Laurent Saltiel has this Cherry Hills home on the market for $5.9 million. The only problem - he paid $6.7 million, less than a year ago.

Laurent Saltiel is such a whiz at international stock investing, that the investment firm of AllianceBernstein LP in New York City, lured him from Denver, where he managed the $2.44 billion Janus Worldwide Fund for the Janus Capital Group.

Six months before the announcement last May that Saltiel would be a team leader and manage the International Large Cap Growth/Global Large Cap Growth funds for AllianceBernstein, Saltiel and his wife, Kimberly, paid $6.7 million for a home on more than 5 acres in Cherry Hills Village. It was the most expensive home to sell in the Denver area last year.  (For the original story in InsideRealEstateNews, please visit Janus Manager Pays Record Price For Home.)

Now, he has put the 10,409-square-foot  home,  on the estate formerly owned by golf pro Craig Stadler, on the market for $5.9 million. It was designed and built by highly regarded Debra Toney, who initially hoped the home would fetch in the neighborhood of $8 million. Cherry Hills Village values the home at $7,225,600 for tax purposes.

That means that Saltiel, if he gets his asking price, will face an $800,000 loss. And when the real estate commissions are thrown in, he will lose $1 million or more. Saltiel is not alone. While there are signs that the 7-million home market in the Denver area is picking up (see a previous blog, Million-dollar home showing rise) it’s because sellers such as Saltiel,  are willing to take big financial haircuts to unload their properties.

Edie Marks, the Kentwood Co. broker who sold the house to Saltier last November, now is listing the home at the new price.

“It was not easy to get him to that,” Marks said. ” He has the ability to wait as long as he has to. But I told him it does not make sense to just have this home sitting here in Colorado and convinced him to go with this price. He has the ability to weather this and hold it until the market comes back. But I thought it would be smart to sell it, even at a loss, and just put it behind him.”

Marks said that Saltier family has just moved to New York, where they bought a unit in a high-rise in the middle of Manhattan. They also own a home in Washington state, she said.

And there is a big cost to holding the home.

Daily tab: $5,176

Records indicate he has a $4.69 million loan with a 5.375 percent interest rate. Monthly principal and interest payments would set him back $26,277. In addition, annual property taxes run $54,255.62, or $4,521 a month. If he was lucky enough to sell it after eight months of ownership, and figured that he paid a 5 percent commission of $295,000, the cost of ownership would amount to about $1.26 million, including the mortgage payments, taxes, loss on the home, and commission. Another way to look at it, that would equate to  about $5,176 per day to own the home. And that’s not even including his utilities, lawn maintenance and other costs.

Interior photo of home listed by Edie Marks.

At the peak of the market, the land itself would have been worth more than $5 million, Marks said. And she estimated the replacement cost at more than $10 million. “The cost of building homes really has not gone down much at all,” she said.

Marks said people house-hunting today for homes priced in the stratosphere, expect to get unbelievable bargains.

‘No. 1, it  is really about the price and No. 2, they have to feel they are getting a great deal,” Marks said. Unlike Saltier, many people selling at the high-end today do not have the financial ability to hang on, she said.

Buyers smell blood

“I think most of the sales we are seeing at the upper-end are bloods sales,” Marks said. “They smell blood. Even though that is not the case in this sale, you do get a lot of those. Or, the bank owns it and is ready to deal.”

She said that Saultier is firm on his price, and won’t budge from the $5.9 million.

Price not low enough

But Greg Geller, principal of Vision Acquisitions LLC, said he thinks Saultier will need to come down more, a lot more, before he can sell it.

“I’m sure he is a really smart guy and he understood when he bought it that it needed very much to be a long-term hold,” Geller said. “As a short-term hold, you’re not going to be able to sell it as $6.7 million any time soon, and he knew that. In today’s market, the number of people paying more than $3 million for a home is a very short list. High-end real estate is on life support.”

Marks said that she thinks the buyer of the home “will be someone who is very comfortable in his own skin, as Laurent is. They will not be trying to prove anything to anybody.  Yes, it is over 10,000 square feet, but it is so warm and comfortable. And the grounds are fabulous. Some lucky buyer is going to take advantage of a great deal.”

Marks said that so far she has only had one showing. “I’m really just starting to market it,” she said. “The family has been living here until recently.  And after 100-degree heat on the East Coast and close to 100 percent humidity, they plan to come back in the near future to beat the heat.”

One wag familiar with the deal, had this to say about Saltiel:  “He should stick to picking stocks, not real estate.”

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

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Steve Blank is listing this home in Park Hill for $1.6 million. The price has been slashed by $350,000.

Peter Niederman, in addition to being the CEO of Kentwood Real Estate, is a student of the housing market, who loves to pour over data to discern the tea leaves of the Denver housing market.

Recently, an in-house statistic caught his eye, when he was looking over the June data for Kentwood, including offices in Cherry Creek, the DTC, and Kentwood City Properties in downtown Denver. (Kentwood is a part-owner in Kentwood City Properties.)

“While our overall showings for all price points were down 10.1 percent in June, compared with June 2009, our million dollar-plus showings were up 8.2 percent,” Niederman said.

That is the metric that is extremely important. Indeed, in some ways he thinks that takes the temperature of the the market better than the Case-Shiller report released today, because that tracks where the housing market has been, but showings show where the market is headed, Niederman said. (To read about today’s report, please visit Denver No. 8 on Case-Shiller.)

“I like the Case Shilller report and I am happy that they compile it, but it looks backwards, and I’m interested in looking forward,” Niederman said. “Traffic through homes is a leading indicator and one we are following closely.”

Carol Ihli, co-managing broker at Kentwood, pulled data to show that they had 422 showings of homes priced at least $1 million in June, compared with 390 in June 2009. Kentwood also had 38 percent of the listings in Cherry Hills Village, home to some of the most expensive homes in the metro area in June, according to their internal data. Earlier reports also showed that the sale of 7-figure homes in June also out-paced the closings of luxury homes in June 2009.

Buyers smell bargains for 7-figure homes

Of course, the reason that interest is picking up in those lofty prices is not because well-heeled buyers can’t snap up expensive homes fast enough at any price in tony neighborhoods such as Cherry Hills, Country Club, Hilltop and Castle Pines Village, as they did during the boom days from about 2004 to early 2007.

Quite the contrary.

