May 2012 Denver Market Update
/[youtube=http://www.youtube.com/watch?v=gmg-thMvGpc] Market Stats
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An insider's take on the Denver real estate market.
[youtube=http://www.youtube.com/watch?v=gmg-thMvGpc] Market Stats
For what seems like as long as I can remember (5 years, they say I have amnesia), the real estate market has been dubbed a "buyer's market". Low-ball offers, plenty of properties to choose from, low prices, low interest rates, short sales/foreclosures, seller concessions toward buyer's closing costs and more or less getting exactly what they want. Oh how the times are changing. Gone are the days that buyers get whatever they want, and here's why: - Inventory (homes currently listed for sale in Denver) is down 53.4%. If all of the other variables were constant (which they aren't), this alone would have the pendulum swinging back toward sellers.
- Average Days on Market (DOM) has dropped by 11.7% from March 11 to March 12. What properties are currently available are going more quickly than they did last year.
- Both the average price per square foot and sold price/list price are up (4.9% and 2.9% respectively) indicating both value increases as well as higher priced inventory entering the market.
- The absorption rate (how long it would take to sell all current listings if no others entered the market) is also down substantially (as should be expected with such a drastic decrease in inventory), 55.3% year over year. So if no new listings enter the market, buyers will only be able to get property for another 3.8 months in Denver.
- Mortgage interest rates are still the lowest they have ever been. While I don't claim to be able to predict where rates will go, I do know that inflation is currently in the neighborhood of 5.2% and that my lender quoted FHA 30-year fixed rates yesterday at 3.75%. If rates increase, let's say .5%, a buyer with a maximum purchasing power of $200K is going to see an increase of approximately $100 on their monthly payment, thus decreasing the potential buyers for a given property.
I'm not saying the real estate market is saved, but what I am getting at is that it is getting very competitive to buy real estate in Denver, at all price points, and competition leads to increases in closed prices, so if you have been on the fence about buying or selling, now might be the perfect time to do either.
Though it won't mean the return of the industry to higher levels of volume, I see this as more of a PR move to show that the government supports the housing industry as much as they do Wall Street: The U.S. housing industry has scored a victory with House and Senate votes to raise the size of mortgages backed by the Federal Housing Administration to $729,750.
The measure split Republicans, many of whom supported retaining the lower limit of $625,500. As a result, efforts to restore the higher limit fell short until the Senate attached an increase to a package of spending bills that were passed yesterday by both the House and Senate.
The higher FHA limit is expected to become law after the president signs the spending measures, which he must do by the end of today to avoid a government shutdown.
“Restoring the higher loan limits for the FHA will provide homeowners and homebuyers with safe and affordable financing, while providing a much-needed boost to housing markets all around the country,” James W. Tobin, chief lobbyist for the National Association of Home Builders, wrote in a Nov. 16 letter to Speaker John Boehner, an Ohio Republican.
Lawmakers who backed higher limits said withdrawing federal support could further undermine a housing market still struggling to recover from the 2008 credit crisis.
The final compromise, which dropped a similar increase to loans backed by mortgage firmsFannie Mae and Freddie Mac, represents a mixed victory for the housing industry.
While the increase to $729,750 is expected to spur some additional homebuying, it’s not clear by how much. FHA loans make up a smaller share of the market than those purchased by Fannie Mae and Freddie Mac.
5.3 Million Homes
Still, the measure was fully embraced by trade groups for homebuilders and realtors. The National Association of Homebuilders has estimated that 5.3 million homes lost their eligibility for conforming loans when the higher limits expired on Oct. 1. Nearly 670 counties saw their loan limits decline, according to the National Association of Realtors.
On the other side were a number of interest groups that push for free-market policies and against government support to the housing market. Those groups, which include the Club for Growth and Heritage Action for America, play a large role in the House Republican conference and can influence campaign funding for the next election.
Republicans backed by the groups thought efforts to increase the loan limits had been defeated earlier this year, particularly when the White House announced support for allowing them to go back down to pre-crisis levels.
“This is completely bizarre that the Congress would be to the left of this president on housing finance,” Representative Patrick McHenry, a North Carolina Republican on the House Financial Services Committee, said in an interview.
House Republicans who opposed the provision seized on the FHA’s annual actuarial report released earlier this week, which said the agency has a 50 percent chance of needing to seek taxpayer aid to bolster its insurance fund.
The FHA, which provides liquidity by protecting lenders against borrower defaults, has increased its share of the mortgage market in the wake of the credit crisis. The agency, created in 1934 during the Great Depression, now guarantees a third of U.S. mortgages, according to the report.
The House-passed legislation, approved in a 298-121 vote, was opposed by 101 members of the House’s Republican majority, some of whom said they opposed the measure primarily because of the loan-limit increase.
Representative John Campbell, a California Republican who pushed for the increase, called the compromise on the provision “just a bad deal.” Campbell said he would have preferred that lawmakers boost the limit for Fannie Mae and Freddie Mac over raising the FHA limit.
“I’m glad something got done, but because they got it backwards, this will be a much more short-term fix than I would have hoped,” Campbell said in an interview.
The Senate followed the House’s lead a few hours later, voting 70-30 to clear the measure for Obama’s signature. The provision was once again cited by several Republicans as a reason for their opposition.
“Raising the loan limits at FHA only, an unprecedented move, will simply drive more business into Ginnie Mae securities and put the FHA at even greater risk of losses to taxpayers,” SenatorBob Corker, a Tennessee Republican, said yesterday. “If we cannot even take this simple step, we risk crowding out the private sector for years to come.”
To contact the reporter on this story: Phil Mattingly in Washington at pmattingly@bloomberg.net.
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