Lawrence Yun, the NAR's chief economist, speaks to almost 800 at the Ramada Inn at Interstate 25 and East 120th Avenue.

Lawrence Yun, the chief economist of the National Association of Realtors, captivated and educated almost 800 Denver-area Realtors and other housing officials during a presentation on a wide-range of housing and economic topics.

He also confirmed that the Denver-area housing market is in better shape than most places, and is poised to recover at a faster clip.

Overall, he said in the Denver area on Wednesday, that the housing market  is likely to trade a “vicious cycle” for a “virtuous cycle,” in which supply and demand are much more in balance.

“Right now, the market is trying to get back to normal,” Yun said.

Topics he discussed during a 90-minute talk at the Ramada Plaza Hotel in Northglenn, included:

• Life after the expired tax credits
• Foreclosures
• The government’s $600 bond buying spree
• Risks of inflation and deflation
• Preserving the home mortgage deduction
• The shadow market
• Fannie Mae and Freddie Mac
• Timelines for a housing recovery

Yun also was bullish on the Denver area and Colorado.

“A long-term trend is that people want to move to Colorado,” Yun said at one point.

Yun was brought to Denver by the Denver Board of Realtors, the Jefferson County Association of Realtors and the  North Metro Denver Realtors Association. Additional sponsors were Land Title Guarantee, Metrolist and Bank of America. Yun also granted a 30-minute private interview to InsideRealEstateNews and independent Realtor, Gary Bauer.

At times you could hear a pin drop, as Lawrence Yun discussed many aspects of the housing market.

“It’s hard to imagine today, but as early as 2011, we could see some degree of a housing shortage,” Yun told InsideRealEstateNews. “I know it does not feel that way. We are out of the recession, but consumers don’t buy it. What is different this time, is that people are losing their belief in the future.”

But he noted that home-building in the Denver area, as well as from Boulder to Fort Collins, is at a 40-year low, at a time when the population continues to grow.

“Construction also has come to a halt in places like Detroit and Cleveland, but I would say they are going to be facing housing shortages, because those are out-migration states,” Yun said. “That is, people are leaving. The Rocky Mountain states, such as Utah and Colorado, tend to be in-migration states – that is people continue to move here, in addition to the normal growth rate and people graduating from high school.”

Still, there are challenges, he noted. In a typical year, there are about 400,000 foreclosures a year because of people losing their jobs, divorces, and health problems. The last few years, the county has suffered from about two million distressed properties entering the market annually.

“That is five times the normal amount,” Yun said. But he said that Denver, where the foreclosure cycle began earlier that most places of the country, is not seeing the foreclosure rates as many other spots.

Denver dodged over-building

“Denver’s foreclosure rate is about half the nation’s,” Yun said. “The other thing is that Denver is one of the few cities where over-building

Economist Yun used this slide to illustrate the shadow market.

occurred before the housing boom and bust. You did not see the huge overbuilding at a time when other markets such as Phoenix and Las Vegas were expanding rapidly.”

And homes in the Denver area are more affordable, because of softer prices and near historic low mortgage rates. A typical monthly mortgage in Denver has dropped $257 a month to $935 from $1,922 in 2005, he said. In San Diego, the difference is even more dramatic, dropping to $1,564 from $2,833.

Nationally, about a million jobs have been added to the economy, following two years of losing five million jobs each year. If the economy would add 400,000 jobs a month, it would take slightly more than two years for the housing market to return to a more normal one, he said. However, he said he expects more modest gains of 1.5 million jobs next year

Tax credits did their job

And although home sales in Denver dropped off following the end of the tax credits, Yun said that occurred nationwide, and was expected.

“The tax credits worked,” Yun said. “Nationally, it brought about one million buyers into the market, who would have not bought otherwise. Now, about 4 million people bought, who would have bought in any case, and for them it was an $8,000 bonus. We knew that housing sales would fall off when they ended, and they had to end. After all, who would buy a home in May, when they could get $8,000 back by buying in April? Consumers are smart and rational.”

