Home sales in the Denver area in June dropped by 31.4 percent from a year earlier, as the tax-credits that drove brisk activity in the first four months of the year screeched to a halt. It was the largest year-over-year decline for a June on record. June marked the second consecutive month of a huge drop in contract activity. In May, under contracts fell by about 41 percent from April and 27 percent from May 2009.There were 3,885 homes placed under contract in June, down from 5,664 in June 2009. Last month’s activity marked the fewest number of home contracts in a June since 2003, when 3,218 homes were placed under contact, shows the report by independent broker Gary Bauer, based on Metrolist Inc. data.

Tax-credits front-loaded sales

Local real estate experts agree that the $8,000 first-time tax credit and $6,500 for some existing homeowners, boosted sales in the first third of the year. But they disagree on whether the tax credits were a good idea.

“We borrowed from the future and now it has caught up with us,” said Mike Rinner, of the Genesis Group, which tracks housing along the Front Range. He said clearly, a lot of people who might have bought in May and June, signed on the dotted line earlier in the year to get the tax credits.

He also said it’s possible that the strong spring sales, fueled by the tax credits, also will impact sales that would have occurred at the end of the summer and into the fall. “We just don’t know yet,” Rinner said.

In the first half of the year, there were 28,395 homes placed under contract, a 2.2 percent drop from the 39,040 homes placed under contract in 2009. And 2009 was one of the weakest years on record for home sales in the Denver area. Because of the mix of home sold, however, the average price of a single-family home rose to $299,375 in June from $273,285 in May and $283,312 in June 2009. The median price of a single-family home rose to $244,000, from $230,00 in May and $237,500 in July 2009.

Asked if he thought the tax credits represent good fiscal policy, Rinner said: “My whole thing is that markets will heal when they have a chance to clear. We saw that in northeast Denver. It was hit earlier by foreclosures, but the market has since cleared, and now supply and demand are nearly in balance,” although he said home prices are down perhaps 40 percent from their pea.

He said that politicians could feel better about themselves by implementing the tax credits, at a time when the country was suffering from the first nationwide downturn in housing values since the Great Depression.

“It’s like the morning after you had a night out on town and drank too much,” Rinner said. “Do you lie in bed feeling sorry for yourself, or do you get up, exercise a little bit, and try to avoid feeling bad all day? There are no easy answers.”

Credits served their purpose

But Bauer said the tax credits were worth it, despite the huge decline in their wake

“Yes, the frenzy of the first-time home buyer is gone,” Bauer said. ” I definitely think the tax credits were good. I hate to use the term, stimulus, but that the housing market did need help, and the tax credits did help the market. It did help some people get off the fence to buy a home, who might otherwise not have bought. What we are seeing now, I believe, is the beginning of the true prime home buying season.

Chris Mygatt, president of Coldwell Banker Residential Realty Colorado, also thought the tax credits were a good thing.

“I think the hope was that they would create some momentum in the market that could be sustained after they were gone,” Mygatt said. “And I think it boosted sales and would have created momentum. But I think you have to look what happened independent of the tax credits. It may look like we sold eight months worth of homes in the first four months of the year, but you have to consider the financial crisis in Europe and Greece and the oil spill in the Gulf. They seem unconnected to the real estate market in Denver, but they put people on edge. People do not make decisions as big as buying a home when they are worried about the future.”

Mygatt said even more people would have bought homes before the tax credits expired on April 30, but they couldn’t find the right home, because the supply of unsold homes was so low.

The irony is those who did not buy, but are still house-shopping, are in an even more attractive market, Mygatt said. Interest rates are at a record low and there is a larger selection of homes to choose from. At the end of June there were 23,240 unsold homes on the market, 11.4 percent more than the 20,853 in June 2009 an 5.6 percent more than the 22,016 in May.

“People who are looking to buy now are really in a good place,” Mygatt said. “I wouldn’t be surprised if we don’t see some increased activity in under contacts in July.”

Without a doubt, the tax credits pushed home sales to the first part of the year, said Stephanie Prather, a broker/owner with 8z Real Estate, a sponsor of InsideRealEstateNews.

“In my 20 years in the business, I had never seen anything like it- I thought I was going to go crazy,” Prather said. “The phone wouldn’t stop ringing from clients calling who wanted to get the $8,000 tax credit.”

Tax credit folly

But she didn’t mince words about the worth of the tax credits. She thinks they were a mistake.

“I think anything arbitrary is a mistake,” Prather said. “It is a phony thing. The buyers who used the tax credits, would have bought anyway, so it was a waste of taxpayer money. I do not think it was necessary. All it did was provide a brief spark to the real estate market. It did not solve any problems. People just bought a little sooner than they would have. Sure, the tax-credits helped some first-time home buyers to get off the fence, who might have been too frightened to buy without them. But those who were truly frightened, wouldn’t have bought anyway.”

She said she realized many of her fellow brokers may disagree with her, but she said she has to call them as she sees them.

“I’m always extremely honest,” Prather said. “You can’t sugar-coat things.”

But Jeff Bernard, a broker with RE/MAX Alliance  and a business consultant, said he thinks the tax credits did help the housing market and the economy.

“The tax credits for home buyers, in my estimation, provided positive stimulus that helped stabilize the housing industry, and help stimulate the local and national economy,” Bernard said. “I disagree with those who say stimulus just pushes the problem down the road. History has proved time-and-time again that stimulus is an effective economic tool.”

Sales drop puzzling

The steep year-over-year drop in under contracts does surprise Bernard, however.