“I think sellers are much more likely to be realistic of what they can sell their homes for in today’s market,” Niederman said. “I think last year, they were holding on to unrealistic prices, while now they are willing to meet the market.” (For a look at what the most expensive home sold last year is now selling for, read Former Janus manager faces million dollar loss on his home.)

Rates at record lows

In addition, there is far more money available for so-called jumbo loans – that is, mortgages above $417,000 – and at much lower rates. A Wells Fargo banker last week addressed Kentwood brokers and said that jumbo rates now are available at 5 percent for qualified buyers, compared with 6.125 percent a year earlier.

On a million-dollar mortgage, that translates to a savings in principal and interest of about $720 a month. If a person owned the homes for seven years, which in the past was considered the typical holding period for a home, that saves a buyer more than $60,000 a year.

“That provides a real incentive for someone to buy,” Niederman said. “And that is $60,000 that is tax free. If you were thinking of buying a home in the next year or two, and you can afford it, it probably makes sense to buy now to take advantage of depressed home prices and low rates.”

Fuller Sotheby’s International Realty, which like Kentwood, sells a lot of expensive homes, is seeing a similar trend.

In June, Fuller had 469 showings of homes priced at $1 million or above, 14.1 percent more than the 411 in June 2009, said Steve Blank, a veteran broker at the company.

High-end homes bottoming

But the high-end market is not on fire. “It is definitely better than it was,” Blank said. “I think bottoming out is the way you would describe it.”

And Blank has not experienced prospective buyers knocking down the door of a $1.6 million home he is listing in Park Hill, even though the price has been slashed 18 percent from $1.95 million a year ago.

“It’s really a cool, Georgian-style home almost 100 years old on Montview Boulevard,” Blank said. “But I’m only getting a couple showing a month.”

The problem is that buyers are having problems unloading their current homes, to pave the way to move into an even bigger home.

One prospective buyer first must sell a home, also in Park Hill, for about $1.2 million, and another potential buyer is looking to sell a home for $900,00, but likely will get $750,000 to $800,000 for it, he said.

“One of the problems at the upper-end is that people are not as likely to buy, before they sell,” Blank said.

Quality buyers bargain-hunting

Kelli Lanphere, a broker with RE/MAX of Cherry Creek, who is listing a number of homes above $1.5 million, said she is not seeing an increase in quantity of prospective buyers, but the quality of the buyers has gone up.

“It’s kind of interesting,” Lanphere said. “It’s not as we are seeing an increase in showings, so to speak, but the people looking are truly interested in buying. I do believe they think that homes in the $1 million and up range are priced very attractively. So we’re not seeing a ton of showings, but the ones who are looking are willing and able to perform.”

And Lanphere is walking the walk.

“I bought a home in that price range in Hilltop,” she said. “It was a spec home by a developer, and it was financed using commercial paper. The investors in the commercial paper were very willing to work with buyers.”

She said that infill development of spec mansions in places such as Hilltop have come to a halt, which means there won’t be more supply coming on the market to compete with existing homes.

“Land values used to drive up the price of entry level homes in places like Hilltop,” she said. “Builders used to pay outrageous prices for small homes to get the property. No more. Builders can’t get financing and a lot of them who did build homes at the end of the last cycle, are out of business.”

That is probably the one positive trend for high-end housing, said Greg Geller, principal of Vision Acquisitions, who this week made headlines for buying the Washington Park home of Democratic Senate candidate Andrew Romanoff.

Sea change in buying sentiments

“I can buy homes in any price range, but I seldom buy anything above $400,000, because there just isn’t the market for those homes,” Geller said.”I’m concerned that we are in a new era where people just are not as interested in buying expensive real estate, as they once were.”

Jason Miller, of Milan Realty, said he thinks the high-end market is in worse shape than may realize, and is not close to recovering.

Shadow inventory clouds recovery

“I believe going forward, the high end market will have fewer sales and additional price reductions,” Miller

said. “There is too much inventory for prices to stabilize.”

He also said that the many builders, unable to sell their castles, are renting them, instead. This has created a “shadow market” that is not being counted, but will soon hit the market, further depressing prices.

He, like Blank of Fuller, said that people who buy expensive homes, are having trouble selling their homes.

Miller said that some areas, such as Ravenna and Colorado Country Club, “are looking at 60 percent haircuts from their peak. When sellers do come down in price on the higher end, it will compress prices down the food chain. When a $1.3 million home sells for $1 million, the old $1 million homes needs to drop to $800,000 to compensate.”

All markets cyclical

But Niederman is not so skeptical.

He notes that last year, many people had written off the lowest end of the market, thinking that appreciation was years away.

“Now, you can’t buy homes at the low end for the same price today you could have even at the beginning of this year,” Niederman said.

Granted, the number of buyers a the high-end even when the economy is strong, is about as thin as the air at the top of Pike’s Peak.

“All of real estate is cyclical, and we’re in part of the cycle where sellers need to cut their prices before they can sell,” Niederman said. “But if they do, their are buyers out thee and there are unbelievably low mortgage rates available to them. It is really the buyers, not the sellers, who set the market.”

For other blogs on this topic, please visit: Million dollar home market moving, Million dollar homes show life

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The Denver metropolitan area ranked No. 8 of the 20 areas tracked by the closely watched S&P/Case-Shiller Home Price Indices released today. Overall, homes in Denver appreciated by 3.6 percent in the one-year period ending in May, compared with a 5.4 percent gain for homes in the 10-Composite list and 4.6 percent for all 20 of the areas, according to the report.

“I like what I see,” said Peter Niederman, chief executive officer of Kentwood Real Estate.

Niederman noted that some of the California markets shot the lights out in May, according to the index. For example, San Francisco showed a gain of 18.3 percent and San Diego home prices rose by 12.4 percent.

California skews stats

“Those California markets were well into the double digits,” Niederman said. “If you remove those, Denver was right up there. I think Denver is a very sustainable market. Those California markets are really a lot of noise.

They’re very volatile. They have big drops, followed by big gains. Denver does not have these violent swings up or down.”

Niederman, and others, however, cautioned that the May numbers still reflect the impact of the tax-credit buying that took place prior to April 30, so the market should brace for a drop.

Still, sellers are increasingly willing to bargain on prices, especially at the higher-end, and mortgage rates are at historical low, providing an ideal buying opportunity for those financially able to take advantage of what is a buyer’s market, except at the lower-end.

Jobs key to housing

“Only the third-leg of the stool is missing,” Niederman said. “We need to see strengthening in our employment. When we see some improvement in the employment numbers that will bring consumer confidence back. No one buys a home when they lack  confidence.’