The tax credits also helped reduce the supply of homes on the market, and helped stabilize prices, especially at the lower-end, he said.

Robo-signings to be resolved

Meanwhile, he thinks the banking industries problems revolving around faulty foreclosure paperwork will be resolved within the next couple of months.

“The banks were sloppy with paperwork and with things such as robo-signings, but they are remedying it,” Yun said. “At the end of the day, I do not think we are going to find too many homeowners who were facing losing their homes who are actually current on their mortgages. I was concerned at first that the government was going to force a moratorium on foreclosures on banks, which would have created an overhang of distressed homes on the market and slowed the recovery. But I don’t think that is going to happen.”

He also doesn’t think the homeowners who may not have made a payment in 18 months or so, but still haven’t lost their home to the banks, will be able to keep them because of problems with the paperwork.

“I don’t think many people think you should be able to stay in your home when you haven’t made a mortgage payment for 12 months or 18 months,” Yun said in the interview with InsideRealEstateNews. “A home is too valuable of an asset for banks to let that happen. I think they will work out all of the title and ownership issues. It would be utter chaos if people could keep their homes under those circumstances.”

However, he said that distressed homeowners are facing confusing choices when they are seeking a loan modification, and are being encouraged to let their home slip into foreclosure, to facilitate that. And if they do not get the lower payment, they may lose the home.

In addition, there is a certain “moral hazard” of rewarding people with lower rates who defaulted on mortgage payments, while others continue to pay their mortgages, he said. In some government-backed mortgage reduction programs, as many as 50 percent of the borrowers still end up defaulting on their loans, which also is troubling, he said.

Also, while mortgage rates are still hovering near records lows, a big part of that appears to be that banks are only lending to the best customers – those that have great credit scores and have almost zero risk of default. He said that FHA-loans made this year have the lowest default rates on record and “vintage 2009″ and “vintage 2010″ loans purchased by Fannie Mae and Freddie Mac have lower default rates than loans made in 2002, prior to the housing boom and bust. “Bad loans are almost always made in good times,” Yun said. He said that banks, accruing huge stockpiles of cash, must loosen underwriting. Lending was too loose during the go-go days that led to the crash, “and now the pendulum has swung too far,” he said.

Also, Fannie Mae and Freddie Mac have to return to their knitting, but should not be eliminated, as some have demanded, he said. They play an important role of providing a steady source of mortgage money. Before they were taken over by the government, they were acting like hedge funds, making risky bets on the housing market, he said.

No fan of $800 billion buying spree

But he is not a fan of the government’s plan to spend $800 billion in bonds, which was expected to drive down interest rates, but at least initially is causing them to rise.

“I was not really in favor in what they call quantitative easing, or QE2,” Yun said. “The government thinks it can just turn on the printing press and get a free lunch. But there are consequences.”

One of the potential consequences is inflation, he said. Consumers are not feeling it, but there has been rising inflation at the production side, as well as at the commodity level, as everyone has seen with gold seemingly hitting new highs almost daily.

“If cotton prices keep rising, at some point Wal-Mart will have to charge more for shirts,” Yun said. He said the government embraced QE2 was because of concerns about deflation, in which prices fall. That leads to consumers to wait for even lower prices, which causes prices to fall even more. Deflation has kept the standard of living in Japan at basically the same level for 20 years, he said.

Mortgage deduction safe

But one thing Yun does not see happening is the elimination of the mortgage deduction as a way to reduce the federal deficit. The chairman of a bipartisan White House committee recently raised that as a possibility.

“I’m not surprised that it was put on the table,” Yun said. “But the mortgage deduction has been embedded in American culture for generations. It has a great deal of support from taxpayers.The U.S. economy cannot recover if the housing economy does not recover. If the mortgage deduction is removed, it not only hurts people who own homes, but those who have paid off their mortgages and own their homes free and clear.”

