Pam & Dave Pettigrew

We don't want to pick on anyplace, particularly when they are down, but we noticed that Merced, California is right at the bottom of the national ranking of 292 Metropolitan Statistical Areas (MSA) tracked by OFHEO for the lowest rate of house price appreciation in the first quarter of 2008 compared to the first quarter of 2007. The quarterly report by the Office of Federal Housing Enterprise Oversight was released May 22, 2008 and shows a national decline in home prices of 1.7% but Merced was #292 on the list with a decrease of 24.7%. And we don't even feel sorry for them.

Merced is a nice town of about 80,000 people right on Highway 99 in the Central Valley of California, a hundred miles southeast of the Bay Area. It has an annualized growth rate of 3.4% over the last nine years and is now home to the tenth campus of the University of California, which will eventually accommodate 25,000 students. In 2000 the median home price was $106,400 but this increased to $293,700 by 2005. According to OFHEO the five year HPI rate to 2005 was 141% and even after a slow 2006 the five year rate stood at 115% and now after a really slow 2007 the five year rate is down to 35.8%.

The situation is much the same in the four states - Nevada, California, Florida and Arizona - that showed the largest growth rate over the last five years as shown on the table and it seems to demonstrate that double digit increases in home values are simply not sustainable. In all cases the price appreciation has given way to a serious ‘price correction' but even then they are still way above the national average and five times what we have seen locally in the last five years.

You have heard the expression "slow and steady wins the race" and we certainly aren't winning any races but we think the numbers tell the story. It has been a long time since our local market experienced any double digit home price increases - 2000 to be exact - but this has certainly added some stability to our market and we have been able to show modest price increases even through the most recent double digit decline home sales.

Another item we would like to point out is that the OFHEO Home Price Index includes the Fort Collins and Loveland areas. Our multi list service breaks down the area to Fort Collins and northern Larimer County and Loveland and southern Larimer County. For the first quarter, the median price for the combined area was down 2.3% but it differed considerably from north to south with Fort Collins down 1.2% but Loveland down 6.7%. For the same five year period, the median price in Fort Collins is up 15.0% to $215,700 and in Loveland it is up 12.5% to $218,900. The reason Loveland shows a higher median price is simply the mix of residential housing. In the Fort Collins area about 20% of the homes are ‘multi family' townhomes and condos and this figure is less than 10% in Loveland.

The local sales figures for May will be available for our June 15, 2008 column. A preliminary look shows more of the same - a double digit decrease in home sales and a flat price point.

Pam & Dave Pettigrew, Real Estate Brokers and Certified Residential Specialists are available to answer your questions on real estate. Write to them at Prudential Rocky Mountain, REALTORS, 2700 S. College, Fort Collins, 80525, call them directly at (970) 282-9305 or email FCRealtor@msn.com. For an archive of past columns and market information visit their award winning web site at www.FortCollinsRelocation.com

A review of the headlines over the couple of weeks would leave anyone confused as to the actual current state of the real estate business.

It started with the National Association of Realtors May 23, 2008 report on existing home sales for April. Their headline was "Existing Home Sales Ease Due to Mortgage Restrictions; Some Markets Rising". The explanation was that existing home sales slowed in April partly because restrictive lending practices hampered home buyers. Sales declined, on a seasonally adjusted annual rate, by 1% compared to the end of March but were 17.5% below the level reported at the end of April 2007. The national median existing home sales price was $202,300, 8.0% below a year ago. The good news, according to NAR President Richard Gaylord, is that mortgage restrictions have been eased. "In the past week, Freddie Mac and Fannie Mae have announced that they were eliminating their ‘declining market' policies effective June 1," he said. "This means consumers will have access to safe, affordable financing with downpayments of only 5% on most mortgages, with 100% financing available on some loan products." Also there has been a recent noticeable drop in interest rates on conforming jumbo loans which will help home buyers of higher priced homes.

One of the biggest factors keeping pressure on home prices is the national inventory of homes for sale, which increased 10.5% at the end of April, representing an 11.2 month supply at the current sales pace.

At the same time the Office of Federal Housing Enterprise Oversight (OFHEO) released their first quarter home price index and the headlines read "Federal home-price index records its biggest decline". The report showed that home prices nationally fell 3.1% in the first quarter compared with last year. It was only the second quarter of price declines since the index started in 1991. Importantly, there was a sub headline in one of the papers stating that "Most areas of Colorado report gains amid the 3.1% U. S. drop.

On May 25 there was a report headlined "Denver's housing market sees shift" with the comment that the real estate market is showing signs of a precipitous shift from a buyers market to a "normal" market due to a drop in inventory which now stands at a seven month supply.

Then on May 26, the first quarter S&P/Case-Shiller report on the National Home Price Index was released and the headlines screamed "Home Values Tumble 14.1 Percent. The double digit drop qualified as the worst decline in the index's two decades. David Blitzer, chairman on S&P's index committee, said "There are very few silver linings that one can see in the data. Most of the nation appears to remain on a downward path."

The Census Bureau then jumped in with a May 27^th report headline "New-Home Sales Rise Slightly in April". The report showed a 3.3% increase compared to March, but also showed that April's pace was 42% lower than April 2007, that new home inventories decreased slightly to a 10.6 month supply and the median sales price increased 9.1%.