On the other hand, he said that consumers could miss the buying opportunity of a lifetime if they wait, because as the economy improves, it is likely that both home prices and interest rates will rise.

“I do understand there are a lot of people out there who realize this is a great buying opportunity, but aren’t willing, or can’t take advantage of it, because of their job situations,” Niederman said. “Or maybe they lost money in the financial markets, and they can’t make a decision to buy now, even though they know it is a great time to be buying. I remain cautiously optimistic about the market.”

Independent broker Gary Bauer also was encouraged by the Case-Shiller report.

“Once again, I think it shows that Denver is a market on to itself,” Bauer said. “This is another example of how relatively strong the Denver market is. I think it is a positive.”

Bauer, however, cautioned that the May numbers still reflect closing activity from the home buying tax credits, which required buyers to place a home under contract by April 30 and close by September 30.

Frenzy gone

“We’re still seeing the frenzy of the tax credits in the May numbers,” Bauer said. “I think the June numbers are likely to be flat.”

Greg Geller, principal of Denver-based Vision Acquisitions, agreed that tax-credit buying drove a lot of the activity in May, and that has to be taken into consideration. Next month, Geller is likely to be named as the president of the Denver Board of Realtors for 2011-2012.

“The tax credits just brought first-time home buyers out in drove,” Geller said. “Without the tax credits, the market might be far worse and not as bloated, and I’m saying that for across the country. Not only did the tax credits bring out more first-time buyers, but it also likely led to more sellers testing the waters. “If you were planning to sell your home next year, you might very well have tried to sell it during the time of the tax credits,” Geller said.

Falling off the earth

John Sullivan, co-owner of RE/MAX of Cherry Creek, said that “while I can believe” the Case-Shiller report was a pretty good indicator of what happened in May in the Denver area, he said he expects the downturn to be quite severe later this year.

“I think the housing market is going to fall off the face of the earth in July or August,” Sullivan said. “I have six or seven listings right now and nobody is making any offers. And some of them are considerably cheaper than they were of the pre-expiration date,” of April 30 for the tax credit deadline.

He even told his son not to rush out and buy a home before the tax credits expired, as he expected that prices would fall when the tax-credits expired.

Not only have home prices softened in many cases, but interest rates fell from an already low level. While that may help existing homeowners that can qualify to refinance, it seems to be doing little to get jump-start the home buying market, he said.

Low interest rate not enough

“I think if they would drop the rate to 3.5 percent it would not make that much difference,” Sullivan said. “Well, a 3.5 percent rate would drive some people to buy a house, but not that many. If 4.5 percent rates aren’t doing it, I don’t know that a lower rate would make that much of a difference. If you don’t have a job, or you are not secure about your job, you’re not going to buy a home no matter how low interest rates are.”

He said that buyers are pickier than they have ever been.

“Everyone wants the good stuff,” Sullivan said. ‘They want the granite and the stainless steel, the location and the ‘Wow’ factor. The prices of the homes that have all of these things, have held up reasonably well. But if you have an average or below-average home, the price might have dropped 10 percent since May 1,” since the tax credits have expired.

The May numbers also broke the streak of consecutive month-to-month improvements in appreciation. November 2009 through April, the appreciation rate had increased from the previous month, topping out at 4.4 percent in April. The market also increased by 3.6 percent in February, from February 2009. Case Shiller uses “paired sales” of homes closing, in an effort to remove the bias of bigger homes closing, thus driving up the overall percentage increases.

National market bouncing along the bottom

Nationally, the overall market, for the most part, appears to have bottomed more than a year ago, but could continue to bounce along the bottom for quite some time.

“While May’s report on its own looks somewhat positive, a broader look at home price levels over the past year still do not indicate that the housing market is in any form of sustained recovery,” says David

M. Blitzer, Chairman of the Index Committee at Standard & Poor’s. “Since reaching its recent trough in April 2009, the housing market has really only stabilized at this lower level. The two Composites have

improved between 5 and 6% since then, but this is no better than the improvement they had registered as of October 2009. The last seven months have basically been flat…It still looks possible that the housing

market might bounce along the bottom for the foreseeable future, before showing any real improvement that will filter through to the rest of the economy.”

MSA	Change from January 2000	April-May	1-Year Change
Atlanta	7.82%	2.0%	1.1.7%
Boston	55.95%	1.6%	4.8%
Charlotte	16.39%	0.3%	-2.8%
Chicago	21.9%	1.2%	-1.5%
Cleveland	5.85%	1.0%	3.7%
Dallas	19.93%	1.5%	2.9%
DENVER	28.24%	0.6%	3.6%
Detroit	-31.7%	0.7%	-2.5%
Las Vegas	2.35%	-0.5%	-6.5%
Los Angeles	74.67%	1.7%	9.7%
Miami	46.33%	0.9%	1.2%
Minneapolis	22.63%	2.8%	11.6%
New York	70.45%	0.8%	-0.4%
Phoenix	11%	0.9%	7.2%
Portland	47.98%	1.2%	0.7%
San Diego	63.11%	1.1%	12.4%
San Francisco	42.16%	1.7%	18.3%
Seattle	46.82%	1.2%	-1.4%
Tampa	38.29%	0.9%	-1.5%
Washington, D.C.	82.10%	1.5%	2.4%
Composite-10	59.36%	1.2%	5.4%
Composite-20	46.43%	1.3%	4.6%

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The report showed there were 30,177 properties in some stage of foreclosure through June. That equates to one out every 71 homes, which is close to the national average of one out of every 78 homes in some state of foreclosure, from the initial filing to REO (Real Estate Owned) when the bank takes back the home.

The number of homes in foreclosure in the first six months of the year have risen 13.6% compared to the same period in 2009. Nationally, the increase was 8.26 percent, according to the Irvine, Calif.-based company.

Nationally, it reported 1.96 million foreclosure filings on 1.654 properties, which is a 5 percent decrease in properties from the previous six months. In the previous six months, from July to December 2009, foreclosure activity in Colorado fell by 9.1 percent.

“The second quarter was a tale of two trends,” said James J. Saccacio, chief executive officer of RealtyTrac. “The pace of properties entering foreclosure slowed as lenders pre-empted or delayed foreclosure proceedings on delinquent properties with more aggressive short sale and loan modification initiatives. Meanwhile the pace of properties completing the foreclosure process through bank repossession quickened as lenders cleared out a backlog of distressed inventory delayed by foreclosure prevention efforts in 2009.

