Pikes Peak region housing: Rest of 2010 likely bumpy

The first half of 2010 saw better times for the single-family housing market in the Pikes Peak region: Sales and prices of existing homes rose, construction picked up and the pace of new foreclosure filings slowed.

But get ready for a bumpy second half, some local and state real estate experts say.
The supply of homes in the resale market is on the rise because of anxious sellers who jumped back into the market when conditions improved; banks, meanwhile, are expected to swell those inventories as they sell foreclosed homes they’ve repossessed. The increased competition could cause prices to level off and even decline, dealing a setback to the market, some of the experts say.

There’s already a glut of high-end homes on the market, and that probably won’t get any better in the next six months, experts say. It would take about 1 1/2 years to exhaust the supply of homes priced from $500,000 to $749,999, based on the number of listings on June 30 and the pace at which homes sold in the previous four months, according to a recent report by Re/Max Properties in Colorado Springs. Want a $1 million-and-up mansion? There’s a nearly five-year supply, based on inventory and recent sales, the report showed.

Meanwhile, the end of the federal government’s homebuyer tax credit has eliminated a major incentive for buyers; last month, homebuilding declined for the first time in a year. Even as interest rates are at record lows, tighter borrowing rules by lenders are making it tougher to land a mortgage, experts say.

Waning consumer confidence might be the biggest threat to the market the rest of the year; many people remain jittery about their jobs, which makes them reluctant buyers, experts say.
“I’m prepared for another dip,” Brian Maecker, a Springs real estate agent with Re/Max Advantage, said about the resale side of the market, as well as new construction.

“I hate to say it and put it out there, but I told my staff we had to make hay through the first half of the year,” he said.

They did, and so did others in the industry.

In the Springs area, home sales and building permits — a measure of construction activity — increased by double digits in the first half of the year when compared with the same period in 2009. Meanwhile, local foreclosure filings — the start of the legal process that can lead to the loss of a home or other property — fell nearly 10 percent in the first six months of the year.

But a big part of first-half selling and building was spurred by the federal government’s $8,000 tax credit for first-time homebuyers and $6,500 for move-up buyers; those incentives ended April 30 for all but members of the military returning from active duty. While the tax credits worked, some real estate-industry members fear they artificially boosted the single-family market.

“We borrowed some buyers from the future,” said Gary Beres, a real estate agent with Re/Max Properties in the Springs.

“Somebody that bought something the first part of this year, they probably would have put it off to the last part of the year,” Beres said.

Many people worried about holding onto their jobs are skittish about buying. Several local employers recently told The Gazette they’re poised to add upward of 1,000 jobs in the next several months. Yet, Colorado Springs’ unemployment rate jumped to 8.9 percent in June — more than double pre-recession levels.

“I don’t look for us to see any surge in activity (sales and construction) until we get jobs or find ways to give people confidence in their job situation,” Maecker said.

Added Lee Bolin, founder and president of Saddletree Homes in Colorado Springs:
“My optimistic side says it’s going to pick up a little bit (in the second half). My realistic side says it’s probably going to be stagnant.

“The consumer’s the key,” Bolin said.

“I’m afraid that until the consumer decides he’s going to spend, the banks are going to be very, very cautious.,” Bolin added. “The consumers drive the market. If you don’t buy because you’re worried about your job, and everybody is like you, then why develop anything? Why loan any money?”

And consumers won’t regain confidence until they see tangible signs the economy is improving, said Ryan McMaken, a Colorado Division of Housing spokesman.

“Their confidence will return when they see their neighbors aren’t unemployed anymore,” McMaken said. “Or, they think they might actually get a raise sometime in the near future, or they just see in the news that there’s a lot of hiring and that the unemployment rate is coming down, and so on.

“You’re not seeing that happen right now. Most people you talk to, they know someone who‘s either unemployed, or they’ve seen a big decline in income. And that’s what’s affecting people’s confidence.”

In addition to sweating job security, McMaken said, home sellers face competition from distressed properties — foreclosures and short sales — coming back on the market.

Because distressed properties are typically sold at discounts by lenders, neighborhood property values often decline. Some nearby homeowners then find themselves “under water” — their properties are worth less than what they owe on their mortgages, McMaken said.

Many homeowners also are seeing their household incomes fall, which means they can’t qualify to modify their loans, he added.

If they do lose their jobs, they’re stuck with a mortgage they can’t pay, and can’t get the price they need to sell their homes and pay off their loans, which leads to a foreclosure, McMaken said.

Despite all the worries, the housing market still has some pluses going for it in the second half. Even as home prices have increased over the past several months, they’re down from a few years ago. As a result, it’s still a buyer’s market.

Mortgage rates are probably the biggest incentive for buyers; they continue to be at their lowest levels in decades. Last week , a 30-year, fixed-rate mortgage averaged 4.56 percent nationally, according to mortgage company Freddie Mac.

Lower interest payments over the life of a mortgage will save homebuyers many thousands of dollars more than the one-time federal government tax credits, experts say.

The rock-bottom mortgage rates have been a key in attracting buyers, Bolin said. “The interest rates we have are so attractive that they’re bringing them out of their house,” he said.