“The home affordability index is still so favorable for potential buyers that it’s counter-intuitive to me that anyone considering a home purchase would not move forward on that decision,” Bernard said. “Low interest rates and bottoming home prices are clearly the prime time to purchase. Maybe it wasn’t logical to purchase a home in early 2008, but it seems illogical to not buy now if it’s a qualified buyer who wants to own a home. I’m a real estate analyst; I’m not selling homes. But I strongly believe one should consider buying a home now if owning a home is on a buyer’s radar screen. So this sharp drop inactivity is puzzling to me.”

Year	Under Contacts	Closings	Unsold homes	Median Price of single-family homes
2002	2,773	3,914	21,538	$225,000
2003	3,218	4,875	26,533	$230,164
2004	6,643	5,590	28,043	$243,000
2005	6,511	5,511	25,817	$251,500
2006	6,049	5,628	31,900	$261,750
2007	6,136	5,129	30,256	$263,000
2008	6,308	4,845	26,104	$230,000
2009	5,664	4,186	20,853	$237,500
2010	3,885	4,046	23,240	$244,000

Contact John Rebchook at JRCHOOK@gmail.com or 303-945-6865.

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Buyers wrote contracts on only 3,883 homes in the Denver area in May, a 41.3 percent drop from April, when consumers scrambled to take advantage of the federal home buying tax credits that required a house to be placed under contract by April 30. In April, a record 6,616 homes were placed under contract, while last month marked the worst May since 2004 when 3,529 homes were placed under contract, shows a report released today by independent broker Gary Bauer, based on Metrolist data.

Under contacts were also down 27.3 percent from May 2009, when 5,343 homes were placed under contract.

“They were record drops,” Bauer said. “They were the largest percentage drops from 1990 going forward for any month, both for the consecutive months and year-over-year comparisons.”

Sales fell with tax credits

Bauer and other experts agree that the drop was because the $8,000 tax credit for first-time buyers and $6,500 for qualified existing owners expired at the end of April and require that the homes close by the end of June.

“April was such a frenzy; the numbers were inflated by the tax credits,” Bauer said. “Realtors were working up to midnight on April 30 to get homes placed under contract.Buyers are making multiple offers on homes and sellers were dealing with multiple offers.”

Still, Bauer believes the tax credits were worth it.

“I think we did steal some future sales,” Bauer said. “But in my opinion, it was a worthwhile program. And it has ended while we are coming into the prime selling seasons of the year – June, July and August. I think we are going to have a good prime season, but not a great prime season.”

Deja vu all over again

Peter Niederman, CEO of the Kentwood Co., wasn’t surprised that under contracts fell so precipitously when the tax-credit deadline passed.

“I think I mentioned to you in 2009, when it looked the tax credits were going to expire in November, that November was the only month last year that reported higher sales on a year-over-year basis from 2008,” Niederman said. “In my opinion, that is what happened in April. You had this huge pent-up surge in April, so under contracts were anticipated to fall in May.”

He noted that at Kentwood, the number of showings dropped in May from April, but not as much as the under contracts dropped.

Niederman, in a letter in his upcoming Gallery, a glossy magazine that highlights expensive listings by brokers at Kentwood and Kentwood City Properties, quotes Lawrence Yun, the economist for the National Association of Realtors.

Tax stimulus worked

“The second round of surging sales from the tax credit extension looks as strong as the original tax credit,” according to Yun. “Evidently, the tax stimulus, combined with the improved consumer confidence and low mortgage interest rates, are contributing to surging sales. The housing market now appears to be in a good position to return to sustainable levels even without government stimulus, provided the economy continues to add jobs.”

Niederman said he couldn’t agree with Yun more. And he is not dismayed that the market nose-dived in May, as far as under contracts.

“One month doesn’t make a trend,” Niederman said. Indeed, there were 24,510 homes placed under contract in the first five months of the year, a 4.9 percent increase from the 23,366 during the same period in 2009.

“If you want to look at where the trend is, you need to look at the year-over-year numbers,” Niederman said. “I am encouraged that we are about 5 percent ahead of where we were last year. When you look at the first five months of this year compared with the first five months of last year, we are still ahead of the game.”

Economist Patty Silverstein said that everyone knew that the tax credits would have an impact on home sales activity, but until today’s report, no one knew how big of an impact the market would experience.

“Obviously, from the under contract values, we lost some of the momentum we had in the market,” Silverstein said. “The market was sort of front-loaded. But we are now moving into the prime home sales season, and so we will know in the coming months how much we are moving into a steadier, sustainable pace.”

In fact, she said what is happening in the housing economy is not much different than what is happening in the overall economy.”If you are focusing on a little broader measure, and not just on the residential market, this whole economic recovery is going to see some fits and starts. The recovery, whether you are talking about the entire economy, or the residential market, is not going to be healed in just one year..”

Silverstein said she is more concerned about the 27 percent drop from May 2009 than the 41 percent drop from April. “That does kind of concern me,” Silverstein said. Indeed, May 2009 was not a stellar one for sales activity,with under contracts down almost 16 percent from May 2008. While this was the worst May in six years, there were other dynamics fueling the market in 2004, Silverstein said.  “Keep in mind 2004 was when those outrageous mortgage products started to come on the scene,” Silverstein said, fueling sales until the summer of 2008, when the house of mortgage cards collapsed the entire industry.

Realtors are people, too

Chris Mygatt, president of Coldwell Banker Residential Colorado, said the drop off in under contracts last month were “very predictable,” and the obvious culprit was the end of the tax credits.

But there also was a human factor in play that many people will overlook, he said

“People have to realize that real estate agents are people, too,” Mygatt said. “They have to manage their time like anyone else. They were extremely busy showing properties in April, evidenced by the fact that was the best April on record for under contracts. In May, the agents’ job was to get those contracts they wrote in April closed. So they were working with existing clients to get those homes closed before the June 30 deadline and did not have as much time to spend on drumming up new business. I think the June numbers are going to be very important. I think we may see a little bounce back in showings and under contracts in June.”

