Getting your player ready...
The Denver-area housing market showed a 2.6 percent decline in value in February from February 2010, but that was still good enough for fifth place out of the 20 metropolitan statistical areas tracked by the closely watched S&P/Case-Shiller Home Price Indices released today.
This marks Denver’s best ranking in a year. The last time that Denver posted better results than 15 0f the 20 cities in the index was in February 2010, shows an analysis of the data by InsideRealEstateNews. However, it also marks the eighth consecutive month of year-over-year declines for Denver. The average decline during that period has been 2 percent. The 2.6 percent decline is the largest since September, when Denver showed a 3.1 percent year-over-year decline, ranking it No. 9.
Denver well-positioned
Jack O’Connor, principal of Prestige Real Estate Services, said the Case-Shiller data is consistent with what he sees in the Denver-area market.
“Denver still has a pulse,” O’Connor said. “Frankly, I think Denver is positioned better than most of the other markets in Case-Shliler.”
Because the federal tax credits, providing up to a $8,000 to first-time home buyers were driving the market in the first part of last year, year-over-year declines should continue to be expected until they’ve run their course, O’Connor and others said.
“And if you look at the inventory market, even through last Friday, here in Denver, the supply of homes is not growing very fast,” O’Connor said.
O’Connor does not expect a double-dip in home prices in Denver, in which prices hit new lows, a fate already hitting about half of the 20 metropolitan areas in the Case-Shiller index. “I don’t see prices falling anymore, especially in the under $350,000 range,” O’Connor said. “The days of taking 30 percent off the lower-end of the market and succeeding in buying the home, are over.”
He said in some high-end market, prices could still fall, but not in all of them.
“When you look at markets like Hilltop, prices of the $1 million and up homes are actually going up,” O’Connor said. “Supply is minimal in Hilltop. That is not the case in say south Douglas County. And if you go really far away, other factors come into play. For example, the price of gas is usually not a concern for high-end buyers. But if gas gets to $5 a gallon and you are driving a long way, you start to factor in the price of filling your tank into your home-buying equation.”
Double-dip bullet dodged
Lane Hornung, CEO and co-founder of COhomefinder.com and 8z Real Estate (a sponsor of InsideRealEstateNews), said he was “happy to see that the Denver metro area once again avoided the dreaded double dip,” according to the Case-Shiller report. “But we are perilously close. We are 0.87 percent above our post-peak low, reached in February 2009. Another way to put it: We have been bouncing along the bottom since February 2009.”
Case-Shiller has been tracking an “ongoing, gradual erosion,” in Denver-area home prices throughout the winter, he notes.
Low inventory bodes well for prices rising
“I believe the trend will be reversed sometime this spring,” Hornung said. “I”m not sure it will happen in time to avoid the double dip, but I think the shrinking inventory bodes well for prices and for that trend of price erosion to reverse itself.”
Hornung noted that the inventory has not matched the typical seasonal rise in home demand in the spring. While the Denver-area market, as expected, was down in March from March 2010 because of the loss of the tax-credit buying, it was up 44 percent from February, he notes.
“Sales volume is up 44 percent and the number of listings is up only 2 percent,” Hornung said. “Demand still may be weak, but the supply is even weaker.”
Double dip would be a blip
Still, the Denver-area housing market is so close to a double dip, it may happen, but it will be a mere blip.
“Whether it happens or not, by the time we know it has happened, we already will be reversing the trend,” Hornung said. “It would be a psychological data point, for sure. But when we smooth the data out over time, a one- or two-month blip will not matter.”
Larry McGee, principal of the Berkshire Group, said the impact of the last year’s tax credits, which required that a buyer place a home under contract by April 31, 2010, cannot be over-stated, when looking at the data in the first part of this year.
“That was free money,” McGee said. “Now, we are reaching the end of the free-money effect.”
“Free money” gone
The importance of the “free money” is even more important when you consider the buying psychology of the vast majority of the buyers in today’s market, he said. McGee sees no sign of urgency among buyers. It’s a year-long process for many people, before they even start to seriously hunt for a home, he said.
“People don’t wake up and say, “I need to go out and buy a home today,” McGee said. “We have a lot of people come to our offices and say that they plan to start looking for a home in the spring of 2012.”
Last year’s tax credits, however, changed that, especially among first-time buyers. “When you offer someone free money, that’s a pretty big incentive to buy now, instead of a year from now,” McGee said.
National snapshot
On a month-over-month basis, the 10- and 20-City Composites were both down 1.1% in February versus January. San Diego, which had posted 15 consecutive months of positive annual rates ended its run with a -1.8% annual rate of change in February 2011. Washington, DC has assumed that status, with 15 consecutive months of positive annual growth rates beginning in December 2009 through February 2011. Twelve of the 20 MSAs and both Composites fared worse in terms of annual growth rates in February compared to January. Atlanta, Cleveland, Dallas, Detroit, Phoenix, Portland and Washington D.C. saw improvements in their annual rates of return in February versus January; New York was unchanged.
“There is very little, if any, good news about housing. Prices continue to weaken, while trends in sales and construction are disappointing,” says David M. Blitzer, Chairman of the Index Committee at S&P Indices. “Ten of the 11 MSAs that recorded index lows in January fell further in February. The one exception, Detroit, is 30 percent below its 2000 price level. The 20-City Composite is within a hair’s breadth of a double dip. Fourteen MSAs and both Composites have continued to decline month-over-month for more than six consecutive months as of February.”
“Atlanta, Cleveland and Las Vegas join Detroit as cities with home prices below their 2000 levels; and Phoenix is barely above its January 2000 level after a new index low. The one positive is Washington D.C. with a positive annual growth rate, +2.7 percent and home prices more than 80 percent over its January 2000 level. Other cities holding on to large gains from 11 years ago include Los Angeles (68.25 percent, New York (65.19 percent) and San Diego (55.05 percent).”
“Recent data on existing-home sales, housing starts, foreclosure activity and employment confirm that we are still in a slow recovery. Existing home sales and housing starts rose in March, but remain close to recent lows. Foreclosure activity showed decreases in mortgage delinquencies in the fourth quarter of 2010, but are still close to historic highs. The nation and 34 states registered a decline in their unemployment rates for March.”
Long-time owners still have equity
What the Case-Shiller data shows, McGee said, is that people who bought homes prior to 1999 and still own them, have equity. Many people who owned their homes for a long time and ended up borrowing too much against them, already have lost their home.
“They’ll do OK, if they go out and sell it,” McGee said about long-time owners. “That is where we are seeing a lot of the sellers. It might be someone who bought a home in 1995. Their homes are not new, but they are nice.”
Those homes are also appealing to many buyers, he said.
“The average home buyer does not want to screw around with a foreclosure or a short sale,” said McGee. A short sale is when the lender agrees to accept less than the mortgage amount. “Short sales are nightmares. There is no guarantee they will ever close. Some people who are in no hurry, will make offers on two or three short sales, to see if one comes through. But anyone who wants to buy a home in a certain time frame, doesn’t want to hassle with them.”
Most buyers feel the same way about foreclosures, unless they have been thoroughly renovated, he said.
“People don’t want foreclosure crap,” McGee said. “They don’t want to buy a foreclosure and worry that there is going to be a leaking pipe in the wall.”