“Without the rates, they’d wouldn’t tiptoe out of their home.”

Despite the low rates, some agents complain that lenders have tightened borrowing requirements, which could further chill buying and selling during the second half.

Barbara Asbury, of Peak Realty & Consulting and next year’s board chairwoman of the Pikes Peak Association of Realtors, is one of the few real estate-industry members who expressed cautious optimism; some buyers seem to have an improved attitude about the housing market, she said.

Still, they’re having trouble obtaining mortgages, Asbury said.

Yes, lenders are tougher on borrowers, said Greg Osborne, regional vice president for Wells Fargo Home Mortgage, who oversees mortgages in Colorado and Utah.

Lenders, however, are doing little more than returning to borrowing standards that were in place before the freewheeling lending practices that led to many borrowers with shaky credit histories being allowed to obtain mortgages. For example, homebuyers now must produce two years’ worth of W-2 statements and a year-to-date pay stub as proof of employment, Osborne said. The days of so-called ninja loans — no income, no job, no assets — are over, he said.

“We’re going back to basics as an industry,” Osborne said.

Even as several real estate-industry members have concerns about the second half of the year, there’s something to remember about the housing market, Bolin said.

As a member of the industry since he started as a carpenter in 1962, Bolin said he’s been through several recessions. While this is one of the worst, he said, the market always comes back.

“Somebody said this to me back in ’82,” Bolin said, “Americans can only sit still so long before they spend money. Honestly, I’ve seen it five or six times. They sit still so long, and they go buy a new house or they buy a new car. They move on with life.”
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THE MARKET AT A GLANCE:

RESALE
First half: Battered by the recession and the nation’s subprime mortgage crises over the past few years, the local resale market started to rebound a year ago. Home sales rose 12 percent in the first half of this year when compared with the same period in 2009. In June, the median price of homes sold reached $205,000 — the first time monthly median prices had topped the $200,000 mark in nearly two years.
Second-half outlook: The supply of homes listed for sale rose in April, May and June — jumping to 5,917 last month, a 15.4 percent increase over June 2009 and the highest one-month total since September 2008. Seeing an increase in home sales and prices, some sellers jumped back into the market. Also, lenders continue to put distressed properties — foreclosures and short sales — up for sale, and some real estate agents fear banks have a backlog of repossessed homes they’re poised to put on the market.
A swelling inventory means more competition for sellers, which could depress prices. Already, “prices are flat, and even dropping again,” said Brian Maecker, with Re/Max Advantage in Colorado Springs.
The April 30 end of the federal government’s homebuyer tax credit, which many agents credited for boosting the resale market, also is expected to slow buyer interest, some agents say. Many consumers, meanwhile, continue to fear losing their jobs, which means they’re less likely to buy a home.
“We could have 2 percent interest rates, but they’re not going to buy if they’re concerned about their jobs,” said Gary Beres of Re/Max Properties.

NEW CONSTRUCTION
 First half: Single-family building permits, which measure home-construction activity, totaled 798 in the first six months, a healthy 53.4 percent increase over the same period in 2009.
Second-half outlook: After a year of monthly increases, building permits fell 12.3 percent in June when compared with the same month a year earlier. The decline, some builders say, is a sign of a potential slowdown.
“A lot of the market was driven by the (federal) tax credit,” said Larry Buckendorf, a co-owner of Greeley-based Journey Homes, an entry-level builder that has become one the Springs’ most active builders in recent years “You can’t discount that.”
The end of the tax credit might already be having an effect, he said.
“Unfortunately, I think it’s softening,” Buckendorf said of the market. “Our traffic was way down in May and June.”
Buckendorf said he expects homebuilding to be stagnant the rest of the year. Consumer confidence will be key, he said.
“It’s the instability of the economy, and the uncertainty, that faces most of the entry-level buyers,” Buckendorf said.

FORECLOSURES

First half: Foreclosure filings in Colorado Springs and surrounding El Paso County fell 9.7 percent in the first half of the year when compared with the same period last year. A filing is the start of the foreclosure process that can lead to the loss of a home.
Second-half outlook: The trend has improved for homeowners and other property owners, said El Paso County Public Trustee Tom Mowle, whose office processes foreclosure filings brought by lenders.
During the first two weeks of July, the Trustee’s Office averaged 14 to 15 foreclosure filings a day, the lowest daily average since late 2008, Mowle said. At that rate, foreclosure filings would total about 3,600 over a year’s time, although the total for 2010 likely will top 4,000, based on the number already received during the first six months.
Another positive sign: Fewer homes appear to be going all the way through the foreclosure process and winding up in the hand of lenders and third-party investors, Mowle said.
Over the past few years, lenders have been under pressure to work out loan modifications with owners to keep them in their homes, while the federal government has attempted to provide programs to assist owners.
Still, Mowle concedes, the foreclosure situation is relative. While the pace of foreclosure filings likely will trail last year’s record of 5,470, this year’s total still will be excessively high when compared with historical standards. Annual filings were well below 1,000 during several years in the 1990s.