Mygatt was pleased to see the number of unsold homes on the market last month to rise 6.2 percent to 22,016 from 20,734 in May 2009, and increase by 2.1 percent from the 21,565 homes in April

Pragmatically, however, sellers would have been better served to have their homes on the market earlier, to take advantage of the tax credits.

“Yes, they should have, and that was what agents were telling them,” Mygatt said. “We did not have enough inventory in April, which was frustrating for buyers. But a lot of sellers just couldn’t get organized in time. If you aren’t involved in selling and buying homes all of the time, you don’t realize that it can easily take one or two months to get a home prepared to sales. You have to replace the carpets and paint it and clean up the clutter.”

Still, with the exception of May 2009, the current unsold inventory is the lowest May since 2002, when only 14,173 homes were on the market.

“That shows we do not have an excessive inventory of homes on the market,” Mygatt said. “We can easily absorb the extra homes on the market, without creating an imbalance between supply and demand and hurting pricing. We’re heading towards a more normalized market.”

Most metrics smoking

David Simonson, of RE/MAX Professionals, said the tax credit drove sales in the lower-priced part of the market. “It stimulated a lot of people looking in the $100,000 to $200,000 range into the low $300,000 range,” Simonson said. “Realistically, we are looking at a little wave – a little up, a little down. If you look at everything but the the under contracts, everything else was great.”

For example, the average price of a single-family home that closed last month was $273,285, about 4 percent higher than the $262,066 in May 2009, and the median price of a single-family home rose 4.5 percent to $230,000 from $220,000.

And the 4,365 home closings represented a 20.3 percent increase from the3,628 closings in May 2009 and a 4.2 percent increase from the 4,188 in April.

Also, the 2.1 percent increase in the supply of unsold homes in May from April, bodes well for the market, he said.

“I’m surprised in a good way,” Simonson said.

Market on upswing?

Jack O’Connor, a principal of RE/MAX Professionals, said that May marked the third consecutive month of continuing year-over-year increases in monthly sales. “Historically, three straight months of increased sold-data would signal a market on the upswing,” O’Connor said. “Since the tax credit artificially increased sales in April, watching this data over the next three months will confirm whether Denver is truly on the rebound, or if we are still bouncing along the bottom of the market.”

Meanwhile,  although job growth during the first half of the year failed to live up to expectations, Denver is now being widely cited as a city that will out-perform the national market in job growth and job stability for the next several years, O’Connor said.

Jobs key

“When there is a pool of jobs, people move to take advantage, which lowers inventory and drives prices up,” O’Connor said. “In this particular market, those buyers would have the additional advantage of buying at historically low conforming rates, at a time when average prices look comparatively favorable. That prompts properties to move and for appreciation to occur.”

O’Connor, who analyzed the market using a different methodology than Bauer used, found that there were 4,237 closed sales in the eight-county area in May, 10.4 percent higher than the 3,782 in May 2009.  O’Connor’s research also found that there is a 5.1-month supply of homes on the market priced below $500,000.  At current absorption rates, that would be considered a seller’s market, he said. By contrast, there is currently about a 30-month supply of unsold homes priced at more than $750,000, O’Connor said.

“The upper end phenomenon hasn’t been seen in 50 years,” O’Connor said. “It creates an unusual opportunity for a buyer that has been waiting to move up from a lower price range, to be able to get a sale at close-to full price on the seller side, and to pick-and-choose on the purchase side at very favorable interest rates.”

Year	Under Contract	Closed	Single-family Average Price
2010	3,883	4,365	$273,285
2009	5,343	3,628	$262,066
2008	6,338	4,664	$228,500
2007	6,353	5,081	$318,904
2006	6,459	5,010	$315,257
2005	6,735	5,013	$305,730
2004	3,529	5,241	$294,040
2003	2,773	3,914	$275,879
2002	3,247	5,140	$268,952

Contact John Rebchook at JRCHOOK@gmail.com or 303-945-6865.

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Of the 9,734 homes sold and closed through April 30, 6,663 of them – 68 percent – were priced at $300,000 or below, shows an analysis of Metrolist data by independent broker Gary Bauer. The single biggest price band was from $100,000 to $200,000, with 3,040 sales, followed closely by the $200,000 to $300,000 range, with 3,028 sales.

Tax credits fuel sales

“That is a direct reflection of the tax credits,” which required qualified homes to be placed under contract by April 30 and closed by June 30, said David Binkowski, principal of Prudential Real Estate of the Rockies.

“Most of the first-time buyers were buying in that price range,” he continued. “It is pretty clear that is coming from the tax credit. Almost amazingly clear. It is pretty much a hard-core fact.” (For a detailed look at April’s activity please visit Tax credit seed record April.)

The Bauer study includes the smaller counties of Clear Creek, Elbert, Gilpin and Park, as well as Adams, Arapahoe, Boulder, Broomfield, Denver, Douglas and Jefferson.

While a lot of prospective buyers did their best to take advantage of the $8,000 tax credit for first-time buyers and $6,500 for qualified current home owners, the Denver housing market will not fall off the cliff now that the deadline has passed, Binkowski said.

Rates and prices low

“Interest rates are still incredibly low and prices are still very good, so even without the tax credits, the market still presents a fantastic buying opportunity,” Binkowski said. “With the tax credits, buyers could have their cake with a cherry on top. Now, they can have their cake and eat it, too, but without the cherry.”

The average 30-year, fixed-rate mortgage averaged 4.72 percent, according to a Zillow.com survey released today, down slightly from 4.82 percent a week ago.

Binkowski said that while the tax credits were important to a lot of prospective buyers, and it may have convinced some to get off the fence, it was never the sole driving force to sign on the dotted line. He said some buyers missed the deadline because they could not find the right home, and he thinks most of them will stay in the market.