“The midyear numbers put us on pace to exceed 3 million properties with foreclosure filings by the end of the year, and more than 1 million bank repossessions,” Saccacio added. “The roller coaster pattern of foreclosure activity over the past 12 months demonstrates that while the foreclosure problem is being managed on the surface, a massive number of distressed properties and underwater loans continues to sit just below the surface, threatening the fragile stability of the housing market.”

Colorado not out of the woods

Ryan McMaken, of the Colorado Division of Housing, which tracks foreclosures in Colorado using a different methodology than RealtyTrac, said that Saccacio’s observations mirror what he is seeing.

“The trends for new foreclosure filings (in Colorado) are encouraging, but the number of completed foreclosures continues to show few signs of a fast decline,” McMaken said. “Their mixed total of filings and completed foreclosures for the first half of the year is at a rate that reflects what I’m seeing, and I would be surprised to see any big swings in foreclosure data right now. Foreclosure activity in the state continues to move along a high plateau that may be coming down slightly, but there are few indications that numbers will move rapidly upward or downward very soon.”

But he said that RealtyTrac’s methodology does leave some questions unanswered. “Since Realtyrac doesn’t break out the state trends for the first half of the year between new filings and completed foreclosures, or provide a time series, it’s difficult to say if their local data reflects the same trend,” McMacken said.

Short sale activity grow

Tom Cryer, a broker with the Kentwood Co., recently complete an analysis of Denver-area housing, which he said clearly shows that foreclosure activity peaked in 2008. However, bank foreclosures have been replaced with short sales, in which the lender agrees to accept a sale for less than the mortgage amount.  He described short sales as “thinly veiled foreclosures.” Nationally, Nevada has the highest foreclosure rate, with almost 6 percent of its homes, one in 17, receiving at least one foreclosure filing in the first half of the year, according to RealtyTrac. Arizona and Florida were No. 2 and No.3, respectively.

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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Year-over-year home prices in the Denver area have risen each month since November 2009, according to the index, which was released on Tuesday and tracks 20 major markets across the nation. And each month the percentage increase has risen. In November, the 12-month change was 0.5 percent; 1.2 percent in December; 2.6 percent in January; and 3.6 percent in  February. The index of single-family home prices uses “matched price pairs” of thousands of homes.

Last year, Denver was often one of the top three cities tracked by Case-Shiller, as far as year-over-year changes. On occasion, it even was one of the top metro areas,  even though homes had slipped into negative territory – other markets were hammered far worse.

Denver No. 7

Denver’s performance in March, however, was only good enough for seventh place, as other markets, particularly in California, just shot the lights out. San Francisco, for example, was up 16.2 percent from March 2009. San Diego was up 10.8 percent, marking its 11th consecutive month of increasing home prices.

“California is such a yo-yo,” said Chris Mygatt, president of Coldwell Banker Residential Realty Colorado. ”Honestly, it is unusual for us to be No. 1, No. 2 or No. 3.  Denver is known  as a relatively stable marketplace. We don’t have the yo-yo pattern of collapsing and taking off again. Our numbers are being driven by unemployment, which is still a couple of points below the national average. There is something to be said for a steady, relatively affordable market.”

Denver a better bet than Vegas

Long-term data from Case-Shiller supports Mygatt’s thesis. Both the Denver and Las Vegas markets peaked in price around August 2006. At that time, Denver’s prices had risen about 41 percent from January 2000, while Las Vegas prices were up just under 135 percent during the same time period, according to Case-Shiller. Since January 2000 until March 2010, Denver prices are up an overall 25 percent, while Las Vegas prices are up a mere 2.6 percent.

“That really tells the whole story,” Mygatt said. “Basically, Denver home prices have kept up with inflation. And that’s not bad, for a home that you can enjoy living in. And when you think about it, if you bought a house 10 years ago for $100,000, you probably put no more than $15,000 down. Your house is probably worth $125,000 today, but your cash-on-cash return is much greater than that $25,000 in appreciation And that’s not a bad investment, especially when you consider that you enjoyed the tax breaks of owning a home. And investing in a home may seem especially attractive now, considering  how volatile the stock market is these days,

Part of the reason that the $1 million-priced home sales activity has been rising in the first four months of 2010 in the Denver area is because people have been taking some money out of stocks and putting them into homes. “They see they can get a really good deal in upper-end homes, and want to take advantage of that,” Mygatt said. “I think people will increasingly be looking at the huge ups and downs in the stock market, and invest it in upper-end homes. I’m going to be watching that $1 million and up market very closely in May. I think it will be crucial to see that market to continue to improve.”

No place to go but up

Tom Cryer, a broker with the Kentwood Co., said he is not surprised that Denver in March saw appreciation from a year earlier.

“Once again, we are working off a baseline in 2009 that was just awful,” Cryer said. “If you can’t beat 2009, we just aren’t doing our job. When the bar is as low as it was in 2009, we have to be better this year.”

Also, the $8,000 tax-credit for first-time buyers, which required that a contract be placed on a home by April 30, was still in effect in March, he noted. “I would say, let’s wait and see what happens when the tax credits are no longer a force,” he said. Mygatt, however, noted that mortgage rates near the lowest point in a half century, will pick up some of the slack of people who didn’t cash in on the tax credits. Zillow.com reported today that the average price of a 30-year, fixed-rate loan was 4.6 percent.  A major reason rates are so low is because of problems with the economy in Europe, as investors seek a safe haven in U.S. bonds.

Super-low rates offset tax-credit loss

“It was not that long ago when everyone was saying that rates were going to rise 100 basis points, 1 percent, because the Fed had ended its $1 trillion purchases of mortgage-backed securities,” Mygatt said. “But for a lot of people who missed the tax credits, the lower rates will provide an even bigger benefit. They couldn’t be coming at a better time.”

Cryer wasn’t surprised to hear that major cities in California are seeing double-digit increases. Colleagues in northern California have been recently telling him what a robust market they are seeing.

“I was talking to a relocation broker who is helping 100 people move from Chevron in California, and she said they are selling their homes in a week,” Cryer said.  “They are selling for lower prices than they used to sell for in 2007, but they are receiving multiple offers, if the homes are not too far of a commute. Also, the technology business and hiring is picking up in California. Last year, was the year when a lot companies decided they have to start getting upgrading their technology again.”

