Did the drop in home sales activity take you by surprise?
The Denver-area home sales market continued its downward spiral in August, with double-digit declines in sales activity continuing for the fourth consecutive month since the end of the home-buying tax credits.
There were only 3,966 homes placed under contract last month, a 25.4 percent drop from the 5,248 contracts written in August 2009. Closings did not fare much better, falling 21.2 percent to 3,079 from 3,905 in August 2009, according to a report released today by independent broker Gary Bauer. Both mark the biggest year-over-year percentage drops for an August on record, said Bauer, who used data from Metrolist Inc. for his monthly report. That was the lowest number of closigns in an August since 1991, when only 2,377 homes were closed.
Tax-credit hangover
“It is a hangover from the end of the tax credits,” Bauer said. “But even more important, there is just a lack of consumer confidence out there. I didn’t expect a strong August, so I wasn’t surprised.”
As bad it was, the 24.4 percent drop in under contract activity was the smallest year-over-year drop since the tax credits ended. The biggest percentage drop was in June, falling a whopping 31.4 percent from June 2009. And the percentage drop in closings was worse in July, falling a record 25.6 percent from July 2009.
Urgency lacking
Despite mortgage rates hovering at historic lows – which will save buyers more money than the $8,000 tax credit for first-home buyers, when you crunch the numbers – there is no urgency among qualified buyers.
Bauer described a “classic story,” in which a couple spent hours walking through a home, discussed who would get which room, and even considered paint and carpet selections. In other words, they weren’t Lookey-Lous, but serious buyers.
“They went home, thought about it, and their final decision was not to move ahead at this time,” Bauer said. “It just did not feel right; it did not feel comfortable to buy. Even though if you look at the latest national unemployment numbers, about 91 percent are employed, but a large percentage of them don’t feel confident enough in their jobs to move forward on a big purchase like a home.”
Also, he said many brokers are experiencing a disconnect between buyers and sellers.
Low-ball offers scorned
“The other side of the coin is that a lot of buyers thinking now they are going to get real bargains, so they are making real low-ball offers,” often on already heavily discounted homes. For example, he said one broker told him that a home was priced at $1.2 million, and a prospective buyer offered $700,000, angering the seller. The offer was rejected.
Bauer said he does not think there is much chance the Denver-area housing market will rebound in 2010.
“My gut feeling right now is that it is going to be extremely slow for the rest of the year – worse than normal.”
The number of unsold homes on the market jumped by 16.8 percent to 23,615 from 20,225 in August 2009. But much of that is because homes aren’t selling, so the inventory is not declining, as it would have in a more typical August, Bauer said. With a rising inventory and slow sales, the weekly sales rate in August fell to 3.88 percent from 5.99 percent in August 2009.
The average price of a single-family home was $295,516, a 7.8 percent increase from the $273,972 in August 2009. And the median price of a single-family home rose by 5.3 percent to $239,900 from $227,000 a year earlier. However, that increases are due to the mix of homes being sold, not appreciation, Bauer and other brokers said.
Meanwhile, the number of homes placed under contract rose by 4.1 percent in August from the 3,808 in July. And the number of closings in August dropped only 5.5 percent from 3,259 in July.
YTD: Contracts down 8.5%
In the first eight months of the year, there were 36,159 homes placed under contact, a 8.6 percent drop from the 39,564 in the comparable period in 2009. The number of year-to-date closings, meanwhile, fell only 1.4 percent to 27,328 compared with 27,708 in the first eight months of 2009.
Peter Niederman, CEO of Kentwood Real Estate, agreed that the end of the tax-credits is continuing to pound the overall market.
“I think people are a little unsure and are not willing to move forward,” Niederman said. “It is a bit of a hangover from the end of the tax credits.”
But he said given how low interest rates are -hovering round 4.3 percent for a 30-year, fixed-rate mortgage – qualified buyers will be very happy down the road.
“Do I think the overall economy is going to be better a year from now? Yes, I do. Three years, five years from now? Absolutely. Anyone who buys during this cycle, is going to very happy five or 10 years from now,” Niederman said. ‘There are just phenomenal rates, whether you are getting a conforming loan of $417,000 or below, or a jumbo loan above $417,000.”
Bad market favors good brokers
He said that this market is favoring the top brokers.
“That is true across-the-board at all of the real estate companies,” Niederman said. “The best brokers can get homes under contract, keep the deals together and get them closed. The top brokers have a competitive advantage.”
One broker who is having a banner year is Deviree Vallejo.
“It’s the old 80-20 rule,” where the top 20 percent get 80 percent of the business, said Vallejo, a broker with Kentwood City Properties. “My best year had been in 2007, when everyone was having a great year. I broke that volume in May.”
And while August is typically her slowest month for seasonal reasons, last month was her best August since she began selling homes in 2004.
“Actually, I am really shocked that the activity has dropped so much, year-over-year,” Vallejo said. “I think things are going to pick-up in September, as people take advantage of these super-low interest rates, which are insane.”
Tax credits bad idea
David Binkowski, principal of Prudential Real Estate of the Rockies, said that the tax-credits were a mistake. He said that the vast number of people who bought homes using the credits, would have bought anyway, so the estimated $30 billion cost to taxpayers was a waste.
He said some federal housing officials, as well as some politicians, have recently floated the idea of another round of tax credits, which he said has led to some prospective buyers remaining on the fence.
“Some people are telling us, “Why hurry?” I’ll just wait and see if I can take advantage of another tax credit,” Binkowski said. “That kind of wishy washness out of Washington, D.C., doesn’t help anyone. That just puts everyone on the sidelines. I just want the government to butt out.”
Rather than another home-buying stimulus package, Binkowski said that what the economy needs is jobs.
“It’s the economy, stupid,” Binkowski said, quoting the line made famous by Bill Clinton, in his successful presidential campaign against George Bush in 1992.
Johnna Hall, a broker with 8Z Real Estate, a sponsor of this site, also isn’t a fan of the tax credits.
“I never really thought, as far as the big picture, the tax credits were a good idea,” Hall said. “All they did in the lower-priced market is artificially increase the demand, and therefore, the values. Since the end of the tax credits, it’s been kind of a stagnant time,” Hall said. “The inventory levels are steadily increasing, but the demand went lower. For a lot of people, it is a waiting game.” From a broker’s perspective, she said, bringing back a tax-credit program, would be helpful, as it would spur demand again. “But in the long-term, the market needs to just play itself out.”
Another round of tax credits favored
But Vallejo, of Kentwood City Properties, who works closely with fellow Kentwood City Properties broker Liz Richards, disagrees. She said she would like to see the Obama Administration offer another round of home buying tax credits.
“The tax-credits did not just help the first-time home buyer, but the people who wanted to sell their $350,000 homes, so they could move up,” Vallejo said. “If you look at the listing Liz and I had on new construction in the Highland, they were just sitting there. Once first-time home buyers bought homes, we started getting action on these $600,000 townhomes.”
She said her personal experience is that the tax-credits did fuel activity from buyers, who otherwise would have not bought.
“I got a ton of calls from first-time home buyers who said their accountants told them that if they could buy a home with the tax-credits, it would be a great deal for them,” Vallejo said. “I think it would be silly not to bring them back.”
Caution rules
David DeElena, a broker with Coldwell Banker, indicated that the huge percentage drops in closings and contracts are sobering.
“Wow,” DeElena said, when told of the drops. “It is an extremely cautious market right now. I am going to sell that with my sellers. I do agree that the end of the tax credits has something to do with it, but I think it has much more to do with the uncertainty of the economy in the nation and in Colorado. People are just reluctant to spend money.”