“And I think if the market does slump nationally without the tax credits, the government will come up with some other program,” he said. “The housing market is just too important to the economy to ignore.”

You’ll kick yourself if you don’t buy now

Tom Cryer, a broker with the Kentwood has often compared this time as the real estate cycle to the Denver-area of the late 1980s and early 1990s, before the housing market blasted off with rocket-like force.

Studying recent real estate data, reinforced that belief for him.

“It appears the bottom may be behind us,” according to Cryer. “It’s time to buy or kick yourself!”

Lydia Lin, principal of One Realty in Denver, said that while most buyers were well-prepared, some first-time buyers had unrealistic expectations. She said some prospective buyers, hoping to get the tax credit at the last-minute, had not taken the basic and necessary step of being pre-qualified by a lender. One woman she ran into at two open houses, had not even considered the Home Owner Association fees when she was considering her monthly cost of buying a home.

For some people, trying to buy a home caused an incredible amount of stress, especially when they came up short, she said.

Not everyone should be a home owner

“For buyers who were counting on the $8,000 as the only way they could afford to buy the house, they probably shouldn’t be buying anyway,” Lin said. “It’s probably not politically correct to say that, but I think it’s true. Those buyers are gone. But for those who were qualified to buy a home even without the tax credit, I thin they will take a breather and start looking again. Whether that breather will last a couple of weeks or a month, I don’t know. I do think the market is starting to feel like a regular market again.”

Bauer couldn’t agree more.

“It really is what I call a ‘normal’ market,” Bauer said. “During the last few years, most of the activity was at the very low end. But now we are seeing more activity at all price levels. Denver is and remains a very affordable housing market, as it has been historically.”

He noted that during the past couple of years, much of the activity had been focused on homes priced below $100,000. Now,  there were only 595 home sales in that price range.

“At any given week, there is only a week’s supply of homes in the zero to $100,000 range,” Bauer said. “There has been so much demand for homes in that price range, that it has driven prices up at the very low-end.”

County	$0-$300,000	$300,000-$500,000	$500,000 +	Total
Adams	1492	124	18	1634
Arapahoe	1362	308	111	1781
Boulder	390	313	203	906
Broomfield	113	64	23	200
Clear Creek	22	6	8	36
Denver	1440	452	192	2084
Douglas	620	489	173	1282
Elbert	59	31	10	100
Gilpin	20	6	-	26
Jefferson	1071	411	120	83
Park	74	9	-	63
Total	6663	2213	858	9734

Contact John Rebchook at JRCHOOK@gmail.com or 303-945-6865.

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In the Denver-area buyers, placed 6,616 homes under contract last month, a whopping 27.6 percent increase over the 5,183 homes placed under contract in April 2009, shows a report based on Metrolist statistics released today by independent broker Gary Bauer. There were 4,188 closings, a 23.5 percent increase over the 3,390 a year earlier, although that was not a record for April.

“Every statistic during the month of April gave an indication that April would be a record month and it was.” Bauer said. ‘It was absolutely a frenzy during the last three days of April. Some Realtors kept their offices open all the way to midnight. Sellers, especially at the lower-end, were receiving multiple offers for their homes, and buyers had to be making offers on multiple homes. It was absolutely amazing.”

Buyers need to close by June 30, to get the tax credits.

Deals don’t die with credits

Much as auto dealers did after the cash-for-clunkers program ended, many sellers will continue to offer deals to buyers in order to keep the home buying momentum going, he said.

“Selective home sellers will work with buyers to make sure buyers get the equivalent of the tax-credits,” Bauer said. “And a number of new home builders will make sure you get the equivalent of the tax credit, whether it is in the form of helping you with closings costs, buying down your loan, or upgrades.”

The market still has too many foreclosures and short sales, but May appears to have started out on a strong note, he said. “I think we are going to see positive activity, if not great activity, for the rest of the summer,” Bauer said, although closings are sure to be strong.

Most tax credits used by 1st-time buyers

Chris Mygatt, president of Coldwell Banker Colorado, said all of his offices saw a “flurry of activity” during the last week of April, so he wasn’t surprised that there were a record number of contracts written for an April. He noted the market experienced a similar surge last November, when many consumers thought Congress would not extend the tax credits.

Mygatt estimated that 85 percent to 90 percent of the people taking advantage of the tax credits are first-time buyers, with the remaining 10 percent to 15 percent of the buyers current homeowners, who are either moving up or downsizing. Mygatt said there was so much demand for lower-priced homes that it has driven up prices, and reduced the supply of the lowest-price homes.

Despite that, the average price of a single-family detached home sold and closed last month rose 7.8 percent to $274,253 from $254,442. And the median price of a single-family home rose 9.5 percent to $230,000 from $210,000 in April 2009.

“Part of that is the homes at the bottom of the scale rising in value with demand, and part of it is that we are increasingly seeing higher-priced homes selling,” Mygatt said.

Rising inventory encouraging

Mygatt also is enthused that the number of unsold homes in the market last month rose 4.2 percent to 21,565 from 20,705 in April 2009.

“That is the first month in almost three years that we have seen a year-over-year increase from the same month,” Mygatt said. “In the last couple of years, any good Realtor was advising clients not to put their homes on the market, if they really didn’t have to sell. Now, as the market is getting better, there is a lot of pent-up demand from sellers. ”

Mygatt expects a large percentage of the homes in the pipeline will close.

“The buyers really want to take advantage of that tax-credit money, so they have an incentive to do everything they can to close,” Mygatt said. “And since most of them are first-time home buyers, their deal is not contingent on them selling a home,” which often is what causes home deals to fall apart.