He estimated that would lower the value of homes, even those without mortgages, by 15 percent. Although it may not be obvious at first blush that people without mortgages would be hurt, they will find that their homes are worth less if they try to sell or pass the mortgage-free homes to their children, he noted. Thew 15 percent drop is irrespective of other market forces, he added.

“I can’t see any politician supporting the destruction of wealth at the scale,” Yun said.

And while there may be as many as 1.5 million homes waiting to hit the market – the so-called shadow market – he said there has been plenty of investor appetite for those properties. The shadow market is typically described as properties owned by banks, or soon to be owned by banks, that are not yet on the market.

American Dream alive

But despite the recent turmoil in the market, he said he still thinks owning a home is the American Dream.

“When we survey renters, the vast majority of them still say they want to buy a home at some point,” Yun said. “Now, some young people might not want to buy at this time. They want to remain flexible in finding a job, they may not have married and started a family yet, or their careers are not yet where they want them to be.”

He also noted that the net wealth of most renters is a fraction of most homeowners, even after the housing crash. During the presentation, he suggested to Realtors that they show the graph he was displaying comparing the meager wealth of renters to owners to prospective buyers on the fence.

Not only has the American Dream of owning a home not gone away, but it is returning to its roots. Buyers today and in the future are signing on the dotted line because  they want to be near work, or near schools, or a place to raise their families.

“The great thing about owning a home, as you pay down your mortgage, it usually goes up in value and over time, you build wealth,” Yun said. “But people will not be buying homes with the idea they will be $10,000 wealthier (on paper) next year. Appreciation will be a side benefit.”

Yun’s Power Point

Contact John Rebchook at JRCHOOK@gmail.com

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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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Existing-home sales nationwide – including single-family, townhomes, condominiums and co-ops – fell 16.7 percent to a seasonally adjusted annual rate1 of 5.45 million units in December from 6.54 million in November, but remain 15.0 percent above the 4.74 million-unit level in December 2008, the National Association of Realtors reports today.

After a rising surge from September through November, existing-home sales fell as expected in December after first-time buyers rushed to complete sales before the original November deadline for the tax credit. However, prices rose from December 2008 and annual sales improved in 2009, according to the NAR.

Existing-home sales – including single-family, townhomes, condominiums and co-ops – fell 16.7 percent to a seasonally adjusted annual rate1 of 5.45 million units in December from 6.54 million in November, but remain 15.0 percent above the 4.74 million-unit level in December 2008.

For all of 2009 there were 5,156,000 existing-home sales, which was 4.9 percent higher than the 4,913,000 transactions recorded in 2008; it was the first annual sales gain since 2005.

Lawrence Yun, NAR chief economist, said there were no surprises in the data.

“It’s significant that home sales remain above year-ago levels, but the market is going through a period of swings driven by the tax credit,” he said. “We’ll likely have another surge in the spring as home buyers take advantage of the extended and expanded tax credit. By early summer the overall market should benefit from more balanced inventory, and sales are on track to rise again in 2010. However, the job market remains a concern and could dampen the housing recovery – job creation is key to a continued recovery in the second half of the year.” (Editors Note: I said the same thing on a Channel 9 report aired on Saturday. For more on that report, please visit this link. )

An NAR practitioner survey shows first-time buyers purchased 43 percent of homes in December, down from 51 percent in November. Repeat buyers rose to 42 percent of transactions in December from 37 percent in November; the remaining sales were to investors.

The national median existing-home price3 for all housing types was $178,300 in December, which is 1.5 percent higher than December 2008. “The median price rose because of an increased number of mid- to upper-priced homes in the sales mix,” Yun said. It was the first year-over-year gain in median price since August 2007.

NAR President Vicki Cox Golder, owner of Vicki L. Cox & Associates in Tucson, Arizona, said market conditions are challenging in some areas. “There’s a shortage of lower priced homes for sale in much of the country, resulting in multiple bids in some areas,” she said.

“Raw unsold inventory has been trending down. As the market heats up again this spring, buyers may need to be prepared to move quickly on a particular home – the best advice is to begin working with a Realtor now to be able to use the tax credit and benefit from the increased buying power in the current market,” Golder said.