Recovery is real

Economist Patty Silverstein said that today’s Case-Shiller report shows that “here in Denver, the housing recovery is well under way. There is something to be said about our stability, compared with the ups and downs of other cities over the last several years.”Silverstein, principal of Development Research Partners in Littleton, agreed with others that the ‘big question mark” is how the housing market will perform now that the tax credits are gone. And while the ultra-low mortgage rates can reduce the cost of people buying homes, as well as putting money back into people’s pockets who are refinancing, she said they are also a grim reminder of what is often global, financial turmoil.

“That’s a little frightening,” Silverstein said. “As much as we like to celebrate the steps that we are taking into the recovery – and most of our indicators are either in positive territory or are moving toward positive territory – we must be aware that there are some dark clouds looming behind us.”

Housing still mixed, nationally

Nationally, “The housing market may be in better shape than this time last year; but, when you look at recent trends there are signs of some renewed weakening in home prices,” said David M. Blitzer, Chairman of the Index Committee at Standard & Poor’s. “In the past several months we have seen some relatively weak reports across many of the markets we cover. Thirteen MSAs and the two Composites saw their prices drop in March over February. Boston was flat. The National Composite fell by 3.2% compared to the previous quarter and the two Composites are down for the sixth consecutive month.

“While year-over-year results for the National Composite, 18 of the 20 MSAs and the two Composites improved, the most recent monthly data are not as encouraging. It is especially disappointing that the improvement we saw in sales and starts in March did not find its way to home prices. Now that the tax incentive ended on April 30th, we don’t expect to see a boost in relative demand.”

From February to March, Denver home prices rose by 0.6 percent, compared with a 0.5 percent drop for the 20 metropolitan areas in the index. Only Cleveland, San Diego and Seattle performed better than Denver from February to March.

Metropolitan Area	Change from January 2000	Change from March to April	1-Year Change
Atlanta	5.64%	1.8%	0.2%
Boston	53.56%	1.4%	4.9%
Charlotte	16.05%	1.1%	-2.2%
Chicago	20.43%	0.6%	-1.6%
Cleveland	4.77%	1.4%	6.8%
Dallas	18.14%	2.0%	3.3%
DENVER	27.5%	1.7%	4.0
Detroit	-32.19%	0.2%	-3.0%
Las Vegas	2.82%	0.2%	-8.5%
Los Angeles	71.78%	0.7%	7.8%
Miami	45.04%	-0.8%	-0.5%
Minneapolis	18.89%	1.8%	9.5%
New York	68.95%	-0.3%	-1.0%
Phoenix	10.05%	0.5%	5.4%
Portland	46.25%	1.8%	-0.4%
San Diego	61.39%	0.7%	11.7%
San Francisco	38.77%	2.2%	18.0%
Seattle	44.15%	1.0%	-2.8%
Tampa	37.09%	-0.5%	-2.4%
Washington, D.C.	79.49%	2.4%	7.3%
Composite-10	57.37%	0.7%	4.6%
Composite-20	44.56%	0.8%	3.8%

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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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Below is the article posted on Monday by Francesca Levy. She even mentions me in the piece, although I would not describe myself as a “critic.” Rather, I am messenger giving others a forum to voice their opinions. In this case, however, it was difficult finding someone supporting the conclusions of the first article.

Forbes article

“An April 5 article that ranked the Denver metro area’s real estate market as the nation’s second worst-selling elicited objection from the city’s real estate community. Some Realtors and real estate bloggers disagreed with the housing inventory numbers, provided by Zillow.com, that contributed to the rankings.

Many felt that Zillow’s numbers, which showed a 27% year-over-year increase in homes for sale on the site and an inventory of over 42,000 unsold properties, were inflated, because the site hosts multiple same-property listings, and transactions may not be recorded as quickly as they occur. This means properties could be on Zillow, but no longer on the market.

Zillow’s metric measured inventory from January 2009 to January 2010, the latest available when the article ran. Metrolist, a firm that collects and analyzes Colorado real estate data, shows a March 2010 inventory of 20,073.

Zillow.com confirmed that double counting was possible. Zillow spokeswoman Katie Curnutte says that Zillow’s numbers represent the homes for sale on the site, and that data from January will differ from any count that’s more current. She added that the company regularly takes on new partners who provide the site with listings, skewing year-over-year comparisons.

“It can be difficult to derive any assumptions about market conditions from the year-over-year numbers,” she says.

Zillow provided Forbes.com with year-over-year homes-for-sale numbers for each of the metropolitan statistical areas examined; each metro was scored by the same measures. Since Zillow has acknowledged that these numbers may have been artificially increased, Forbes.com has decided to limit the use of year-over-year homes-for-sale statistics from the data provider.

“Though Zillow’s numbers allowed us to compare the number of homes for sale across the country’s metros,” says Lucy Maher, executive editor, Forbes. “We recognize that these numbers may not have given us an accurate look at local inventories.”

In addition to the number of homes for sale on Zillow.com, used to measure inventory, the story looked at home price data from the National Association of Realtors; and sales rates from Moody’s Economy.com. The article looked at each of the country’s Metropolitan Statistical Areas with a population of more than one million.

Metrolist’s data looked at the housing market two months later. What’s more, it may not account for all foreclosures and new home sales. Still, Metrolist spokeswoman Melissa Olson says that those differences alone can’t explain why Zillow reported over twice as many homes for sale than Metrolist.

“In the Denver market, new home sales and foreclosure sales are not significant enough to make a doubling effect,” she says.

Critics including John Rebchook, who writes about local real estate in his blog InsideRealEstateNews.com, Krystal Kraft, a local Realtor who first raised her objections to the story via Twitter, and Denver Mayor John W. Hickenlooper also voiced their objections to Zillow’s data.

“It was hard for me to imagine we could have gotten into such a desperate environment without anybody noticing, and without me hearing about it,” says Hickenlooper. “When I first read the story I talked to brokers who said a year ago we had a six-month supply of homes and now we have a five-month supply, so we’re actually doing better.”

The National Association of Homebuilders, a lobbying group, reports that because of a lack of overbuilding in Denver during the housing boom, signs that home prices are normalizing and foreclosures falling below the national average, they anticipate that, on the whole, Denver real estate will steadily emerge from the recession.

“We don’t expect the Denver market to be either best or worst, but rather to be pretty middle of the pack, improving with a broad swath of United States housing markets,” wrote Donna Reichle, NAHB spokeswoman, in an e-mail. “Our forecast for the Denver housing market is for recovery continuing this year from the early 2009 bottom and gaining momentum through 2010 and beyond.”

