Getting your player ready...
For the first time in 14 years, home closings in the Denver area will not break 40,000.
The last time that buyers did not close on more than 40,000 homes in the Denver area was in 1996, when there were 38,101 closings. There were 42,070 closings last year, the worst year since 40,185 closings in 1997, according to data from independent broker Gary Bauer, who collects and analyses Metrolist data each month. Metrolist tracks homes sold by area Realtors.
At that time, the population of the Denver area was 30 percent smaller than it is today, the unemployment rate was 3.7 percent, and the state was celebrating its 10th consecutive years of job growth.
40K out of the question
In the first 11 months of the year, there have been 35,794 home closings. In other words, 4,206 homes would need to close in December in order to hit 40,000 this year. That is unlikely. In December 2009, there were 2,959 closings. And in November there were 2,666 closings, a 26 percent drop from the 3,599 closings in November 2009. Closings reflect homes being placed under contract in prior months. Through November, under contracts are down 12.3 percent when compared with the first 11 months of 2009.
“From my perspective, I don’t see any light at the end of the tunnel,” Bauer said.
That said, coming in under 40,000 home closings is a milestone that will go generally unnoticed by the general public, according to Bauer.
Consumers won’t take notice
“No. 1m the consumer is not going to notice it,” Bauer said. “For those who are in the market, either to try to sell their home or trying to buy, it will not make any difference. The issue that is a lot of concern is the inventory available right now is not quality inventory.” There were 29,392 unsold homes on the market in November, a 12.9 percent increase from the 18,061 in November 2009. “It’s going to take some price adjustments,” to whittle the inventory numbers down, he said.
For Realtors, the drop in sales will be one of the metrics they use when mapping out a business plan for 2011, Bauer said. He said some veteran Realtors are going to decide that they must “seriously” focus on the short-sale market next year. A short sale is when the bank agrees to take less than the mortgage amount. “In my opinion, if you are not already in the short-sale arena, it is probably too late,” Bauer said. He said the short-sale field already is crowded with Realtors, and the best ones already have forged relationships with banks and lawyers who can get them business.
Bottom of the market
If there is any good news in the drop in home sales, is that it is signaling that the market is poised to start to recover, said Kentwood Co. broker Tom Cryer.
“This has got to be an indicator of the bottom of the market,” Cryer said. “This has got to be an indication of the bottom, even if you can’t see the light at the end of the tunnel.” He noted that from 2004 to 2006, there were more than 50,000 closings each year. “We probably would have sold more, if we had more inventory to sell.”
However, some buyers during that period took on “an excess of debt” because it was so easy to qualify, and in recent years have been fueling the foreclosure crisis, said Mike Rinner, of the Genesis Group, which tracks housing along the Front Range. Estimates indicate that the home-ownership rate in the metro area has dropped to 61 percent from 67 percent in the go-go days of four and five years ago, which means there are about 50,000 fewer homeowners in the metro area from the peak.
However, he thinks the housing market could show a bit more strength in 2011 than this year. He said while 2010 is still showing a drop in overall jobs from 2009, he thinks that 2011 will show some modest net increases in jobs, which likely will mean that housing closings next year will likely be slightly stronger than this year. Rising mortgage rates also could slow the housing recovery in Denver and across the nation.
Rinner, however, said he doesn’t think that the low sales figure will spook prospective buyers, and keep even more people from signing on the dotted line.
“I think the numbers may be a reflection of the psychology of buyers and sellers,” Rinner said. “They are not an indicator, but they are an influence.”
Rinner had predicted in mid-year that total closings would be down about 10 percent in 2010 from 2009. Through November, they are down 8.5 percent.
Tax-credit factor
The home buying tax credits, which required buyers to place homes under contact by April 30, ensured that sales would slump in the second half of the year, Rinner said.
“I believe the activity we saw in the first half of the year was borrowing from the future because of the tax credits,” Rinner said. He said he wouldn’t want to see a new round of tax credits. “The market is not going to recover until the government gets out of the way and lets the market run its course.”
Also, he said, Colorado is still losing jobs, which puts the brakes on an upswing in home sales. “We have fewer jobs than we did a year ago, and in my mind, that means we are still suffering job losses.” In the first nine months of this year, only Nevada had shown more of a year-over-year job loss than Colorado, he said. Colorado was down 2.3 percent, Nevada was down 3.3 percent and overall, the U.S. was down 0.9 percent, he said.
On the other hand, the Denver area did not have the huge run up – and an equally large collapse – in housing prices, as many other cities, he noted. According to Case-Shiller, through August, Denver hosuign prices were down about 6 percent from the peak, while the overall decline for the 20 major cities in its index were down almost 24 percent, Rinner said. “That gives the boosters plenty to talk about,” Rinner said.
Pent-up demand
In addition, there may be pent-up demand for housing growing in the metro area.
“We have added 80,000 households in the 7-county area over the last five years,” Rinner said. “But if you look at all of the apartment units and add in all of the homes that have been built, we have added about 55,000 new places to live in that time period. So does that mean we have 25,000 households that are homeless? I haven’t seen that trend. What I think is that people are doubling up or moving in with family.”
He said prospective home buyers are “doubling up,” because they lack the confidence to buy.
Rinner said that Robert J. Samuelson hit the nail on the head with his column in the Denver Post titled: How our allergy to risk is hurting the economic recovery.
In the op-ed piece, at one point, Samuelson wrote: “There is a wall of worry, whose cause transcends the recession’s severity. We now fear not only what we know but also what we don’t.”
Rinner said he knows people who have the money, incomes and job history to buy a home. And while they are itching to move-up, the fear factor is keeping them from signing on the dotted line. And those who do buy, are cautious.
“When I talk to home builders, they tell me people are buying less than what they can afford,” Rinner said. “And you will hear the same thing from Realtors, you’ll hear that across the board. There is just not any consumer confidence out there.”