Total housing inventory at the end of December fell 6.6 percent to 3.29 million existing homes available for sale, which represents a 7.2-month supply4 at the current sales pace, up from a 6.5-month supply in November. Raw unsold inventory is 11.1 percent below a year ago, is at the lowest level since March 2006, and is 28.2 percent below the record of 4.58 million in July 2008.

Distressed homes, which accounted for 32 percent of sales last month, continue to downwardly distort the median price because they generally sell at a discount relative to traditional homes in the same area. For all of 2009, the median price was $173,500, down 12.4 percent from $198,100 in 2008; distressed homes accounted for 36 percent of total sales last year.

According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage rose to 4.93 percent in December from 4.88 percent in November; the rate was 5.29 percent in December 2008.

Single-family home sales fell 16.8 percent to a seasonally adjusted annual rate of 4.79 million in December from a pace of 5.76 million in November, but are 12.7 percent above the 4.25 million level in December 2008. For all of 2009, single-family sales rose 5.0 percent to 4,566,000.

The median existing single-family home price was $177,500 in December, which is 1.4 percent above a year ago. For all last year, the single-family median was $173,200, down 11.9 percent from 2008.

Existing condominium and co-op sales fell 15.4 percent to a seasonally adjusted annual rate of 660,000 in December from 780,000 in November, but are 34.7 percent higher than the 490,000-unit pace a year ago. For all of 2009, condo sales rose 4.8 percent to 590,000 units.

The median existing condo price5 was $183,700 in December, up 1.0 percent from December 2008. For all of last year, the median condo price was $176,100, which is 16.1 percent below 2008.

Regionally, existing-home sales in the Northeast dropped 19.5 percent to an annual level of 910,000 in December but are 21.3 percent above a year ago. The median price in the Northeast was $241,700, up 3.2 percent from December 2008.

Existing-home sales in the Midwest fell 25.8 percent in December to a level of 1.15 million but are 8.5 percent higher than December 2008. The median price in the Midwest was $143,200, which is 1.8 percent above a year ago.

In the South, existing-home sales dropped 16.3 percent to an annual pace of 2.01 million in December but are 15.5 percent above December 2008. The median price in the South was $152,000, down 1.0 percent from a year ago.

Existing-home sales in the West declined 4.8 percent to an annual rate of 1.38 million in December but are 15.0 percent higher than a year ago. The median price in the West was $236,000, up 2.7 percent from December 2008.

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

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National existing-home sales   soared 23.5 percent in October from October 2008, at a time when year-over-year closings in the Denver area dropped by 7.6 percent.

And nationwide home sales rose 10.1 percent to an adjusted annual rate of 6.10 million from 5.54 million in September, according to a report released today by the National Association of Realtors.

By comparison, Denver-area home closings were up only 2.9 percent to 3,958 from 3,946 in October from September in the Denver area, shows an earlier report released by independent broker Gary Bauer.

Nationally, there were 4.94 million home closings in October 2008.

Bauer isn’t worried about the disparity between Denver and the national numbers. (For my analysis, go to this blog.)

“At this point in time, we are trailing,” what is happening nationally, Bauer said. “We led earlier in the year, and now other regions are catching up. There’s a lot of pent-up demand in other regions.”

Also, many other metropolitan areas across the country have shown much greater percentage drops in prices than in Denver,  Bauer said has led to bargain-hunters in other parts of the country seeking to sign on the dotted line.

Gregg Stratton, a research economist for the NAR, said that last point is an important one, when Denver is compared to the rest of the nation.

“I think a lot of the interest from buyers is coming in areas where there are a huge number of distressed properties, selling for huge discounts,” Stratton told me. “Denver is not so much experiencing the huge number of distressed properties or the huge discount in prices in Phoenix, or Las Vegas or a lot of other markets. People in these markets, especially first-time home buyers, are taking advantage of these huge price discounts.”

Bauer agrees with national leaders who say that the national surge was due in large part to first-time home buyers that wanted to take advantage of the $8,000 tax credit.

