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February 2012 – Real Estate Market Update


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Real Estate Market Update
Dispatch from CO to rest of US: “This is what a recovery in housing looks like.”
A monthly market analysis capturing the observations and insights of the 8z Team
The experts are searching for signs of economic recovery, particularly in the housing market. Many think housing must lead the way. One place the economists might want to look for evidence of this assertion is in Colorado.
Our market is showingunmistakable signs of recoveryand offers a clear picture of how a recovery in housing in other states might unfold.
The 2012 market is off to a strong start.  This January posted an increase of 9.2% in the volume of real estate sold over last January.

(Figures above in millions)
The supply of active listings along the Front Range is hovering near six months, an industry benchmark that signals a balanced market.
The first sign of recovery is an increase in demand measured by the volume of real estate being sold.
Along the Front Range, the volume of real estate sold has increased each month for seven straight months. The increase in volume in January 2012 over last January was 9.2%.
The Boulder County market was up 9.4% year over year in January and has experienced volume increases in 5 of the last 7 months.
The second sign of recovery is shrinking inventory as supply struggles to keep pace with increasing demand.
This is exactly what we are seeing in Colorado. The inventory of homes for sale along the Front Range began the year at 6.1 months of inventory in January and has been near the six month bellwether of a healthy market for almost a year.
If anything, inventory levels may be getting too tight at the lower end of the market.  Buyers are having difficulty finding homes to purchase and this may actually be constraining the market.
At the upper price ranges, the market is still working through an oversupply of inventory and supply levels are higher.  This is the case in Boulder County where inventory is at 9.0 months and has ranged from 7 to 9 months since last Fall.
Following increased volumes and tightening inventory levels, the third and final indicator of a recovering market is rising home values. Our market is just entering this phase of its recovery.
Although home values remain flat and relatively soft at the upper price ranges, properties in the lower end price ranges are appreciating and prices are increasing.  There simply is not enough supply to meet demand, and sellers are recognizing this disparity and raising their prices accordingly.
According to the Federal Housing Finance Agency (FHFA) data that was just released, Boulder area home values are within 0.75% of last year’s values, essentially flat, but values are trending up, gaining 0.63% in the fourth quarter of 2011 over the third quarter of 2011.
Our Colorado market can serve as a roadmap for the rest of the country of how a recovery in housing might unfold. It is a step by step process that moves along slowly, sometimes painfully slow. However, a recovery has clear milestones along the way and is essential for our overall economic health and prosperity.  We can all be thankful that we are much further along than other markets.
John Rebchook
Inside Real Estate News by John Rebchook
A monthly conversation with John Rebchook, Editor of InsideRealEstateNews.com and former Editor of the Rocky Mountain News, and Lane Hornung, President of 8z Real Estate.
Just a few months ago, one of the biggest threats to the Front Range housing market appeared to be that a “shadow” market of homes would darken the prospects of a recovery.
Last June, one national report even predicted that the Denver-area housing market could see its inventory of unsold homes rise by a third as banks unloaded foreclosed properties on their books that aren’t currently on the market.
Instead, the opposite happened. The number of unsold homes on the market began an unprecedented drop, so by the end of January a mere 10,443 homes were competing for the market. That was the lowest inventory number since 2001, when there were 21,946.
At the same time, the number of homes being placed under contract in January rose almost 11 percent from January 2011, resulting in a weekly sales rate of 7.71 percent. In January 2011, the weekly sales rate was 4.06 percent.
Another way to look at it: Your chances of selling a home this January was almost twice as strong as a year earlier.
It was the first January that the weekly sales rate, a leading indicator of activity, had ever topped 7 percent and it was the highest weekly sales rate in any month since 1990.
The weekly sales rate metric is a worthy jumping off point for InsideRealEstate’s monthly Q&A session with Lane Hornung, Founder and CEO of 8z Real Estate and COhomefinder.com
John: Lane, what do you make of this super-low inventory and the resulting super-high weekly sales rate?
Lane: There is no question. The inventory is as tight as a drum at lower price points.
John: What has been the reaction of the house-hunting consumer?
Lane: It is really interesting. What I am starting to hear back from brokers is that the lack of inventory is actually slowing down the sales rate.
John: But the sales rate was as high as it has ever been in a January.
Lane:  I know. I think we would have seen even more under contracts with a bit more supply. Let’s say we could add 10 percent to the supply of homes, the number of contracts would rise. I do not think it is unreasonable to think that one out of every 10 prospective home buyers is unable to find a home that meets their needs and they can afford-or they are out-bid for.
John: So with such a low supply, and demand picking up, many consumers can’t find their dream home?
Lane: Right. A lot of folks now are on their third, fourth or fifth attempt to buy a home. In some cases, depending on the neighborhood, they are getting out-bid, time after time.
John: That’s not true across the board, is it?
Lane: No. It’s still a bifurcated market. For every market where sellers are getting multiple offers I can show you a market where there is 28 months of inventory. If you look at the entire market, in aggregate, there is about a six month supply of unsold homes, that means there are some neighborhoods where there is only a one or two month supply.
John: In the Denver area, despite the low supply and strong demand, the numbers still aren’t showing an increase in average and median prices.
Lane: I think that is a function of the mix of homes being sold. At the lower-end, I would be very comfortable in saying that we have seen appreciation in home prices. In the lower price range markets, I think some lower-price points have disappeared, simply vanished. A big part of that is investors are snapping those homes up, knowing they can rent them out and gain immediate cash flow. In some places, 25 percent or 35 percent of the market is coming from investors.
In higher-priced neighborhoods, I would say for the most part, there is zero impact from investors. It is just not the product-type, on average, that investors are interested in. As a result, prices are softer in the upper end of the market.
Overall, I think we are very close to seeing year-over-year appreciation as appreciation at the low end overwhelms softness at the high end. Eventually, the law of supply and demand will work as advertised. I think we will see year-over-year appreciation in the Case-Shiller and FHFA indices very soon.
John: Is the threat of a shadow-market behind us?
Lane: It still could happen. The threat isn’t gone yet. I wouldn’t hold your breath and I think with every passing month without it happening, it will become a bit more unlikely. And the truth is, right now, I think there are a lot of Realtors and a lot of buyers, who wouldn’t mind seeing a bit of that shadow inventory hit the market to give buyers more options.
John: Thanks, Lane.
Marsha Badger
Mobile: (303) 818-1390
MarshaBadger@8z.com

