February Sales Increase

by Larry Hotz, All Denver Real Estate

Denver home sales increased by 4% over the previous February period according to statistics released by Metrolist, Denver’s Multi-list reporting organization. Significantly, inventory of homes for sale remained essentially constant during the year over year period rising only .8% to 25,037 homes.

Why is this important? First, home sales are lower in many neighborhoods impacted by foreclosures. Secondly, home sales usually don’t begin to pick up until March when we begin our Spring selling season.

So, what does my 30 years of experience in this real estate market tell me about the condition of the Denver real estate market? 

We are on the cusp on a market movement. Which way will it move? I don’t know. But, I know that we need follow through to good February sales numbers in order for the market to improve. Simply put, if it doesn’t follow though with an increase in March sales, our usual Spring selling season could be in jeopardy.

So, how are we doing so far? In my Kentwood Company office our showings for the first week of March increased from 296 the previous week to 421. That is a huge increase in people viewing our listings. Showing activity usually the precursor to sales contracts.

Now, this is the microcasm. But, our office at least is a good barometer of showing activity of luxury home sales between $400,000 to $6 million. Granted, our office may be the most productive office in sales per agent but that is generally only at the upper end of the market and only in Denver and the south suburbs. We are not dominant in the north an eastern sections which have been heavily hit with foreclosures and declining home values.

Inventory of existing homes on the market have held remarkably consistent over the last 6 months. That is a good sign because usually inventories increase by this Spring-time in the market cycle. If inventories remain relatively consistent and sales increase as they usually do (and did last year) that could bode well for our market.

Headwinds do persist. Lenders are getting more conservative in their underwriting standards, loan-to-value ratios and appraisals. This is causing somewhat fewer people to qualify to loans. That does somewhat reduce demand. Also, foreclosure are plentiful in lower-end neighborhoods on Denver’s north side and in the eastern and northern suburbs.

Still, there are hopeful signs. Interest rates are still extremely low by historical standards. This week’s action by the Federal Reserve Board to increase liquidity in the debt market may well actually lower mortgage interest rates even lower over the next few months. Local home builders have cut back dramatically on building homes before they are sold in advance. This is reducing supply significantly. Finally, we have seen more relocation buyers enter the marketplace in the last few weeks. These tranferees tend to be the "must-buy" buyers.

Denver remains one of the market which have held-up better than others. March should tell us if this trend will continue into our Spring and even Summer selling seasons. 

 

 

March 12, 2008 | Filed Under Denver Real Estate News 

Comments

2 Responses to “February Sales Increase”

  1. Ken on March 15th, 2008 8:51 am

    Have you seen any slow down at all in the Denver market compared to the rest of the country? These figures are astonishing.

    Cheers

  2. Mike Schell on August 18th, 2008 6:16 am

    I’m a licensed appraiser and I read the article about automated valuation systems by Ms. Holtz (Wash Park house) and would like to add my $.02.

    You have my permission to publish this, if you desire, edited for space only (otherwise let me know if you need changes).

    James M. (Mike) Schel
    303-425-7575
    valueappraisal@comcast.netl

    Letting Computers Perform Real Estate Appraisals. A Good Idea?

    Most Americans have never heard of them. Home mortgage lenders love them. One of the nation’s largest lenders recently announced it would use nothing else in order to “limit market exposure.” The nations largest savings depended heavily upon them and is now in deep financial trouble. Your lender won’t talk about them and won’t tell you when they are using one. It’s one detail of the current real estate mess you won’t read or hear about in local or national news. Yet they’ve been a major factor in driving the rising foreclosure rate and damaging home values in many places.

    They are Automated Valuation Models, or “AVMs,” computers that tell a lender what your house is worth. AVMs analyze data either purchased from title companies or farmed from public sources and do away with “old-fashioned” home appraisals. Nobody will visit, talk to you about your home, note any new and upgrade features, measure it and then compare it to nearby similar homes that have sold recently to develop a final estimate of value–an appraisal. And the cost of an AVM “appraisal” is always a fraction of the typical $300 to $500 real appraiser will charge. This low price allows the lender to magnanimously offer to pay the “appraisal fee” for you. And an AVM calculates its valuation in minutes, rather than the several days or a week or more a real appraiser will spend determining the value of your home.