Local response to article.

“I thought it was interesting,” Hickenlooper said Tuesday afternoon. “They didn’t go as far as describing the health of the Denver housing market as we might have liked or desired. But they did explain, and they were very open about, what the problem was.  I would have liked to have heard some more positive descriptions of our real estate market. But I have no complaints.”

Hickenlooper said it is difficult to measure if the first article caused any damage to the market.

“Anecdotally, you do hear about transactions that deals that didn’t close that might otherwise not have closed because of the article,” he said. By the same token, Hickenlooper said, it is difficult to know whether the second article will erase doubt from prospective buyers who were influenced by the first one. “The thing now is to put it to bed in an official way and put it behind us,” Hickenlooper said.

Peter Niederman, an owner of the Kentwood Cos., said he was pleased with the second article, ‘but I was hoping that she would go into detail about how great the Denver market is. The main thing that came out from her second article is that she realized that Zillow might double-count information and isn’t the best source of information on the local housing market. She admits it and was quick to do it, which is commendable.”

Niederman, however, said he wished she had pointed to statistics that showed the improving market. “We probably started the year with eight months of inventory, and now we’re at about five months,” Niederman said. “That is a very good place to be. Those are good numbers. I like the trend.”

Like Hickenlooper, Niederman said it is hard to quantify the impact of the first one, and the second article, for that matter. “You do hear rumblings that some deals might not have happened, or people have had second thoughts, of course,” Niederman said. ‘”If a real estate broker who may be working with a buyer who read the article, can now show him the second article, which provides some ammunition, or cannon fodder, to say this may be the best time to buy.”

Word getting out

Tom Clark, executive vice president of the Metro Denver Economic Development Corp., said he wants to get the word out about the second article.

“I think it is great,” Clark said. “We plan to give it wide distribution.”

He said that he was disappointed and surprised by the first article, because he had always held Forbes in high regard. “Whenever I was interviewed by Forbes in the past, it was always old-school, with the reporters calling me back to check their facts,” Clark said. “Of course, that was Forbes, the magazine, and not Forbes.com. But I would think that the same standards would apply.”

Clark said in this fast-paced information world, it may be tempting to use information from any source, without checking  its accuracy first.

“We have always been kind of suspect of Zillow, which is why we don’t use their information,” Clark said. Many Denver-area Realtors have said since the first Forbes.com article came out, that they frequently find that homes they have listed on Zillow remain there after they have been sold, giving credence to the notion that Zillow over-counts unsold homes on the market.

David Simonson, a broker with RE/MAX Professionals, said he is “excited” about the second article.  He said he has found Zillow to be “problematic” for years, and thinks using MLS statistics from Metrolist paints a much better picture of the market than Zillow does.  He said about two years ago, a  buyer almost backed out of buying a $600,000 house that had been appraised twice, because Zillow estimated its value at only $483,000.  Also, he said he has had problems with other brokers pretending on Zillow that they were listing homes in which he was representing the owners.

Somewhat surprisingly, perhaps, none of the buyers or sellers Simonson was dealing with were troubled by the first article. He said his clients shopping for expensive homes do their own extensive due diligence, while those at the lower-end find what a national publication says irrelevant.  ”I did get a few phone calls from people who were neither selling nor buying, who wanted to know how the MLS could get it so wrong,” Simonson said. “These are the people who glance at the headlines before rushing to work.  I explained to them that they got the “wrong one, wrong,” Simonson said. “I told them that Zillow is very user-friendly, but is not a good real estate-evaluation tool.  I told them the MLS is good data, with no leeway or emotion involved. It factually tells you what 20,000 Realtors in the Denver area are doing.”

Unintended benefit of first article

Larry McGee, principal of the Berkshire Group, said that the second article will not immediately reverse any damage done by the first one, such as people being spooked from buying homes or suffering buyer’s remorse.

“I do think the first article was bad,” McGee said. “I do appreciate the fact, personally, they reconciled the fact that they did have a problem. I do think they threw Zillow under the bus. I think we all know now that Zillow’s approach to listing active inventory is not very good for statistical analysis. They don’t vett the information, they don’t purge it, they get information from different sources, which  constantly changes. Zillow does serve a purpose. We probably list all of our active listings there. The problem is it is very hard for the typical broker to change the status once the home has been sold, so it languishes there for months.”

Now that Forbes.com has indicated it will not use Zillow’s year-over-year data for inventory comparisons, it should save other cities in the country suffering the problems faced in Denver, he said. “Since it looks like Forbes learned from the mistake it made in Denver, other cities probably won’t have to go through what we did,” McGee said.

But even the first article had an unintended positive consequence, McGee said.

“I think the best thing that came out of this is that a widely disparate group of people came together with no other interest than to make things right, came together,” McGee said. “Without any leadership, a sort of grassroots movement started and I was happy to have something to do with it. There is something extraordinary positive about that. That may even be more important than the article.

(To see what all of the fuss is about, please visit these blogs: Forbes writing another article on Denver,  Hick not buying Forbes’ take on Denver housing market, Forbes article criticized)

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

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This report by Gary Bauer, using Metrolist data, shows far fewer homes on the market than Forbes.com. (Note: Single Family category includes single-family detached homes and condos, and Residential refers to only single-family detached homes.)

Denver Realtors and business leader, who have become  accustomed to favorable national press about the local  economy and real estate market, feel as though they have been blindsided by an article in Forbes.com that describes the local housing market as the second worst in the country.

Many experts said that the article, which ranked only Milwaukee below Denver, gives Denver an undeserved black eye.

“It absolutely gives us a black-eye,” said Tom Clark, executive vice president of the Metro Denver Economic Development Corp. and the Denver Metro Chamber of Commerce. “I glanced at the article last week and realized it was absolute bull crap.”

Unsold inventory exaggerated

One thing that irked real estate brokers that track the market closely is that the article claimed that there were more than 42,000 unsold single-family homes on the Denver-Aurora metropolitan statistical area. However, Metrolist data shows at the end of the March there were only 14,989 single-family homes on the market. Even when condos and townhomes are included, the number is less than 20,000. Indeed, most experts doubt that there are even 42,000 unsold homes in the entire state of Colorado.

“This article is so incorrect that it should be removed from the online publication,” said Jeff Bernard, principal of Bernard Real Estate Analytics, and a long-time Denver broker.

