Kearney Realty News Market Update It has been an interesting year thus far. The major trends in the market are: fewer sales, price segmentation, and serious negotiation. Below are the details of each. The overall trend of lower year-overyear sales which began in 2007 has continued through the year. However, the rate of decline has been lessening as the year has progressed. Over the first five months of the year the number of transactions each month decreased an average of 33% when compared to the same month the previous year. During the most recent five months average transactions are only down 8.6%. During October the number of transactions increased by 7.6%. This was the first year-over-year increase in 26 months! If you were to ask me about the real estate market, I would have to tell you “it depends on what price range you are interested in”. The number of sales, days to sale and under contract ratio are very healthy when you are asking about homes priced below $500,000 and are not healthy at all when you are looking at the higher price ranges. I see that there are three main reasons why there is such a difference in the health of the two price segments in the same market. The first reason is financing. Loans of $417,000 and below have had interest
Fall 2009 rates in the low 5% range all year. Jumbo loans (those above $417,000) have had rates over 6% most of the year. The second reason why lower priced homes are selling is that the government has been subsidizing starter homes through the First Time Homebuyer Tax Credit. Very few first time buyers are purchasing homes above $500,000. The third reason I see is the overall tightening of credit. Over the last decade the buyers of higher priced homes were able to use a variety of loan products which made it possible to purchase a higher priced home. These options have now gone away. We are in a buyers market and sellers must be ready for some serious negotiation if they want to make it to the closing table. Even though the number of houses on the market has decreased in-step with sales, buyers have choices in the market and in most cases they have the luxury of time to consider and negotiate on a home. Buyer’s are not afraid to put in a low offer just to see how the seller will react. Once the home is under contract it is not uncommon for a buyer to re-open negotiations by asking for large concessions during the inspection period. Now, more than ever it is important to have a professional Realtor on your side who has been through many negotiations and
knows what is reasonable. We are a year removed from the crisis point of the global economic meltdown and while we have not fully recovered, the future looks a whole lot more certain than it did a year ago.
The country is slowly coming out of recession and in the most recent quarter we showed overall economic growth. What we most need locally in order to see a full recovery in the real estate market is jobs. Once local firms begin hiring again we will see housing activity from two groups of buyer’s. It is easy to see that those who are hired will need a place to live. More obtuse is the release of the pent-up demand from those who have had a job all along. Once hiring starts taking place around them, they will feel the confidence to make the move that they have been delaying for the past couple of years. Once consumer confidence returns this market could respond very quickly.
What’s News •
The First Time Homebuyer Tax Credit has been extended and expanded. The program which gives an $8,000 tax credit for first time homebuyer’s has been extended to include contracts accepted for purchase by April 30, 2010 and close no later than July 1, 2010. A new provision in the statute provide for a $6,500 credit for existing homeowners who have been in their current home for at least 5 of the last 8 years, when they purchase a new home. The new bill also increased the income limits for eligible buyers from $75,000 to $125,000 for a single person and from $150,000 to $225,000 for a couple. The maximum price limit for the home purchased is now $800,000 where before there was no limit. This should help stimulate sales through the winter and keep the momentum moving forward. Boulder City Council has approved a new regulation limiting home sizes within the City. The law affects the construction of new homes as well as remodels and additions. Here are the basics of the program: house footprints are limited to 35% of the lot size and the ratio of square footage to lot size is 50% based upon a 7,000 square foot lot. The proponents of the new law see it as a major step towards promoting overall sustainability as well as neighborhood continuity. Those opposing the regulations see it as a direct assault on private property rights which will affect the marketability of certain homes in the city. It will certainly affect how remodels and new construction is done in the City of Boulder.
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Neil Kearney MBA, CRS®
Boulder County Sales Single Fam ily and Condos 800 700 600 500 400 300 200 100 0 Januar y
Febr uar y
Apr i l
Sa le s by P ric e R a nge S ingle F a m ily H o m e s B o ulde r C o unt y
The three charts to the left tell much about the current state of the market. The top graph shows sales of homes and condos in Boulder County every month since 2004. So far this year, sales are down 21% from last year and 40% from the first 10 months of 2004. During a period of sales declines it would be expected that values would have dropped, simple supply/demand economics, right? Our area has actually been one of the most resilient markets in the nation regarding price. According to FHFA, a government agency that tracts prices, our area has gone from the bottom third in appreciation rankings to the top quarter. Our inventory of homes for sale has decreased along with sales and we do not have a big backlog of newly constructed homes flooding the market.
Sa l e s
0 Under $ 100,000
$ 200,000 $ 299,999
$ 400,000 $ 499,999
$ 600,000 $ 699,999
$ 800,000 $ 899,999
$ 1,000,000 $ 1,099,999
$ 1,200,000 $ 1,299,999
$ 1,400,000 $ 1,499,999
B o ul d er C o unt y - Per cent ag e o f Si ng le F ami ly Li st i ng s U nd er C o nt r act
The middle chart shows the breakdown of sales by price range over the past three years. This shows graphically how the volume of sales is mostly in the lower ranges. The reduction in sales over the past three years has gone down fairly lock-step with the exception of sales above $1.5 million where sales have decreased dramatically. In fact the number of sales in the county over $1 million has decreased 50% over the past three years.
0% Januar y
Febr uar y
The chart on the bottom shows the percentage of homes that are under contract at the end of each month over the past three years. What is really interesting about this chart is the strength of the market over the past three months. Usually, after the market peaks in early summer each year we have a gradual decline of the market until in bottoms out over the holidays. This year the market has been very resilient. When the under contract % for a market is at least 15% it is deemed to be a healthy market.