New-home sales in metro Denver are down nearly 20 percent through the first nine months of the year, a new report says.
Existing-home sales declined 9.5 percent compared with the same period last year, according to a report by the Genesis Group, an Englewood-based real estate consulting firm.
The housing slowdown started in the fourth quarter last year when gasoline prices and interest rates started to rise and has worsened since then, said Mike Rinner, senior analyst with Genesis Group.
Aggressive building and lending practices also have contributed to a wave of mortgage foreclosures, which has helped fuel the downturn, experts say.
Many parts of the metro area – particularly in Adams, Arapahoe and Weld counties – have seen home prices depreciate in recent months.
And the pace of building has slowed substantially. Metro- area homebuilders are on a pace to construct as many homes in all of 2006 as they did in the first nine months of 2005, the Genesis report said.
Despite that, the inventory of homes for sale is rising: There were 28,216 existing homes listed for sale in the metro area during the third quarter, compared with 24,812 in the third quarter of 2005, according to the report.
“Many builders have stopped building spec homes,” said Rusty Crandall, president of KB Home Colorado. “For the market to get its strength back, we’ve got to get through those inventory homes first, and then people will get back to buying dirt and building homes.”
The housing slowdown is especially acute in northern Colorado, with declines in new-home sales ranging from 3.4 percent in southern Weld County to 41 percent in Windsor/Severance, the report said.
“Windsor/Severance doesn’t have as big a commercial and employment base to serve people,” Genesis’ Rinner said. “Fuel prices and driving distances and lack of proximity to shopping are forcing people to think twice about moving out to a big-lot, semi-suburban location.”
Some areas, such as Golden and Boulder, continue to see active sales. Even in Weld County, pockets of relative strength remain, such as developer Martin Lind’s Water Valley development in Windsor.
“We have 20 homes under construction, and two sold today,” Lind said. “Our high end is hot. It’s not hot like it was three years ago, but it’s staying steady.”
New-home deterrents
Besides the price of the land and the house, new-home buyers must also pay for extras such as fencing and landscaping.
New-home sales have fared worse in northern Colorado than existing-home sales, said Dave Pettigrew of Prudential Rocky Mountain Realtors.
“The cost of new construction is relatively high, and builders are bucking a lot of competition in the resale market,” he said.
And it’s not just the cost of the land and the house. New-home buyers also must pay for extras such as landscaping, fencing and window coverings that often are included in the sale of an existing home.
“New-home builders have been under a lot of pressure, and they continued to build for too long and were not as aware of the warning signs as they could be,” Pettigrew said. “If they had stopped construction a year ago, we wouldn’t have so much inventory.”
Declining home prices can feed on themselves once they get started, said Tom Dunn, an economist with the Colorado Legislative Council. “Do you want to buy something today that is going to be worth less tomorrow?” Dunn asked.
Nearly three out of 10 new- home contracts in the metro area were canceled in the third quarter, compared with only one out of five during the third quarter of 2005.
“It is not a given that you can sell your home in this market,” said Matthew Revitte, a broker associate with Pro Realty Inc. in Greeley.
Many buyers are deciding it is cheaper to give up their earnest money on a potential purchase than to carry two mortgages, he said.
The inability of potential new- home buyers to sell their existing homes or to obtain financing is contributing to the high cancellation rates, said Dave Bracht, division president of Neumann Homes, which is selling off lots in areas where it has excess inventory.
“A lot of builders are looking at peeling off excess inventory,” he said. “We bought significant landholdings in too few places. We don’t need 400 lots in southeast Aurora.”
Weak home-price appreciation and outright declines are trapping some homeowners, especially those who put little or no money down on their current home.
Looking at the same homes sold over time, Genesis found that third-quarter existing- home prices in the metro area declined 3.6 percent.
A metro-area home purchased for $100,000 in 1996 peaked at $193,000 in the second quarter of 2006. It dropped to $186,000 in the third quarter.
The decline, the second largest recorded in the index’s 10-year history, is especially worrisome because interest rates moved lower during the third quarter, which is normally a period where home values rise.
“The resale market is facing significant downward pressure on prices,” the Genesis report said.
Foreclosures are a key source of that pressure. The seven- county metro area recorded 14,164 foreclosures in the first three quarters of the year, up 34.2 percent from the same period a year ago.
Another worrisome anomaly: The weakness in the housing market comes despite the addition of an estimated 27,000 net new jobs in the metro area this year. Home-price declines and rising foreclosures are typically linked to job losses.
Nationally, the median price of an existing home declined 3.5 percent in October compared with the same month a year ago, even as the number of homes sold rose 0.5 percent, according to a report Tuesday from the National Association of Realtors.
The price decline was the largest measured since record keeping began in 1968, and it was the first time median prices have declined for three months in a row.
Staff writer Margaret Jackson can be reached at 303-954-1473 or mjackson@denverpost.com.
Staff writer Aldo Svaldi can be reached at 303-954-1410 or mjackson@denverpost.com.