While these reports seem to be all over the board, the biggest difference is certainly in how the change in selling price is calculated and reported. And the two federal home price index's are very far apart with OFHEO reporting a 3.1% drop in the first quarter and Case-Shiller showing a 14.1% decline. No wonder we get confused. A closer look indicates that the OFHEO index is much broader geographically than Case-Schiller. OFHEO uses data from 292 Metropolitan Statistical Areas while Case-Schiller follows just the twenty largest U.S metro areas. The other main difference is that OFHEO tracks mortgage loans of $417,000 or less that are bought or backed by the government-sponsored mortgage finance companies Fannie Mae and Freddie Mac. They exclude subprime and other exotic mortgages which are behind the current housing woes in states such as California, Florida and Nevada, where rapidly falling home prices are skewing the national results.

Obviously the national market conditions have an influence on our local market but it is important to take these headlines with a grain of salt. A few years ago when the headlines were trumpeting "Home Price Appreciation Continues at Robust Pace" (OFHEO March 2006) or "House Price Increase Shows Dramatic Increase" (OFHEO March 2004), we were muddling along with 2% and 3% annual price increases. The same holds true today, just in the reverse. While many areas are reporting double digit home price decreases, we continue our straight, flat line.

Look for our column in tomorrows Sunday Real Estate section for a review of the last five years of our local market compared to the OFHEO numbers for other selected markets.

Pam & Dave Pettigrew, Real Estate Brokers and Certified Residential Specialists are available to answer your questions on real estate. Write to them at Prudential Rocky Mountain, REALTORS, 2700 S. College, Fort Collins, 80525, call them directly at (970) 282-9305 or email FCRealtor@msn.com. For an archive of past columns and market information visit their award winning web site at www.FortCollinsRelocation.com

Before we get into all that negative stuff, let's see what we can find to write that is positive about the current local real estate market - at least for home owners and home sellers. How about home sales in May were up 19% compared to last month. May was the biggest month of closed sales since August of last year. There were an additional twelve sales recorded for April so the decline improved from 16.8% to 12.2%. The average selling price showed a very modest drop of 1.2% compared to last year. Marketing times, at least for the homes that are sold, continue to improve. The homes that closed in May were on the market an average of 114 days and the year to date now stands at 118 days compared to 129 days at the same time last year. The inventory of homes for sale is staying low with 2,154 available at the end of May, a 19% decrease from the 2,445 on the market last year. Based on sales over the last twelve months, this is about a seven month supply of homes, very close to a balanced market and much better than the ten to twelve months of inventory reported nationally. And new home sales hit a record price with an average of $420,161 in May, an increase of 30.7% from last year. This was obviously caused by the mix of sales but the median price was also up 6.6%

On the national scene, the pending home index reported by the National Association of Realtors increased 6.2% in April compared to the previous month, contrary to the Wall Street economists who had predicted no movement.

Now for all the other stuff! The table shows home sales dropped 15.6% in May compared to the previous year, continuing an uninterrupted trend of double digit decreases that began in September last year. There has been a drop in closed sales of over 200 homes in the first five months of this year and a decrease of 15.3% representing almost 400 homes in the last nine months. The average selling price drop in May was just the second in the last seven months and now stands at a very slim 0.8% increase for the year. The median price to the end of May is actually down 1.9% for the year to $209,970.

Traditionally closed sales in the four month period from May to August are the highest of the year, averaging around 46% of the total annual activity. With the first month of this peak season in the books, it looks like sales for the four month period in 2008 could be in the range of 1,400 homes which in turn would put us on a pace for annual sales of just over 3,000 homes. With just one month behind us, this is a bit of an analytical stretch but if we continue with a 15% decline in monthly home sales that is exactly where we are headed. Thankfully, beginning in September, we are up against very low sales figures from last year and if we can at least match those figures for the last four months of the year, sales should end up in the 3,300 range. This would take us back over ten years to a level of home sales not seen since 1997.

We believe the low sales are mainly the result of fewer first time home buyers entering the market, due to tighter lending standards and a feeling of uncertainty as to where the market is headed. When there are fewer first time home buyers this limits the options of the move up buyer and this can affect all price levels. We are then left with a market dominated by new buyers moving into the area and, while Fort Collins is still an attractive destination, there are not enough jobs being created in the current economy and potential buyers from states such as California are experiencing their own problems trying to sell in order to relocate.

So we end with the familiar refrain; for sellers, if you are motivated - and we have to assume that you are if you have your home on the market at this time - be assured that there are qualified buyers - who are looking for homes that are competitively priced and in move in condition. For buyers, you have the best of all worlds. Flat selling prices that have increased just 1% to 2% per year for the last few years, a good selection of homes offered by motivated sellers and mortgage interest rates that are about as low as they have ever been. Over time, a home of your own has been one of the best investments a family can make and now is a good time to buy and start enjoying it.

Pam & Dave Pettigrew, Real Estate Brokers and Certified Residential Specialists are available to answer your questions on real estate. Write to them at Prudential Rocky Mountain, REALTORS, 2700 S. College, Fort Collins, 80525, call them directly at (970) 282-9305 or email FCRealtor@msn.com. For an archive of past columns and market information visit their award winning web site at www.FortCollinsRelocation.com