The bill has finally come due.
After years of homeowners slipping into homes they really couldn’t afford, and putting little, if any, cash up front, much of the metro area is now labeled as a “declining market.”
The tag could spell temporary gloom for Colorado’s economy, but it also could inject a little reality into the metro area’s housing market.
Until now, it was thought that the Denver metro area was weathering the housing downturn better than many other urban areas across the country, despite its high foreclosure rate.
But mortgage lenders, on instruction from Fannie Mae — a major player in the lending business — are designating Denver and surrounding areas (excluding Boulder) as a declining market.
It’s a label guaranteed to delay an economic recovery and further dampen the area’s housing sector, as values decline and credit tightens.
New loan restrictions in those areas — homebuyers will be forced to pony up another 5 percent in down payment money — could knock first-time buyers or others with limited income and savings out of the market.
Last week’s decrease in the short- term federal funds rate did not directly impact the mortgage market. Some market observers believe interest rates will rise in coming months.
Zachary Urban, director of housing counseling with Brothers Redevelopment, says that in addition to decreasing housing values and high foreclosures, a declining market carries a psychological impact that is worse for people trying to sell a home and better for well-off buyers.
“Because of the label, a potential buyer might decide that the market is going down instead of up. So why would I buy a property today when I know in two months I can get a better deal?” he said.
A declining market label is such a “broad brush,” say analysts, that it drags down even neighborhoods where housing values are not declining because they become subject to the same lending rules.
There are other trickle-down effects from the designation: Schools are impacted if students are forced to move. Consumers tend to spend less, especially if they can’t borrow against the value of their homes. Charitable giving declines.
Still, things could be worse, says economist Tucker Hart Adams. And by the end of 2009, we’ll be on the upswing, she predicts. If people must sell their homes in the current market, they need to prepare to take less than they hoped. “But on the other side of that transaction, you have the person who got a good bargain,” she said. And if a homeowner doesn’t have to sell now, they should wait, she said.
“It’s not good news, but it’s not the worst market in the country,” Adams said.
Whew.