Billion dollar month

Last month, buyers bought about $1.05 billion in homes, 32.6 percent more than the $791.5 million in homes purchased in April 2009.

“When we see a lot of home-sale activity that bodes well for other facets of the economy,” said economist Patty Silverstein, principal of Development Research Partners in Littleton. “When people move into a new homes they need to purchase furnishings and things. First-time buyers especially need to buy lawnmowers and shovels and all type of things, so the spin-off effect goes through the entire economy. And you can’t ignore the whole universe of people involved in the process – title insurance people, inspectors, mortgage people, real estate brokers.”

Broker urged buyers not to wait until deadline

Chris Behrens, a broker with New Era Realty, did help a buyer put a home under contract near the end of April, “but for me, it was not so much of a flurry.”

Behrens said he had been urging prospective buyers to prospective buyers to find their dream home before weeks, or even months, before the April 30 deadline.

Even though is is human nature to wait until the 11th hour to pull the trigger, he said he spent a lot of time educating buyers on the advantages of not waiting until the last minute.

“I wanted people to buy homes when we still had a good supply of homes for first-time buyers,” Behrens said. “I told them that we are going to run out homes at those prices, and that is what happened. A lot of the low-priced homes have been gobbled up. I know some fix and flippers who were buying homes at $80,000 or $90,000, doing nice renovations, and then selling then homes for $160,000, and even $200,000 or more.”

Still, not all is lost for buyers who didn’t meet the deadline. The $8,000 tax credit isn’t the sole reason for buying a home, he said. In other words, it didn’t make sense to settle for a home that would make you unhappy just to land the tax credit.

“Some of the people I am working with are emotionally resigned themselves to the fact that they could not find something in time to take advantage of the tax credits,” Behrens said. “But is not all about the $8,000. If you look at what a 1 percent move up in interest rates will do to your costs, that has a more expounding impact on you than the $8,000 over the life of the loan, or even after a few years. Interest rates are still low, I think employment is going to pick up a bit, and more sellers are listening to their Realtors on pricing their homes to sell. So there will still be opportunities out there.”

Year	Under Contract	Closed	Unsold Homes	Average price s-f home	Median price s-f home
2010	6,616	4,188	21,565	$274,253	$230,000
2009	5,183	3,390	29,705	$254,442	$210,000
2008	6,287	4,265	26,171	$267,259	$222,550
2007	6,173	4,399	27,858	$322,510	$248,000
2006	5,813	4,300	29,045	$318,949	$250,000
2005	6,240	4,461	24,164	$307,308	$245,000
2004	3,338	4,432	26,584	$284,853	$231,000
2003	2,497	3,823	24,972	$275,213	$227,037
2002	2,999	4,162	13,590	$259,705	$218,230
2001	3,183	4,242	12,727	$250,385	$209,970

Contact John Rebchook at JRCHOOK@gmail.com or 303-945-6865.

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An analysis of Metrolist data  by independent broker Gary Bauer shows in the eight-county Denver area, almost 93 percent of the homes sold and closed in the first quarter were priced below $500,000. Metrolist is a Realtor-owned data base that tracks houses they sold in the Denver area.

Overall, the sale of homes priced from zero to $200,000 and those from $200,000 to $500,000, were just about equally divided, with 3,746 sales at $200,000 and below and 3,750 priced between $200,000 to $500,000 Of the 8,121 single-family homes and condos sold and closed in the first three months of the year, , only 628, or about 7.7 percent, were priced at $500,000 or more. Homes priced at $100,000 or below accounted for 12 percent of the market. Those from $100,000 to $200,000 accounted for 34 percent; $200,000 to $300,000, 27 percent; $300,000 to $500,000, 19 percent; $500,000 to $750,000, 5.4 percent; $750,000 to $1 million, 1.2 percent; and $1 million-plus, 1.04 percent.

Lower-priced sales waning

“The biggest change that I see is that in 2008 and 2009, homes priced below $100,000 accounted for a much bigger part of the overall housing market  than in 2010,” Bauer said.  ”First, there are just not as many homes priced below $100,000 out there. All of the activity is no longer at the low-end. We are seeing mroe activity in the $200,000 to $300,000 range and the $300,000 to $400,000 range.” Although this is the first-time that Bauer has released a first-quarter report using this method, an earlier report he did found that in 2008 15.4 percent of the homes sold and closed in 2008 were priced below $110,000 and through October of 2009, homes priced below $110,000 accounted for about 13 percent of the overall market. In 2007, by contrast, the lower-end homes only accounted for 6.4 percent of the market.

“Where the money is”

Mike Rinner, of the Genesis Group, which tracks housing along the Front Range, said that Bauer’s statistics that show the vast majority of homes being sold are priced under $500,000, reflect todays’ Denver-area market.

“That’s where the money is,” Rinner said. “That is where you can get financing.”

Rinner said that the few new home builders who are building speculative homes – those without buyers – are for the most part targeting the lower end. Indeed, in the Denver area and across the country, builders have been constructing more homes that can take advantage of the tax credits for first-time home buyers, which require a house to be place under contract by April 30 and be closed by June 30.

Buyers also appear to be more cautious than during the headier times of 2006 and 200, and are no longer stretching to qualify for the most expensive home they can qualify for, Rinner said. He noted that he was speaking to a sales person at a new home community, where the houses were priced in the $400,000s. “He told me that buyers were basing their decision on what they could afford on one income,” Rinner said. He said he thinks many couples are making that decision, even if both are currently working. “There is a fear that one person could lose their job,” Rinner said. “I think this is all part of the new frugality.”

He also agreed with Bauer that one reason the lowest priced homes are not as big of a factor today, because there are simply fewer of them on the market.

“It’s demand-driven,” Rinner said. “A year or two ago, the home you could have bought for $75,000, might now be priced at $110,000, because there are so many people bidding for it.”

