • Condos spent an average days on market of only 35 in April, 31.4 selling percent faster than the 51 average days in April 2013.

Overall, the Denver-area housing market is “performing really well,” said Peter Niederman, CEO of Kentwood Real Estate. “Our average price is up, our inventory is down and the months supply is down,” Niederman said. “We only have a two-month supply of homes on the market. If that rises to three months, people will say it is a 50 percent increase. So what? That is still a phenomenally strong market,” Niederman said.

The report tracked housing activity in the counties of Adams, Arapahoe, Boulder, Broomfield, Clear Creek, Denver, Douglas, Elbert, Gilpin and Jefferson.

Have a story idea or real estate tip? Contact John Rebchook at JRCHOOK@gmail.com. InsideRealEstateNews.com is sponsored by Universal Lending, Land Title Guarantee and 8z Real Estate. To read more articles by John Rebchook, subscribe to the Colorado Real Estate Journal.