Pam & Dave Pettigrew

There are a couple of ways to spin this report on January housing sales: The Bad - the 138 Fort Collins home sales in January make it the poorest sales month in recent memory. In the ten years from 1998 to 2007, January sales averaged 198 homes. Last year we dropped to 158 and experienced another 12.7% decline this year so we are now at 70% of the average over the last decade. On top of that, January has been a pretty good indicator of how the year is going to go with each January in the last ten years very close to 5% of the annual sales total. If this holds true it would put total sales for 2009 at around 2,760 homes, a 12% decline from 2008 and the lowest level since 1991.

The Good - at least for home sellers, is that the average selling price continues to hold up with a slight 0.1% decrease in January. Normally a low demand would put pressure on selling prices but the record low inventory of homes for sale is obviously helping to hold the line. The inventory of homes for sale rose slightly to 1,548 at the end of January compared to 1,499 at the end of December but this is 15% below the level of January 2008.

The chart shows the current month compared to 2007 and 2008 plus the figures we are up against for the next two months - which look pretty formidable at this time.

Other areas in our region are not faring much better in sales and selling prices. January sales in the Loveland area were off 31% with a 0.5% increase in the average selling price. Sales in Weld County were a little better showing a 5.7% drop but the average selling price was down 6%. Metro Denver reports homes placed under contract rather than closed sales but they experienced a very poor start to the year with sales down 15.8% from last year combined with a 17.8% price drop in the average selling price and this was in spite of a 19.4% drop in inventory. National figures for January won't be out for another month but the December report from the National Association of Realtors (NAR) produced some good news when existing home sales rose unexpectedly, jumping 6.5% to a seasonally adjusted annual rate of 4.74 million units. In addition, the most recent Pending Home Sales report showed a very welcome gain of 6.3% in December compared to November and was up 2.1% from the previous year. In addition, NAR's Housing Affordability Index rose 10.9% in December to 158.8 which is the highest on record. This report tracks the relationship between home prices, mortgage interest rates and family income.

Our crystal ball has been pretty cloudy for the last couple of years and we have used up all our mulligan's so we are not even going to venture a guess as to what 2009 will bring for local home sales. There does seem to be a lot of cautious optimism that we are nearing the bottom but consumer confidence is still very shaky, particularly with concerns over job security. Our state and region appear to be in better shape than many other areas of the country as Moody's Economy predicts Colorado job losses for 2009 at just 0.8% compared to 2008 employment levels. This is the third best rate in the country. The proposed home buyer tax credit, which is still being hammered out, and record low interest rates - which could be going even lower - should get a lot of potential home buyers off the fence and into the market.

One problem we are going to have to deal with eventually is the fact that residential construction is almost at a standstill due to many factors; mainly very low builder confidence and an inability to finance speculative inventory. Even with renewed consumer confidence, a tax credit and lower mortgage interest rates we are never going to get back to the sales levels of 2004 and 2005 without a supply of new homes and there will have to be a thaw in credit markets for this to happen. This coupled with at least a six month lag time to bring new homes to the market, means we may not see many new homes available for sale this year. That will make resale homes more in demand and may resurrect the move up market.

It promises to be interesting...stay tuned!

Well, we are glad that is over! Local home sales tanked in 2008, a year in which a sales decline was recorded in every single month - with ten of them double digit decreases - and finished with a 13.9% decrease in the number of homes sold compared to the previous year. Combined with the last four months of 2007 we have now gone sixteen months in a row of decreased home sales, and there were double digit decreases in fourteen of those months. Home sales have now dropped in each of the last four years and average annual sales have gone from a peak of 4,100 in 2004 to the current 3,121. This market has never experienced a four year slump in home sales, the previous mark was a three year drop from 1993 to 1995 when sales went from 3,131 per annum to 2,833, a decrease of 10% compared to the current 25% drop so we are in uncharted territory.

About the only good news on the home sales front is that December sales were certainly better than expected, recording a 22% increase over November sales. Normally December sales are less than November sales so maybe this shows that we have hit bottom and sales will start to improve - although we are not betting on that.

The 0.9% decrease in the average selling price for the year is also a first. In the records we have dating back to 1976 there has never been a year over year decrease in the average selling price. The median price also showed a 1.7% drop from $215,720 in 2007 to $212,000 in 2008. In addition to better sales than expected, December also showed some improvement in the average selling price, up 7% from the previous month and halting two months of double digit average price decrease.

The total 2008 sales volume was $783.6 million, a 15% decrease from the previous year and the lowest level since 2000. We have to go all the way back to a 20% drop in 1982 to find the last double digit decrease in annual sales volume.

The homes sold in December averaged 130 days on the market, up from 123 in November but a slight improvement on the 132 days in December 2007. For the year, the homes that sold averaged 112 days on the market which is an improvement over the 115 days on market in 2007. The inventory of homes for sale continues to drop dramatically with just 1,499 active listings at the end of December. This is down 11.5% from November and almost 15% less than the number of homes that were on the market at the end of 2007. Based on the last twelve months sales, the demand is for 260 homes per month so the current supply is about six months, normally referred to as a balanced market. Obviously the reduced inventory is helping to hold up selling prices. Who knows what would have happened to the average selling price if we had sold 4,000 homes in 2008 - the betting is that we could have seen a double digit drop in the average selling price.

We certainly overused down, drop, decrease, decline in this column but that seems to be the story of the year's home sales. In our next column we will compare what has happened in our market to our neighbors and to the national scene. We will also attempt to come up with a bit of a forecast for the near future of local home sales - although it would probably be better to wait and report after the fact.

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