Case-Shiller a broad brush

Rinner said when looking at national reports, such as Case-Shiller, which shows home prices being flat or slightly up, that does not speak to the market across the board.

“If a market is flat, that means we are actually seeing 5 percent to percent swings at different price strata,” Rinner said. “At the low-end, prices are up 5 percent, 10 percent, or even more from the bottom. At the higher-end, I think we will continue to see more depreciation.”

County	$0-$200,000	$200,000-$500,000	$500,000-+	Total
Adams	914	338	12	1264
Arapahoe	900	699	77	1676
Boulder	206	442	150	798
Broomfield	42	95	16	153
Denver	952	735	162	1849
Douglas	146	697	118	961
Elbert	20	37	8	65
Jefferson	564	706	85	1355
Total	3744	3749	628	8121

Contact John Rebchook at JRCHOOK@gmail.com or 303-945-6865.

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There were 3,602 home closings in the Denver area in March, a 47.9 percent increase from February. Source: Gary Bauer. (Single Family denotes condos and singl-family detached homes. Residential category denotes single-family, detached homes.)

Tax credits that will soon expire drove Denver-area home sales activity in March, with both under contracts and closings soaring both from February and from March 2009, shows a report released today.

There were 5,907 homes placed under contract last month, a 33.8 percent increase from February, when there were 4,414 homes placed under contract, according to the report by independent broker Gary Baue. That is the largest March from February percentage increase since the 36.6 percent increase in 1991, according to an analysis of the Metrolist data by InsideRealEstateNews.com. That also was a 22.4 percent increase from March  2009, when there were 4,826 homes placed under contract. By comparison, closings in March 2009 fell by 17.8 percent from March 2008.  Bauer estimates the tax federal tax credits of $8,000 for first-time home buyers and $6,500 for qualified current homeowners, may account for 60 percent or more of the activity last month. Others estimate the tax credits, which require a house to be placed under contact by April 30 and closed by June 30, account for a third or so of the activity.

Closings, which reflect sales activity of prior months, jumped 47.9 percent from February, with 3,602 home closings, compared with 2,436 in February. However, last February was the worst February on record since 1998, when there were 2,380 closings. Still,the 47.8 percent gain was the third-best February to March since 1990, shows the InsideRealEstateNewsanalysis. Closings were up 12.4 percent from the 3,206 in March 2009. In the first quarter, there were 14,011 homes placed under contract this year, a 9.1 percent increase from the 12,840 placed under contract in the first three months of 2009. And there were 8,391 closings in the first quarter, compared with 8,159 in the first quarter of 2009, a 2.8 percent increase.

The tax credits played a role in “60 percent-plus” of the home sales in the Denver area, estimated Bauer. While that is twice as much estimated by many others, his  research shows that 69 percent of the single-family homes closed in March were priced at $300,000 or less, and many of those who were first-time home buyers who could take advantage of the tax credits.

Tax Credits Critical For Buyer

The tax credits played a key role in Michelle  Boudreau’s decision to buy a home. Boudreau, 30, and her 36-year-old fiance, paid $206,000 on March 15 for a home in Athmar Park in southwest Denver.

“I think getting the $8 grand from the tax credit was a big part of the decision,” said Boudreau. She said they may not have been looking to buy a home at this time, if not for the tax credits. But would they have bought it without the tax credit. “That’s a good question. I never really thought of that before. I think if were looking at the time, we would still have bought a house. But we may not have been looking if it weren’t for the tax credit.”

And she said the tax credit has been a bigger help than they even imagined.  She believes they received a good deal- they paid about $87 per square foot, and because they bought it from a fix and flipper, it has all new appliances. “When you buy a house you think it is perfect, but you find out there are things it needs, so the $8,000 is going to come in handy,” she said.

Larry McGee, principal of the Berkshire Group, said it is hard to put a finger on how many buyers are being primarily motivated by the tax credits.

“Anecdotally, you hear a fair amount of closings are happening because of the tax incentives,” McGee said. “But I would not even want to throw out a number. It could be 1 percent or it could be 99 percent.”

He said the tax credits  seemed to be more of a factor last fall, before the government announced they would continue them in early November. “I don’t know if we will ever be able to measure how important they are now,” he said. Indeed,  slowly rising mortgage rates, now hovering around 5.25 percent for a 30-year fixed-rate loan, are a bigger factor than the tax credits, as far as getting buyer’s off the fence. While rates are still low by historical standards, they are higher than a few weeks ago, when well-qualified buyers could find them for slightly below 5 percent. And now that the government has stopped buying mortgages, most economist expect rates to rise.

Market won’t fall off cliff when credits are gone

Chris Mygatt, president of Coldwell Banker Colorado, said that the tax credits have played a “significant’ role at the lower-end of the market, and the big question is what happens when they are gone. “That is a huge question,” Mygatt said. “I don’t think anyone knows right now. But I remain cautiously optimistic. I think in Colorado, certainly, there is enough momentum building, that it will continue to drive the market.” But the market will not drive off a cliff, he said. “No, I don’t think so,” he said.  “I think Denver and Colorado are in much better shape than many other places in the country.”

And beyond the tax credits, there was much to like about housing activity in March, he said.

“You can’t ignore that this was the seventh month running of increased sale prices,” Mygatt said.  The average price of a single-family home closed in March was $274,950, 9.2 higher than the $251,583 in march 2008. And the median price of a single family home was $229,000, 12.2 percent higher than the $203,950 in March 2008. “I think now we have a true sustainable pattern. It’s a trend of rising prices,” Mygatt said.

