Real estate market conditions continue to show signs of strength, nationally and locally, although there are a few indicators that seem to be a little disconcerting until we delve into them a bit.
National (mostly) real estate market conditions
Let’s just take a look at some of the headlines from this past week. They are pretty frightening.
- Home prices fall to ten year low
- One in four homes sold in Q1 were distressed properties
- 1 in 622 mortgages were foreclosed on in the past year
- Short sales at 3-year high
- Pending home sales drop in April
- FHA foreclosure starts spike an alarming 73% in April
- Nearly 16 million homes are now underwater
- Mortgage application volume slips slightly
Sounds pretty bad, huh? Let’s look for the silver lining in that dark cloud.
Home prices fall to ten year low. Although the prices have fallen on average across the nation, the rate at which they are falling is slowing down considerably. In some cities — Denver included — the prices are actually starting to show increases.
One in four homes sold in Q1 were distressed properties. Once again, the good news is in the details: the average price of these distressed properties is stabilizing, and even increasing in some markets.
1 in 622 mortgages were foreclosed on in the past year. The rate of foreclosures overall is virtually unchanged from March to April of 2012, but it is dramatically less than the same period in 2011. Five states account for nearly half the total foreclosures. Colorado is one of the lowest, with only six states having fewer foreclosures.
Short sales at 3-year high. Short sales, if you recall, are becoming more and more popular. Lenders are getting more aggressive with approving these transactions, and keeping the properties from going into foreclosure. It’s to be expected that the number of short sales will be going up. It actually helps the market, by getting the troubled properties taken care of much more quickly. Average sales prices of short sales is going up, as well.
Pending home sales drop in April. After three consecutive months of increasing sales, the number of pending homes sales fell in April; the figure is down 5.5% from March. According to Dr. Lawrence Yun, chief economist for the National Association of REALTORS (NAR), however, the “one-month setback . . . does not change the fundamentally improving housing market conditions.” In fact, NAR has upgraded their forecast for existing home sales to 4.66 million across the country and 4.92 million in 2013, depending on the condition of the mortgage lending business. For comparison, there were 4.26 million homes sold in 2011.
FHA foreclosure starts spike an alarming 73% in April. This one looks really, really scary, but let’s look closely. You need to understand two things to see what’s going on here. First, if a loan is going to be foreclosed on, chances are it will happen about three to four years into the life of that loan. Second, before the real estate market collapsed, there were virtually no FHA loans being made. With the collapse of the market, and the very strict tightening of credit in the mortgage business, FHA stepped up. Suddenly, FHA loans made up a huge percentage of new loan originations. Those loans are now three to four years old. This is precisely when we’d expect them to start going bad. Since they started from basically nothing, a 73% increase doesn’t mean what it seems it would on the face of it.
Nearly 16 million homes are now underwater. This estimate comes from Zillow, and is substantially higher than the estimate of 11 million homes underwater that most other sources use. The reason for this is that Zillow includes all loans, not just the purchase or refinance mortgages. The significant factor is that this figure represents only 10% of the homes in the country. As the real estate market continues to recover, and more price increases occur, the number of underwater homes will fall automatically.
Mortgage application volume slips slightly. With fewer sales, we’d expect fewer mortgage applications. This statistic makes perfect sense given the real estate market conditions today. As long as the overall trend in the market continues to be positive, as Dr. Yun and NAR believe, this blip is inconsequential.
As far as a prediction for home prices, most reports show increasing prices. Demand is strengthening, and the inventory is way down. This will naturally lead to improving prices.
Local real estate market conditions
Now for some generally good news. The Denver real estate market continues to be stronger — much stronger — than the national average. Prices are increasing, so buyers need to pay attention. Waiting could very well mean missing.
The go-to report for real estate market conditions is usually the Standard & Poors Case-Schiller Report. That report shows the the Denver market is the third-strongest in the country, behind Phoenix and Minneapolis, and it looks like May is going to be a good month, too.
Overall, there is less than a four-month supply of homes on the market right now, which is about half what it was a year ago. For the suburbs, properties priced below $400,000 are pretty much in the “seller’s market” category.
We’ve got a rather unique market right now, with low inventory, historically low interest rates, a relatively strong level of relocation activity, and buyers who can hardly wait to get at it. The low rates and inventory, in fact, have been holding the market back somewhat. The general consensus in the Denver area is that the banks need to release some of their “shadow inventory” because we need homes to sell. The shadow inventory, which is frightening to many of the softer markets around the country, is the supply of homes that the banks are holding, but that haven’t released to the market yet.
The strength of Denver’s real estate market conditions in general has also led to a large increase in building permits. This part of the market has been pretty stagnant for the last few years, and a lot of the builders who were around five years are now nowhere to be seen. What was being built recently was usually done so with limited amenities to keep the prices down, but now, with interest rates so low, and affordability getting so good, higher-priced new homes are becoming common again.
Although it might not be true in the rest of the country, now is not the time to be sitting it out in the Denver real estate market. If you’ve been thinking about it, it’s time to get a move on!
So what’s next? Take your pick.
Yeah. You should probably do at least one of those things right now.