“Perhaps there was a completely different scope of parameters for data gathered by Forbes this year versus data gathered last year,” in which Forbes.comsaid Denver’s housing markets was one of the best in the country, added Bernard, a broker with RE/MAX Alliance. “It even leaves me wondering if they collected data on the right city. Or maybe they’re spiking their Kool-Aid before they run their analytics. Forbes is usually a pretty good read, but this article seems to be slithering towards irresponsible reporting. Forbes is usually a pretty good read, but this article seems to be slithering towards irresponsible reporting.”

Forbes claims inventory jump in Denver

The Forbes.com article, originally published on April 5, had this to say: “Before 2009, if any market seemed to be free from the rest of the country’s housing woes, it was (Denver.) But the city’s fortunes seem to have shifted: The recession hit Denver later, and only in the past year have sales slowed and inventory begun to pile up.” And the report, which it said was based on information from the National Association of Realtors, Zillow.com and Moody’s Economy.com, went on to say that “Denver doesn’t come to mind as a housing-crisis hot spot, but the city that once looked like it would escape the housing bust unscathed now shows signs of strain. More than 42,000 homes are on the market in the metro, 27% more than last year.”

Although it went largely unnoticed, in January, Forbes.comraised the specter that the Denver-area housing market was in trouble, even though at that time the S&P/Case-Shiller Home Price Index, which had just released its November statistics, ranked Denver as No. 1 of the 20 major housing markets it tracks.

“But real-time asking price data provided to Forbes by Altos Research, a Mountain View, Calif.-based real estate research firm, suggest the Mile-High city is taking a turn for the worse. In July 2009 listings showed a .5% decline from the year before, the first time the city posted a price tag decline since 2008. The slump has since worsened; in January year-over-year asking prices were down 3%, to $368,870.”

Larry McGee, principal of the Berkshire Group, said that today an out-of-state buyer who recently purchased a home in the Denver area, read the most recent Forbes.com article and is now questioning whether she made a mistake.

“It does hurt us when the national press makes statements like this that are false,” McGee said last Thursday, repeating and elaborating on his criticisms today. “I guess I do not trust Forbes anymore.”

Realtor believes Forbes is irresponsible

McGee sent a letter to his agents this morning and did not mince words.

“I am very angered by this latest example of journalistic prevarication,” McGee wrote. “Unfortunately, the media operates like other sharks, and is not generally willing to challenge a fellow shark, so we will probably have to live with this and counter with our own information. ”

 Last week, McGee’s wife,  Kristal Kraft, also a Realtor, Tweeted the author of the Forbes report.  “Your numbers aren’t even close. Very irresponsible reporting. Maybe you should check your source,” Kraft Tweeted the reporter.

Forbes.com stood by its reporting, with this response, also sent through Twitter: ”Checked #s, all correct. Data is for metro areas (a city and its surrounding suburbs). Appreciate the feedback.” Forbes.com has not responded to an e-mail from InsideRealEstateNews.com asking it to defend its information. Efforts to reach the author of the report were unsuccessful.

McGee said he is checking, but does not believe that there are even 42,000 unsold homes in all of Colorado, much less in the Denver area.

Gary Bauer, an independent broker who prepares a monthly report on the state of the Denver-area housing market, agreed.

“Where in the devil is somebody saying we have more than 40,000 unit for sale? I think it would even be a stretch to say we had that much unsold inventory from the Wyoming border to the New Mexico border,” Bauer said. “This article was an unfair swipe. I am not aware of any national report as being this negative to Denver in recent memory.”

Niederman says report ignores facts

 Peter Niederman, chief operating officer of the Kentwood Cos., e-mailed a letter today to the author of the Forbes.comarticle, filled with chief operating officer of the Kentwood Cos., e-mailed a letter today to the author of the Forbes.com article, filled with the most current statistics on the Denver-area market from Metrolist. The statistics, not only show Denver’s market is strong and healthy, but also shows that overall, Denver only has slightly more than a 5-month supply of homes on the market. A year earlier, it had more than a six-month supply, he said.

That is a sign of a market that is in balance between supply and demand, he said. He noted it is a seller’s market for lower-priced homes, while it is a buyer’s market for more expensive homes.

“I actually think we are in a very sweet spot with out single-family home supply,” Niederman said. “If anything, we could use some more inventory. But we don’t have any place near 42,000 unsold homes. We are enjoying a very healthy and stable market.”

Niederman said that perhaps the Forbes article was talking about the ’shadow market,” of homes being held by banks or soon-to-be sold by banks, which some analysts believe could greatly increase the inventory of unsold homes in the Denver area.

“Reading the article, I did not get the impression she was talking about REOs or foreclosures,” Niederman said. Niederman sent an e-mail to Forbes.com, filled with information about the Denver-are market from Metrolist, which paints a much different and more bullish picture. But he received no response from Forbes.com. 

Shadow market can’t explain numbers

Clark, of the Metro Denver Economic Development Corp., said that he recently spoke to a home builders group, and some bankers and mortgage company officials said that banks may be holding a “significant number of houses” that they haven’t yet placed on the market. They don’t’ want to flood the market with homes and further erode the value of houses in the neighborhoods, as well as the homes they are trying to get off their balance sheets, he said. (For an earlier blog on the Denver-area shadow market, please visit this link.)

While that makes sense, he said he doesn’t think it is likely that banks are holding double or triple the number of homes being listed in the market.

And broker Bauer noted that banks increasingly are working with distressed borrower to keep the homes from going to foreclosure sales. Increasingly, lenders are trying to modify loans to keep borrowers in their homes, or failing that, are agreeing to short sales, where the bank accepts less than the mortgage amount.

“If (Forbes.com) is including all of the foreclosures, existing and pending, in their numbers, maybe would add another 2,000, 3,000 or maybe even 5,000 homes into the market – and that is a pretty big IF,” Bauer said.

Patty Silverstein, principal of Economic Development Research Partners and the economist for the chamber, also thought that the number of unsold homes quoted by Forbes.com seems way too high.

“The Metrolist data could be a little on the light side, and may be under-counting by a bit the number of homes on the market, or that could go on to the market,” Silverstein said. “Even so, I cannot fathom how they came to the 42,000 level.”

Silverstein said that while you never want to sugar-coat the data, it is an unfair black mark against the Denver area, when any part of the economy is made to look worse than it is.

“I think think this whole economic recovery is fragile enough, that consumers are very nervous,” Silverstein said. “When they hear negative reports like this one, it is like we are taking two steps back.”