In addition, buyers snapped up 28 homes priced at $1 million or more in March, when Boulder is included, a 7.7 percent increase from March 2009, he said. “And that is coming off a (32) percent increase in million-dollar home sales in February,” Mygatt said.  “That is two consecutive months of increases from the same month in 2009. That is something we had not seen in at least 30 months. And these buyers are not being influenced by the tax credits.”

High-end home sales sluggish

Still, Realtor McGee said that expensive homes are not moving anywhere near the clip of homes priced below $300,000. Bidding wars for less expensive homes are not uncommon. To say that is not the case with expensive homes is an understatement.

“We have seven or eight $1 million homes for sale and they are just languishing,” McGee said.

But in an interesting twist, those buying $1 million homes – or what used to be $1 million homes – often are not millionaires themselves, McGee noted.

“The $1 million buyers are not wealthy,” McGee said. “They can’t write a check for $1 mililon. What they are is very well employed and have the resources to come up with a substantial down payment. Now, the people who are buying $2 million or $3 million homes, they are wealthy.  Those are the kind of people who are not effected by the job market.”

And excellent deals can be found in homes that were in the $1 million range during better times.

Ed Jalowsky, of Ed Jalowsky Real Estate and Hottes Homes Realty, recently was looking at a distressed home in The Preserve in Greenwood Village, which previously had been sold for $974,000. The 5,000-square-foot home on a 30,000-square-foot lot was being listed at $549,000, and Jalowsky put in an offer for $425,000, although he does not think he will get it at that price.

Market will slow when tax credits end

Mygatt said the market will definitely slow when the credits are gone, but it is hard to say by how much. “That is a huge question,” Mygatt said. “I don’t think anyone has the answer right now. But I think that Colorado has enough momentum, and that the momentum will continue to drive the market.” But the market won’t be “driven off the cliff,” when the tax credits disappear, he said. “I think Denver and Colorado are in much better shape than most other places in the country,” he said.

Jeff Bernard, principal of Bernard Real Estate Analytics, agreed.

“There are still a lot of compelling reasons to buy a home, even after the tax credits are gone,” Bernard said. “The affordability is very high (based on incomes correlated against home prices),and interest rates are still low. There are natural, organic reasons making Denver an attractive housing market, even without the tax credits.”

Sellers, surprisingly, have typically not been able to raise their prices, because of the tax credits, said Chris Behrens, of New Era Realty Inc. In other words, they aren’t tacking another $8,000 on to the homes knowing the buyers will get that back from Uncle Sam. Behrens said the tax credits gave a lot of investors the confidence to buy homes, fix them and sell them. He said they want to make a profit, but most of them are not being greedy.

“If you want to sell a home quickly, you do not over-price it,” Behrens said. However, he said many first-time home buyers he is working with, say they really would like to take advantage of the tax credit, but if the window closes before they sign on the dotted line, they are not going to give up their search. “At the lower end, the real problem is supply,” Behrens said.

But Jalowsky thinks about the time that the tax credits are no longer available, interest rates will rise, as the private sector won’t be able to replace the government’s buying power for mortgages. “When that happens, prices will go down,” Jalowsky said.

Credit woes place homes out of reach for many

Tom Cryer, of the Kentwood Co., said he has heard that the tax credits account for about a third of the sales. But he said the big percentage  increases in March in the Denver area, are largely explained because the market was at such a low level a year earlier. “The first quarter of 2009 was so dismal that almost anything we did this year would be an improvement. Still, the big percentage gains are encouraging.”

He said he sees a lot of parallels between Denver’s market today and where it was at in the late 1980s, before it rebounded with vigor in the early 1990s. “I am still of the mind that a lot of us in 2012 are going to be wondering why we did not buy in 2009 and 2010,” he said.

A lot of people, however, see buying a home as juicy, low-hanging fruit ripe for the taking, but their financial situation and the difficulty in getting a loan puts it out of their reach.

“If we had 40,000 foreclosures each year for three years, that is 120,000 people with bad credit,” Cryer said. “And if you include the spouses and other family members impacted, we might be talking about a quarter of a million people with impaired credit. They know about the tax credits, the know about the low interest rates, they know that homes are priced right. They just can’t take advantage of them.”

This year will trump 2010

Economist Patty Silverstein said that while the exact impact of the tax credits is hard to estimate, clearly it will mean that the beginning of the year will likely be stronger than the last part of 2010. “We are coming off a really low base, which makes the percentage gains very big,” said Silverstein, principal of Economic Development Research Partners. “And definitely, the tax credits played some role in this. We kind of have to wait and see how large. But I do think we are going to end 2010 with a net gain in sales from 2009, although I don’t think the sales pace of the first four months will continue.”

But there probably is at least one more stellar month in the cards.

“Hundreds of home buyers in Colorado are still rushing to beat the April 30 deadline for the home buyer Tax Credit,” said David Simonson, a broker with RE/MAX Professionals. “If they are successful, we could see some big sales number in next month’s report.”

Contact John Rebchook at JRCHOOK@gmail.com 303-945-6865.

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Year-to-date median prices of Denver-area homes sold each February from 1999 to 2010. Source: Gary Bauer

The Denver-area housing market showed signs of a continued recovery in February, according to reports released today.

“First time home buyers are back in the market, as well as investors,” said Gary Bauer, an independent broker who releases a monthly report based on Metrolist data, which reflects homes sold by Denver-area Realtors.

He added that the “inventory is up, pricing (is) up, mortgage rates (are) steady,” and, perhaps most important, “it’s Denver.”

Home prices are up well into the double digits from a year earlier – led by a 20% increase in the average price of a condo at $166,206, compared with $138,239 in February 2009. And the median price of a single-family home that closed last month, compared with February 2009, rose almost 15 percent to $220,750 from $192,000. The increase largely reflects  competition from investors and first-time home buyers bidding up low-priced homes, Bauer and others said.

