Housing slump could persist into ’09; prices might suffer

Colorado Springs’ tepid housing market needs a nationwide mortgage mess like a homeowner with a leaky roof needs a rainstorm.

Like the rest of the country, however, the Springs is getting soaked.

Mortgage industry turmoil could prolong the local housing slide into early 2009 and lead to more foreclosures and homes for sale in the meantime, some real estate experts say. If that happens, home prices could drop.

“There’s going to be more inventory coming on the market,” predicted Joe Clement, owner of Re/Max Properties in Colorado Springs. “It will affect appraisals. It’s going to affect prices.”

The mortgage industry crisis has been triggered, in part, by loans lenders made to too many buyers with shaky credit. Many of those buyers have defaulted on their mortgages and their foreclosed homes have come back onto the market.

Because those buyers likely purchased homes between $100,000 and $400,000, those are the price ranges where housing prices could fall, Clement said.

How much? Clement speculated prices could drop 5 percent to 10 percent, although he added nobody can say for sure.

Price cuts won’t hurt every homeowner in the same way, however.

A 15-year homeowner will make money on a sale — just not as much as a few years ago, Clement said. But an owner who’s been in a house for a couple of years and has little or no equity could lose money, he said.

That’s a good reason some homeowners should think twice before putting up a for-sale sign. If you don’t need to sell, keep your house off the market, some experts say.

“I think we’re going to see a little bit of price reduction,” said Sharon Roshek of The Roshek Group of Coldwell Banker, 1st Choice, in Woodland Park. “Those people who don’t really have to sell, they should take their house off the market because they won’t like the downward pressure.”

Not everyone predicts falling prices.

Though it’s taking longer to sell homes and there’s no significant reason prices would increase, that doesn’t necessarily translate into a guaranteed price reduction, said Springs economist David Bamberger.

What Bamberger doubts will happen is a sort of death spiral the local housing market went through in the late 1980s. That’s when rising foreclosures, swollen inventories of resales and new homes and high interest rates combined to sharply drive down prices.

This time around, fixed-rate mortgages remain reasonable at under 7 percent, Bamberger said. Also, the fundamentals of the Springs economy remain solid, he said. Job growth remains positive and would be stronger if not for construction jobs lost because of weakness in housing.

The housing market is in a correction phase, which is being followed by a painful credit crunch, Bamberger said.

“That means foreclosures are on the increase, more product is going to hit the market and it’s going to be harder for people without really good credit to purchase a home and qualify for a mortgage,” he said.

The result: a turnaround in the resale housing market — marked by reduced supply and increased demand — might be pushed back until the end of 2008 or early 2009, Bamberger said.

“We need to see a tremendous drop in interest rates, which would create some activity, but I don’t see that happening,” said Re/Max Properties’ Clement. “Or we need to have two Intels moving into town at the same time we have an influx of people. I don’t see that happening, either. So, it’s going to take a while.”

The homebuilding industry also faces pressure, said economist Fred Crowley of the University of Colorado at Colorado Springs.

Many buyers want contingencies in their new home contracts that allow them to opt out if they can’t sell their existing home, Crowley said. Increasingly, builders don’t want to give it to them because they’re seeing too many canceled contracts, he said.

That’s one reason single-family building permits are on pace this year for their lowest total since the early 1990s — maybe 2,300 to 2,600, Crowley said.

But like Bamberger, Crowley doubts there will be a local housing collapse akin to the late 1980s. The local population continues to rise, and thousands of additional troops at Fort Carson will be here by 2009, he said.

But until a recovery takes hold, experts say, it’s a great time to buy — assuming you can get a mortgage at favorable terms and rates.