Clark said that while the Forbes.com article is not good news for the Denver area, it won’t haunt the economy for the long-term.

“We got hit with some bad news from this one, but I guarantee you we will soon see another national report with good news, which will take the spotlight,” Clark said. “The bad news from this one won’t last very long.”

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

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Last month’s  percentage increase in Colorado is smaller than the 68 percentage increase from December to January, when 1,072 households had received permanent loan modifications. 

In Colorado, the homeowners in the Denver-Aurora Metropolitan Statistical Area have received 1,660 permanent loan modifications so far. And 7,200 of the 11,700 households in Colorado who are participating in the trial program are from the Denver-Aurora MSA.  The Denver-Aurora  MSA accounts for 0.88 percent of the total HAMP activity. The Denver-Aurora area accounts for almost 70 percent of all of the permanent loans in Colorado.  Pueblo had the fewest number of homes in the program, with 312 in active trials and only 51  permanent loans.

Loan mods help housing heal

There are now enough homeowners in the Denver area with permanent loan modifications to help heal the local housing market, said Tom Cryer, a broker with the Kentwood Co.

“I am a free-market guy,” Cryer said. “And I do hate that this rewards bad behavior,” of borrowers not making the payments they promised when they took out the loan.

But Cryer said he thinks the vast majority of people who are trying to keep their homes today are doing their best  to be responsible and do the right thing under extraordinarily difficult circumstances. Many buyers took out loans they did not understand a few years ago, and have not been bailed out by rising housing prices, as they expected, he said. Instead, the $250,000 they paid for the home might only be worth $210,000 or less, at a time when they have lost their jobs or have otherwise suffered financially, he said.

“I think if you can do anything to keep people in their homes and encourage them to be productive and stable human beings, is well worth it,” Cryer said. “I think the unintended consequences of programs like this are less painful than some other ones. I think socially, politically and economically, it makes a lot of sense to keep people in their homes.”

Lowering foreclosure rates boosts neighborhoods

Cryer said if you have a neighborhood where 10 homes are facing foreclosure, and they owners can remain in their homes, the benefit goes far beyond those 10 families. It also means that if a neighbor is trying to sell a house, a foreclosed home is not being used as a comparable, which would drive down the prices of all the homes in the neighborhood. And that, in turn, will help local municipalities and local school districts preserve their property tax bases, he said.

The loan modifications will help stabilize housing prices, he said. And buyers in stabilized markets across the country will be willing to buy houses, while buyers will continue to stay away from markets still plagued by falling prices, Cryer said.

Lansing thrilled

Peter Lansing, president of Universal Lending, said he is “thrilled” by the number of loan modifications in the Denver area in Colorado. Overall, Colorado ranks No. 19 in the nation for loan modifications. (Universal Lending is a sponsor of InsideRealEstateNews.com.)

“I think it is great that more than 1,600 people in the Denver area have been probably saved from foreclosure, and we have another 11,000-plus in the system, who can potentially benefit.” Lansing said.

Lansing said one difficulty is loan servicers – banks and others whose traditional job has been to collect monthly mortgage payments and usually insurance and property taxes – now have the responsibility to determine who qualified for loan modifications.

“It’s very difficult for the servicers to triage the people who truly deserve help,” Lansing said. “Everyone, of course, would like to have a 2 percent mortgage payment. But just wanting to lower your payment is not a reason to qualify for programs like these.”

And both Lansing and Cryer worry that some people who have lost their jobs may not benefit from a loan modification, no matter how low their rates are dropped.

“Are you really doing anyone a favor if this is just delaying them losing their homes, anyway? I don’t think so,” Lansing said.

And Cryer said some homeowners are so deep underwater – that is, their loan is worth far more than their house – that they see no point in paying even a lower mortgage.

“Here is the anecdotal part,” Cryer said. “Suppose you have got a $200,000 mortgage and the home is now worth $170,000,” Cryer said. “Who cares if you are paying $1,500 a month or $1,000 a month? You are still paying on something that is totally upside down.”

Tough choices when you’re underwater

Also, because so many people are mobile, they have to weigh whether it is better to sell a home for a loss, or try to rent it out (for a loss) until the market improves. “I was just talking to a transferee who has been given a promotion by his company that requires him to move to Pittsburgh. Even though his company is paying his closing costs, he still will lose money on the house if he sells it. He’s trying to decide what to do.”

HUD counselors help

Shannon Peer, head of housing counseling at Brothers Redevelopment in Edgewater, has seen his earlier prediction that a huge percentage increase of conversions to permanent loans take place, even though the month-to-month percentage increase has slowed.

“Of course, we’d always like to see more permanent loan modifications, but 45 percent is still a big number,” said Peer, whose group runs the Colorado Foreclosure Hotline, 1-877-601-HOPE.

The number Peer said he will be watching closely is the number of households entering the trial program, which has not been growing as rapidly as the conversion to permanent loans.   “And as of June 1, there are going to be some new guidelines in place -people in the trial program are going to be basically have to be pre-qualified for the permanent loan modifications,” Peer said. “So it will be interesting to see what change that has on the numbers of people entering the process. I anticipate that we will continue to see big percentage increases from active trials to permanent loan modifications, especially now that there is a pretty big pool of people in active trials.”

Peer said that some critics have said that the number of loan modifications “is only a drop in the bucket”, and there are not enough of them to be helped. But I think more and more lenders are willing to do some kind of workout that is good for the borrower and the mortgage company.”

He said that many distressed homeowners who call the foreclosure hotline think that a loan modification is the only option. But he said a HUD-approved counselor can walk them through a variety of options, some that may be more realistic and be more appropriate for some individuals. And if a person has tried to get a loan modification on their own with no luck, he said counselors can often help them maneuver around “road blocks” with their lenders. “They can tell them about potential pitfalls and make sure they have all of the needed documents,” Peer said. There is no charge for HUD-approved counselors, such as those who respond to hotline calls.

“Every situation is unique,” Peer said. “That is why our counselors approach it one homeowner at a time.”

National snapshot

Nationally, 168,708 households have received permanent loan modifications, and another 91,843 have permanent modifications pending. At the end of February, 835,194 households were in trial modifications. So far, 88,663 modifications have been canceled. The median savings for those receiving a permanent modification is $518.88 a month, or 36 percent of the median before-modification payment.  So far, the more than 1 million households in either the active trial stage or who have received permanent modifications have saved more than $2.7 billion.

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

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