How the credit crunch is affecting Summit County real estate sales
Real estate in Summit County has slowed dramatically in the last six months. Of course, with the economy tanking as it did, real estate everywhere was negatively affected. While other areas are beginning to see some new life in their markets, we have yet to see an upturn in sales.
Yesterday, I attended a presentation by Dr Lawrence Yun, the chief economist for The National Association of Realtors. He had a graph that I found very interesting. It showed how prices of homes in LA and prices of homes in Denver over the last eight years were very different. In LA, there was a huge increase in prices, and consequently, a large bust in the last year or two. Denver, on the other hand, had much slower growth in average price and also a much smaller downturn. While we are not in Denver, and did have faster growth in prices, they were nothing like the prices in LA. Also, the average price in Summit County grew primarily from people buying larger and fancier homes, although we had decent appreciation on existing homes.
Those large Silverthorne, Frisco and Breckenridge homes are now the ones that are not selling, and they are having some serious price reductions. We actually saw a decrease in the average price of homes that sold this last quarter, for the first time in years. So what is the issue? Besides the fact that consumer confidence is very weak, it is extremely difficult to get jumbo loans today. The government help has been primarily directed to first time home buyers.
While some banks are announcing huge profits, the credit markets are still not back to normal. It is much more difficult to get a loan, no matter what property one is purchasing, but jumbo loans (over $729,000) are especially hard to come by. Darlena Marmins, of Colorado State Bank and Trust, is able to offer them, but they are 5 or 10 year adjustable loans and the rates are 1-1.5 points higher than a loan that is less than $417,000. You would think that someone buying a home priced at $1,000,000 or more would be a better borrower, but it is not the borrower, it is the loan amount. Most (conforming) loans are sold on the secondary market to Fannie Mae or Freddie Mac, and at this time, Fannie/Freddie won’t buy jumbo loans.
One of our local portfolio lenders (meaning that they hold the mortgage themselves and don’t resell it) is First Bank. They can do jumbo loans for only a slightly higher interest rate than a smaller loan, although they consider the jumbo rates to start at $625,000. Money is available for the larger homes, but many potential Buyers become afraid to buy if they are turned down by their first or second choice for lenders, and they back off.
When more expensive homes don’t sell, Sellers do one of two things; they withdraw them from the market and wait until better times, or they reduce the price. If prices drop from $400 a square foot to $350 a square foot to $300 a square foot, it also affects the price of homes in lower price ranges, so even if those homes are selling at a faster rate, it puts pressure on the prices. It is all relative. This is what is happening in our market currently. Many Buyers are sitting on the sidelines hoping prices go lower. It is possible they will, and the longer Buyers wait, the lower the prices will get, until we reach a tipping point. Dr Lawrence Yun thinks that is what is happening in California right now, as the sales in February 2009 were double the sales of February 2008. Prices there seem to have reached a point where Buyers are now getting off the fence and plunking their money down. I have heard from Realtor friends in Denver that they are also very busy, so perhaps we will be next. Our second home market usually lags Denver in both the downturn and the recovery, but perhaps it is not too far off now!
For another post on financing a home in Summit County, click on the link.
The slides from Dr Yun’s presentation are on The Summit Association of Realtors website. You will find the link to the power point presentation in the menu on the left.