“We didn’t know until about three weeks ago that it was going to be extended, and the previous deadline was to buy your house by Nov. 30,” Bauer said.

“A lot of (the national increase in sales) is being driven by first-time home buyers taking advantage of the tax credits,” added economist Stratton.

Nationally, sales activity is at the highest pace since February 2007 when it hit 6.55 million.

Lawrence Yun, NAR chief economist, was surprised by the size of the gain.

“Many buyers have been rushing to beat the deadline for the first-time buyer tax credit that was scheduled to expire at the end of this month, and similarly robust sales may be occurring in November,” Yun said. “With such a sale spike, a measurable decline should be anticipated in December and early next year before another surge in spring and early summer.”

Now that the tax credit has been extended and expanded, potential buyers have until April 30 to have a contract in place.

“There is still a large pent-up demand that can be tapped before the tax credit expires,” Yun said.  “Our recent consumer survey further shows that 13 percent of successful first-time buyers had a previous contract that was cancelled or fell through – there likely are many more buyers who were attempting to purchase but simply ran out of time.”

Historically low interest rates also are boosting the market, he continued.

“Mortgage interest rates last month were the third lowest on record dating back to 1971,” Yun noted. According to Freddie Mac, the national average commitment rate for a 30-year, conventional, fixed-rate mortgage fell to 4.95 percent in October from 5.06 percent in September; the rate was 6.20 percent in October 2008. Last week, Freddie Mac reporter the 30-year rate dropped to 4.83 percent.

NAR President Vicki Cox Golder, owner of Vicki L. Cox & Associates in Tucson,  said strong demand by first-time buyers is creating some unusual conditions.

“In parts of the country, especially in Southwestern states but also in Florida and suburban Washington, D.C., we’ve been getting many reports of multiple bids in the lower price ranges with foreclosed properties getting absorbed quickly,” she said. That is definitely true in the Denver area, Realtors note.

“In fact, low-end inventory has become very tight in many areas and in some cases buyers are becoming more aggressive.” Golder said.

Total housing inventory at the end of October fell 3.7 percent to 3.57 million existing homes available for sale, which represents a 7.0-month supply2 at the current sales pace, down from an 8.0-month supply in September. Unsold inventory totals are 14.9 percent below a year ago. In the Denver-area, the unsold inventory stood at 18,945, an 18.1 percent drop from a year earlier and down 4.5 percent from September.

“The supply of homes on the market is now at the lowest level in over two-and-a half years – we’re getting closer to a general balance between buyers and sellers,” Yun said. The last time the relative housing inventory was this low was in February 2007 when it also was at a 7.0-month supply.

The national median existing-home prices for all housing types was $173,100 in October, down 7.1 percent from October 2008. Distressed properties, which accounted for 30 percent of sales in October, continue to downwardly distort the median price because they usually sell at a discount relative to traditional homes in the same area. The median price of all homes in the Denver area in October was $238,807.

“In the second half of 2010, if home values show consistent stabilization or even a modest increase, then home sales could remain at normal healthy levels because consumers would no longer be worried about a price over-correction,” Yun said.

He added that low home prices also are contributing to extremely favorable affordability conditions.

“With the abnormal drop in home prices over the past few years, the price-to-income ratio has fallen below the historic trend line,” Yun said. “This is adding to the buying power of the typical family, with affordability conditions this year at the highest on record dating back to 1970, but prices are beginning to flatten and are poised to rise next year.”

Single-family home sales rose 9.7 percent to a seasonally adjusted annual rate of 5.33 million in October from a pace of 4.86 million in September, and are 21.4 percent above the 4.39 million-unit pace in October 2008. The median existing single-family home price was $173,100 in October, down 6.8 percent from a year ago.

Existing condominium and co-op sales surged 13.2 percent to a seasonally adjusted annual rate of 770,000 units in October from 680,000 in September, and are 40.8 percent above the 547,000-unit level a year ago. The median existing condo price4 was $172,900 in October, which is 10.4 percent below October 2008.