Bidding Wars

David Simonson, a broker with RE/MAX Professionals, experienced that today.

He had a client looking at a home along the southeast suburban corridor priced at about $230,000.

“The home had been on the market for all of four days, and it already had four offers above the listing price,” Simonson said. “It’s completely a bidding war.”

And for homes priced at $150,000 or less, the bidding is even fiercer.

“For those homes, investors can’t pull out their checkbooks fast enough,” Simonson said. “If you look on the HUD Web site for foreclosures, as soon as people can make open bids on them, they disappear.”

Meanwhile, there were 4,414 homes placed under contract in February, up 5.5 percent from the 4,183 in February 2009, reversing the trend of most of 2009, in which under contracts lagged the same month a year earlier. Under contracts jumped 19.6 percent from the 3,690 home contacts in January, but a large month-to-month increase often is seen for seasonal reasons early in a year.

High-end housing picking up

Chris Mygatt, president of Coldwell Banker Residential Brokerage Colorado, said that savvy, well-heeled buyers are snapping up seven-figure bargains.

“I thought it was just great news all the way around, but especially at the high-end,” Mygatt said. “We super out-performed where we were a year ago. I think we had 32 home sales in the $1 million-plus range compared to 14 in February 2009. I’m cautiously optimistic. February is now the sixth consecutive month we have seen average prices increase.”

As far as the ultra-expensive markets, he said that some lenders are loosening their purse strings.

“Sometimes people are buying the loans down to $417,000 so they can get conventional loans, but we also are seeing some jumbo loans in the high 5 (percent) and low 6 (percent), which are really great rates when you’re talking about an $800,000 or more loan,” Mygatt said.

Not that they are easy to get.

“The lenders are looking for super-high FICO scores, big down payments, and other assets,” Mygatt said. “But I do think that the people who have the ability and the courage to buy at these prices, are getting super-extraordinary deals. We see it every day. And I think those people are going to look back a few years ago and be very glad they purchased in today’s market.”

But those homes still make up a small percentage of the overall market. In the first two months of the year, 51 homes and condos priced at $1 million or more have sold, accounting for 1.5 percent of the overall market.

“While we’re still not seeing a lot of activity in the high-end this year, it is much more than the previous year,” Bauer said. “We are starting to see a few more foreclosures and short sales in the high-end market. And while there are not a lot of jumbo loans out there, there is more money available for high-end purchases than before. And there is some pent-up demand growing for luxury homes. I think that is another example where Denver is a couple of steps ahead of the rest of the nation.”

Brian Chappelle, a founding partner of the Washington, D.C.-based Potomac Partners consulting firm, who was the keynote speaker at Universal Lending’s annual meeting today, said that from a national perspective, “all the news coming out of Denver sounds very encouraging.” About 200 people heard Chappelle speak on a wide variety of housing and mortgage industry topics at the Cable Center on the University of Denver’s campus. (Universal Lending is a sponsor of InsideRealEstateNews.)

Tax Credits Expiring

Bauer said that Denver-area buyers increasingly are taking advantage of the $8,000 federal tax credit available for first-time home buyers. There also is a $6,500-tax credit for qualified homeowners, planning to move up or down.

Chappelle said buyers who want to take advantage of the credits better do so quickly, because Congress is very unlikely to extend them. The credits require that a house be placed under contract by April 30 and closed by June 30. The credits initially were going to expire last November.

“I think there is a feeling in Congress that they are not getting much bang for the buck with the tax credits,” Chappelle said in an interview with InsideRealEstateNews, before his presentation. “They were very helpful at six months ago, but there is a feeling now that most of the people who will use the tax credit, would have bought a house anyway.”

Simonson, of RE/MAX, agreed.

“I think the March numbers will reflect some of the tax-credit activity, like February did,” Simonson said. “And I think when they are over, we will see a little drop off. But it will be a blip. I think most people who really wanted to take advantage of it, did so last year. Now, people will take advantage of it if they can, but I don’t think it is the driving force it was last year.”

Chappelle said the odds of Congress extending the tax credits were at 10 or 20 percent, at the most, especially if the housing recovery shows signs of recovering without them.

“Now, if housing were to fall off a cliff when they go away, Congress might do something, although I don’t know if it would be to extend the federal tax credits,” Chappelle said.

Rates to remain low

And that means interest rates will remain at their near-record lows, he said.

“There had been some fears that the Fed would stop mortgage securities a the end of March, and interest rates would shoot up,” Chappelle said. “I don’t see that happening. Congress realizes the only way the economy is going to recover, is if the housing market recovers. And the only way the housing market can recover, is if interest rates remain low.” He said the Fed can keep rates low, because there are no signs that inflation is an imminent threat.

Larry McGee, a broker with the Berkshire Group, noted that February’s statistics reflect “positive news” in year-0ver-year and month-over-month increases in average and median prices.

Inventory remains low

He does show some concern, however, on the small number of homes on the market. Bauer puts the unsold inventory at 19,359, down 3.5 percent from a year earlier, while McGee puts it at 18,669. The slight difference is because Bauer added a new category for homes created by Metrolist, called “pending” sales, back into the unsold inventory.

Either way, “this  is an extraordinarily small amount of homes available for the Denver market, especially considering the low number of new built homes being constructed at this time,” McGee said. Bauer said he was surprised there are not more homes on the market.

McGee said reasons for the low inventory include  ”high unemployment making it difficult to sell, a lack of financing available for home loans in the $400,000 to $1 million  market, a lack of equity for many home owners that must remain in place until a rise in market prices creates enough usable equity to allow a sale of the present home and a purchase of a more desirable one.”

A snapshot of sales activity by price, county

Source: Gary Bauer

Contact John Rebchook at JRCHOOK@gmail.com or 303-945-6865

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