Colorado’s housing market has cooled considerably this year, raising anxieties among homeowners and economists alike. Indeed, the metro area is stumbling through one of the weakest home-resale markets since the early 1990s.
Median homes prices were down in August, and in areas where homes continue to appreciate, they do so at a slower pace. (The median price of single- family homes sold in August was $252,900, down from $259,500 in July and from $255,000 a year prior.)
Nationally, the pace of home sales fell for a fifth straight month in August, and prices dropped from year-earlier levels for the first time since 1995. New single-family home sales were down 21.6 percent in July compared with a year before, according to the U.S. Commerce Department.
Homeowners trying to sell their homes may well be facing a stern market. Patience, a fresh coat of paint and a little luck are often needed.
But the numbers hold significance for the rest of us as well.
The housing boom not only created lots of jobs, but the rising values of the homes also boosted consumer confidence and stimulated spending. Unfortunately, a stagnant market can yield just the opposite results.
The boom created about 1.2 million jobs throughout the industry between 2003 and 2006, according to one estimate. But employers have stopped hiring, and since spring, some 25,000 jobs have been cut.
A decline in home values likely will cause consumers to rein in spending, and consumer spending accounts for about 70 percent of economic activity. That could trigger a recession.
The chairman of the president’s Council of Economic Advisers said this past week that housing will be a “significant drag” on growth this quarter. “A soft spot in the economy is the housing market,” Edward Lazear told the Senate Budget Committee. “It appears that the housing slowdown will be a significant drag on third-quarter growth.”
Robust home sales helped pull Colorado, and the country, through the 2001 recession. As prices rose, home owners borrowed against the value for spending money. It kept the economy chugging – but for many families, the bills are coming due.
For many homeowners, the inflated value of their homes provided a false sense of security. In fact, U.S. consumers have outspent their take-home pay each month since April 2005. That’s the same year Americans’ personal savings rate actually fell below zero.
And as mortgage and interest rates go up, people with huge debts no longer get double-digit investment returns and lose confidence in the economy.
It also becomes harder for some folks to afford homes they are in now. Colorado was a national leader in the number of risky mortgage schemes, such as interest-only loans, so it stands to reason that today the state also has the nation’s highest foreclosure rate.
“People have maintained their spending by borrowing,” regional economist Tucker Hart Adams recently told The Post. “That debt doesn’t go away.” Nouriel Roubini, president of Roubini Global Economics, recently predicted a “deep and nasty” recession based on what he calls the worst housing downturn in five decades.
That’s not a unanimous view. Some economists expect an expansion of the housing market, albeit a slow one.
Administration officials are trying to persuade voters to continue Republican rule in November, which prompts Lazear to say the “economy should continue to grow at a robust pace in 2007 and beyond” partly because “the weakness in the housing sector does not seem to be spreading to other sectors of the economy.”
Don’t tell the construction workers who have lost their jobs this year and the real estate agents who are sweating their growing inventories.
For homeowners looking to sell, you may not be able to move your home for what you thought it was worth. For those looking to stay put, make sure you have a competitive interest rate on your mortgage and hope for a soft landing.