    AVMs sound like manna from heaven, don’t they? Cheaper, faster, less intrusive . . . it’s hard to see a downside. Well, there may be one: AVMs are almost never accurate.

    The use of AVMs by lenders grew dramatically during the last few years of the 1990s. As the economy slowed and mortgage lenders’ profit margins slimmed down and they began marketing to more risky borrowers, anyplace they could trim costs became more attractive. To many mortgage lenders, a borrower who can’t find the $350 to pay the apprasier isn’t someone who shouldn’t be buying a home. Nope, they are an “untapped market.” AVMs are just another tool unethical lenders have used to put people into mortgages they can’t afford, leading to escalating foreclosures.

    Lenders will argue that a human appraiser is too slow, too subjective and just too darned expensive! An AVM can tell you what your house is “worth” in minutes. Besides, who wouldn’t rather pay thirty dollars than $300 or more? And yes, AVMs are certainly far less picky than an appraiser! For instance, while an appraiser will look at that repossessed, vermin-infested former meth-lab that sold last month a couple of blocks over as unacceptable for comparison to your lovingly maintained family home, not an AVM! The AVM will compare size, age, room and bath count and if that meth-lab is remotely similar to yours, it’s as good as the same house to the AVM. The AVM won’t worry for a moment over why that house sold for $75,000 less than anything else in the neighborhood; it just factors the raw numbers. And sellers may believe that since the appraisal isn’t their obligation, this has nothing to do with them. So if the AVM says the house is worth thousands less than the negotiated sales price, most sellers have no problem just knocking that off the price!

    AVMs don’t always undervalue homes, though. If an unscrupulous agent sells a nearby house to his cousin, for $50,000 more than anything else in the neighborhood, the AVM won’t scratch its head in puzzlement over the deal. AVMs don’t have heads to scratch. They just have numbers they crunch. A licensed appraiser, however, is obligated by the regulations and ethical standards of the profession to do a little more digging. Sales like this can cause AVMs to over-value a home by tens of thousands of dollars.

    Before you start jumping up and down like someone who just hit the lottery, remember that if you are refinancing, that extra money will be part of your mortgage. If you are selling, unless your prospective buyers are stupid, they’ll rescind on the deal and find a more reasonably priced house. If you bought or refinanced based on this over-valuation, and you decide to sell or need to refinance a few months down the road and if values in your neighborhood are stagnant or as in so many other areas right now, depreciating, how will a mortgage overvalued by tens of thousands? What many Americans have learnt too late in this situation is that they can’t get out from under an overvalued home by selling or refinancing because their current mortgage is so far “upside down”–you owe far more than anyone is willing to pay for or lend on the house. Then, often, the only way out is foreclosure.

    American appraisers are licensed by their state, carry liability insurance and must adhere to strict federal and state guidelines. If an appraiser seriously misidentifies the current market value of your home, in either direction, he or she can be held accountable. Can AVMs be held accountable? Not so much. They are not licensed or even regulated in any way. The people who run them are rarely themselves appraisers. Often, so that the lender can further distance themselves and “limit market exposure,” these computers are not even in this country! But surely if a value problem turns up, you can go to the lender, right? Sure. And they’ll tell you it’s not their fault. They didn’t provide the value, the AVM did. In the end, about all you can do if an AVM got you into serious trouble is to write a strongly worded letter. To a computer. In India.

    A real appraisal will and should cost a few hundred bucks. Appraisers are licensed professionals who provide a very valuable service. If you can’t scrape a few hundred bucks together, maybe it’s time to seriously reevaluate your financial ability to own a home in the first place. If you are just a cheapskate, you’re not a very smart one. You might ace an appraiser out of his or her fee, just to ace yourself right out of your home down the road.

    So whether you are selling, buying or refinancing, if someone with a tape measure and clipboard doesn’t come by to peak into your attic and cellar and talk to you about the new windows and refinished floors, you might want to call the lender and exercise your right to demand a real appraisal by a licensed, human appraiser.

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Copyright 2007-2008 by Loren S. Hotz. All Denver Real Estate.