By Larry Hotz, All Denver Real Estate Senior Editor
On New Year’s Eve I was reflecting back on 2008. I counted a lot of blessings until I started pondering the Denver real estate market. There wasn’t all that much to be grateful for in 2008 in our real estate market. In particular, the interest rates on nonconforming, Jumbo mortgages above $417,000 rose to nearly 9%.
But I did manage to find a couple of silver linings and more than a glimmer of hope for the 2009 real estate market. Here’s the video blog I recorded and some analysis on page 2.
2008 was a fairly lousy year for the Denver real estate market. You didn’t read much in this blog about “now is the time to buy”. Prices declined slightly in most areas of Denver. Those neighborhoods that are less desirable had more foreclosures and as a result prices plummeted up to 20% in some areas. But the better is a town were relatively stable and their prices.
It was a good year for first-time home buyer because interest rates on conforming mortgages below $417,000 were good. They were generally in the 6% range. Prices for entry-level homes had generally softened a bit. And, first-time homebuyers without a home to sell were able to snatch up a good bargain. But folks who already owned a home had a hard time thinking about a move because of the lower equity in their own home and how long it would take to sell.
People who wanted to buy more expensive homes ran into high interest rates. Jumbo loans above $417,000 saw rates climb to over 9% in some cases. Still, McMansions in the best areas of town continued to sell well through the summer. But the decline of the stock market also brought a decline in sales for luxury homes. It seems that the Federal Reserve Bank has figured out that interest rates are going to have to decline in order for the log jam of inventory nationally to break loose. This month, they’re going to begin buying $500 billion worth of mortgage backed securities. Many of these mortgage instruments are pools of Jumbo mortgages.
I am hopeful that this will provide enough stability to the market that investors will begin buying mortgage backed securities again. That should lower interest rates for both luxury homes and popularly priced homes.
Another silver lining in the dark cloud of 2008 was the decrease in the number of homes for sale in Denver. A year ago there were 24,489 homes for sale in Denver and the metropolitan area. By last week that number had dropped to 20,107 homes for sale. Sales throughout 2008 averaged about 5000 sales per month. That means that the adsorption rate improved from about five months to four months. Absorption rate is the amount of time it would take for the current sales to fully absorb the current inventory. A normal absorption rate would be three months.
So, lower interest rates and fewer homes for sale may well be the keys to a better market in 2009. I believe that the Federal Reserve Bank has concluded that the housing market must be stabilized in order for the economy to improve. The only way to stabilize this economy is to begin by stabilizing the housing market. I can’t think of any other way to do that except to force interest rates down and eventually allow for a refinance streamlining process that will rely less on appraised values and more on credit worthiness.
When that happens, there will likely be a huge refinance boom. There will also be people who choose to move rather than refinance to take advantage of the new lower rates and lower payments. I want Mr. Beranke to know that we in the real estate industry are ready to help get this economy rolling again in 2009. We are glad that he is going to take a multifaceted approach to rescuing home ownership.
Whether you choose to refinance or move, I wish you a Happy New Year’s Market!