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Mortgage Corner

Consumers often wonder how interest rates are determined and why an interest rate is at the number it is at. There is not a “magic wizard” behind a curtain and it is not a number just pulled out of a hat to drive business. The number is truly economy driven and here is an interesting article that might help you understand a little better where that number comes from.
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Noel Bennett
8z Mortgage
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nbennett@8zmortgage.com
Data Log
–  Existing-home sales rose in January, marking three gains in the past four months, while inventories continued to improve, according to the National Association of Realtors ®.
-Total existing-home sales, which are completed transactions that include single-family homes, townhomes, condominiums and co-ops, increased 4.3 percent to a seasonally adjusted annual rate of 4.57 million in January from a downwardly revised 4.38 million-unit pace in December and are 0.7 percent above a spike to 4.54 million in January 2011.

– Total housing inventory at the end of January fell 0.4 percent to 2.31 million existing homes available for sale, which represents a 6.1-month supplyat the current sales pace, down from a 6.4-month supply in December.
– The national median existing-home price for all housing types was $154,700 in January, down 2.0 percent from January 2011. Distressed homes – foreclosures and short sales which sell at deep discounts – accounted for 35 percent of January sales (22 percent were foreclosures and 13 percent were short sales), up from 32 percent in December; they were 37 percent in January 2011.

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