Real Estate Market Update
Slow Motion Recovery
It’s not all that exciting to watch a glacier move down the side of a mountain, or molasses be poured from a jar, or a snail crawl from one spot to another. Yet these are the metaphors that come to mind as we watch the recovery in the housing market unfold.
The market in Colorado is moving beyond merely stabilizing, and is now showing actual signs of recovery, but the pace of improvement is painfully slow. In fact, if you don’t look close, you might even miss the signals of this “slow motion recovery.”
For instance, the May market data could be misinterpreted on the surface as showing signs of market weakness not strength, but there is evidence of recovery in the data, especially when placed in the context of last year’s tax credit.
Sales volumes continue to lag last year’s tax credit driven market. However, year over year comparisons are about to get much easier since tax credit closings peaked in May of last year.
Front Range Inventory Supply dropped below 6 months in May.
Specifically, the volume of real estate sold in May across all Front Range markets was down 12.6% compared to last May when the tax credit closings were peaking, but volume was up 10.9% from April.
Inventory levels continued to shrink as the pace of sales outstripped the number of new listings added to the market.
For all the markets along the Front Range, the supply of inventory was 5.6 months in May, dropping below six months for the first time in very long time. This is significant.
Six months of inventory is considered a healthy, balanced market. Inventory levels below six months begin to favor sellers, ultimately resulting in increasing prices and appreciating home values.
There is ample evidence that this is already occurring in the market, particularly in the lower price ranges where multiple offers bidding up new listings are becoming commonplace. Note – the higher price ranges, where there is still have an oversupply of inventory, are not experiencing this level of activity.
In Boulder County, year over year sales volume was down 19.5% in May, but was up 21.7% compared to the previous month.
The supply of inventory in Boulder County was 8.2 months in May, an improvement from April’s figure of 9.5 months, but still a reflection of the Boulder market’s higher price points.
So why is the pace of recovery so slow? What is holding the market back?
The answer is a complicated one. The real estate market is being buffered by a number of different forces, often working at odds against each other.
A good place to start is jobs. The unemployment picture in Colorado has improved of late, with the state’s unemployment rate dropping to 8.7% in May compared to 8.9% last May. That said, an unemployment rate topping 8% does not exactly fuel real estate demand.
On the supply side of the equation, inventory levels are falling as previously cited. An especially encouraging sign is that the level of foreclosures and distressed properties is also decreasing.
Foreclosure filings in Colorado’s largest counties in May fell by 24 percent and foreclosure sales were down 20 percent from May 2010, according to Colorado Division of Housing. May was the sixth consecutive month during which both filings and sales were down when compared to the same month a year earlier.
Interest rates remain low, but these rates are only available for buyers who qualify. Undoubtedly, the lack of credit due to tight lending standards is putting a crimp in the number of home buyers and one of the forces holding the market back. However, the lending standards “pendulum” continues its swing back to the more reasonable middle allowing more buyers to qualify.
Lastly, I believe the biggest force impacting the market right now is consumer confidence, or more accurately, a lack thereof. It is hard to say whether housing is weighing on confidence or a lack of confidence is weighing on housing; probably a bit of both.
Of course, real estate is local, but consumer confidence is national. In some ways, the confidence of Coloradoans is being dragged down by other parts of the country. Our housing market is, and has been, much healthier than bubble markets such as Arizona and Nevada for a long time. We should probably be more confident than we actually are.
One thing to note – unlike many of the macro forces affecting the housing market, consumer confidence can change quite rapidly. After all, a shift simply requires people changing their minds. As a result, consumer confidence can go from being a force hindering the market to a force fueling the market literally overnight. When swings happen in consumer confidence, they tend to happen fast.
So we will keep an eye on consumer confidence, and see if Coloradoans pay more attention to our local market, or continue to be overly influenced by the dire national headlines about housing. Perhaps the latest uptick in the Case Shiller home price index, in which prices increased rather than fell, will be the catalyst for an upswing in consumer confidence.
Inside Real Estate News by John Rebchook
A monthly conversation with John Rebchook, Editor of InsideRealEstateNews.com and former real estate Editor of the Rocky Mountain News, and Lane Hornung, President of 8z Real Estate.
There probably never has been a generation that goes by as many names.They’ve been called the Millennials, Generation Y, Generation Next and Echo Boomers, just to name a few monikers.
Whatever you call them, they are the largest demographic category in U.S. history. At an estimated 80 million strong, this generation is typically described as those having been born from about 1982 to 2000.
Lane and I recently discussed the Millennials and their impact on the real estate market.
Rebchook: Lane, how important are the Millennials to the future of housing?
Lane: This is the generation that is going to drive the real estate industry going forward. The Millennials are bigger than the Baby Boomers, but they have a very different view of real estate.
Rebchook: How so?
Lane: The ones who have already bought, they may already have been burned by the downturn. The ones who haven’t bought are skeptical. They’ve seen what has happened to their parents, friends or other family members.
Rebchook: So what is their reaction to buying a first home?
Lane: A lot of them are saying: “I’m in a rent mode.”
Rebchook: Will they always be so skittish about buying a home?
Lane: No. Eventually, I think the pendulum will swing back. It may be already. They will want home ownership. But they will be buying for different reasons. They will be buying for community, not so much for an investment. They won’t be taking out big HELOCs and using their home equity as an ATM card. They will want to put down roots, get to know their neighbors, and create families, with a lot of alternative or non-traditional families in the mix. Homeownership will be the path to find a sense of community.
Rebchook: What does that mean for companies such as 8z Real Estate?
Lane: It will be a fun ride. The challenge is to build an organization that will serve their needs and earn their trust. And that’s the fun part of real estate- helping people finding a great place to live and become part of a community where they will be staying for a while. These Millennials are going to seek out and find professionals who give them the “straight scoop.” They are not going to tolerate agents who don’t know their market cold, or who blow smoke and say everything’s rosy. The Millenials will work with agents who tell it like it is- the good, the bad, and the ugly.
Rebchook: Thanks, Lane.
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– Data through April 2011, released today by S&P Indices for its S&P/CaseShiller Home Price Indices, the leading measure of U.S. home prices, show a monthly increase in prices for the 10- and 20-City Composites for the first time in eight months. The 10- and 20-City Composites were up 0.8% and 0.7%, respectively, in April versus March.
– Existing-home sales, which are completed transactions that include single-family, townhomes, condominiums and co-ops, fell 3.8 percent to a seasonally adjusted annual rate of 4.81 million in May from a downwardly revised 5.00 million in April, and are 15.3 percent below a 5.68 million pace in May 2010 when sales were surging to beat the deadline for the home buyer tax credit.
– As of April 2011, average home prices across the United States are back to the levels where they were in the summer of 2003.
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