Regionally, existing-home sales in the Northeast rose 11.6 percent to an annual level of 1.06 million in October, and are 27.7 percent higher than October 2008. The median price in the Northeast was $235,400, down 2.6 percent from a year ago.

Existing-home sales in the Midwest surged 14.4 percent in October to a pace of 1.43 million and are 28.8 percent above a year ago. The median price in the Midwest was $146,600, a gain of 1.1 percent from October 2008.

In the South, existing-home sales rose 12.7 percent to an annual level of 2.30 million in October and are 25.7 percent higher than October 2008. The median price in the South was $151,100, down 6.3 percent from a year ago.

Existing-home sales in the West increased 1.6 percent to an annual rate of 1.31 million in October and are 12.0 percent above a year ago. The median price in the West was $220,200, which is 14.7 percent below October 2008.

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

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The 153 MSAs tracked by the NAR lost 11.2 percent overall, with the national median price of a single-family home falling to $177,900 from $200,400 a year earlier.

The Denver-Aurora area showed the biggest gain in the West. Only Yakima, Wash., where the median price rose by 2.7 percent, showed more appreciation in a  Western region.

The Denver-Aurora area saw the median price in the third-quarter rise to $229,100 from $225,100.

In Boulder, the median price fell 0.9 percent to $358,300 from $361,500 and in Colorado Springs, the median price fell by 6.2 percent to $195,100 from $207,900.

Nationwide,  123 of 153 metropolitan statistical areas reported lower median existing single-family home prices in the third quarter comparison with the third quarter of 2008, while 30 areas had price gains.

Meanwhile, Colorado did not fare as well for home sales, according to the NAR.

Third-quarter home sales in  Colorado were down 14.1 percent from the third-quarter of 2008, while overall sales increased 11.4 percent for the nation. These sales includes single-family homes and condos.

Nationwide, there were 5.3 million units sold, when adjusted seasonally, compared with 4.76 million a year earlier.

Lawrence Yun, chief economist for the NAR, said the home buying tax credit is a significant factor for boosting sales.

“We can’t underestimate just how powerful a catalyst the first-time home buyer tax credit has been for the housing sector,” Yun said. “It’s given buyers the confidence they needed to get off the fence and take advantage of extremely affordable housing conditions. The buying conditions this year are the most favorable on record dating back to 1970, but the tax credit is allowing buyers to set aside any reservations about waiting for a better deal.”

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

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The tax credit, set to expire at the end of November, has driven much of the home sales gains in five of the past six months, according to the NAR

There were 5.57 million seasonally adjusted existing-home sales – including single-family, townhomes, condominiums and co-ops – compared with about 5.10 million August. Sales are  up 9.2 percent from September 2008.

Sales activity is at the highest level in more than two years, since it hit 5.73 million in July 2007.

Lawrence Yun, NAR chief economist, said favorable conditions matched with a tax credit are boosting home sales.

“Much of the momentum is from people responding to the first-time buyer tax credit, which is freeing many sellers to make a trade and buy another home,” Yun said. “We are hopeful the tax credit will be extended and possibly expanded to more buyers, at least through the middle of next year, because the rising sales momentum needs to continue for a few additional quarters until we reach a point of a self-sustaining recovery.”

Even with the improvement, Yun said the market is underperforming.

“Despite spectacular gains in the stock market, principally from the financial sector recovery, most of the 75 million home owning families have more wealth tied to their homes,” Yun explained.” Home values could soon turn consistently positive and help the broad base of middle-class families, but we are not there yet.

“We’re getting early indications of price stabilization, but we need a steady supply of qualified buyers to meaningfully bring inventories down and return us to a period of normal, steady price growth and to fully remove consumer fears, which would then revive the broader economy. Without a firm foundation for middle-class wealth recovery, the post-recession economic growth likely will be one of the weakest in U.S. history.”

John Rebchook can be reached at JRCHOOK@gmail.com or 303-945-6865.

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