A review of the headlines over the couple of weeks would leave anyone confused as to the actual current state of the real estate business.
It started with the National Association of Realtors May 23, 2008 report on existing home sales for April. Their headline was "Existing Home Sales Ease Due to Mortgage Restrictions; Some Markets Rising". The explanation was that existing home sales slowed in April partly because restrictive lending practices hampered home buyers. Sales declined, on a seasonally adjusted annual rate, by 1% compared to the end of March but were 17.5% below the level reported at the end of April 2007. The national median existing home sales price was $202,300, 8.0% below a year ago. The good news, according to NAR President Richard Gaylord, is that mortgage restrictions have been eased. "In the past week, Freddie Mac and Fannie Mae have announced that they were eliminating their ‘declining market' policies effective June 1," he said. "This means consumers will have access to safe, affordable financing with downpayments of only 5% on most mortgages, with 100% financing available on some loan products." Also there has been a recent noticeable drop in interest rates on conforming jumbo loans which will help home buyers of higher priced homes.
One of the biggest factors keeping pressure on home prices is the national inventory of homes for sale, which increased 10.5% at the end of April, representing an 11.2 month supply at the current sales pace.
At the same time the Office of Federal Housing Enterprise Oversight (OFHEO) released their first quarter home price index and the headlines read "Federal home-price index records its biggest decline". The report showed that home prices nationally fell 3.1% in the first quarter compared with last year. It was only the second quarter of price declines since the index started in 1991. Importantly, there was a sub headline in one of the papers stating that "Most areas of Colorado report gains amid the 3.1% U. S. drop.
On May 25 there was a report headlined "Denver's housing market sees shift" with the comment that the real estate market is showing signs of a precipitous shift from a buyers market to a "normal" market due to a drop in inventory which now stands at a seven month supply.
Then on May 26, the first quarter S&P/Case-Shiller report on the National Home Price Index was released and the headlines screamed "Home Values Tumble 14.1 Percent. The double digit drop qualified as the worst decline in the index's two decades. David Blitzer, chairman on S&P's index committee, said "There are very few silver linings that one can see in the data. Most of the nation appears to remain on a downward path."
The Census Bureau then jumped in with a May 27th report headline "New-Home Sales Rise Slightly in April". The report showed a 3.3% increase compared to March, but also showed that April's pace was 42% lower than April 2007, that new home inventories decreased slightly to a 10.6 month supply and the median sales price increased 9.1%.
While these reports seem to be all over the board, the biggest difference is certainly in how the change in selling price is calculated and reported. And the two federal home price index's are very far apart with OFHEO reporting a 3.1% drop in the first quarter and Case-Shiller showing a 14.1% decline. No wonder we get confused. A closer look indicates that the OFHEO index is much broader geographically than Case-Schiller. OFHEO uses data from 292 Metropolitan Statistical Areas while Case-Schiller follows just the twenty largest U.S metro areas. The other main difference is that OFHEO tracks mortgage loans of $417,000 or less that are bought or backed by the government-sponsored mortgage finance companies Fannie Mae and Freddie Mac. They exclude subprime and other exotic mortgages which are behind the current housing woes in states such as California, Florida and Nevada, where rapidly falling home prices are skewing the national results.
Obviously the national market conditions have an influence on our local market but it is important to take these headlines with a grain of salt. A few years ago when the headlines were trumpeting "Home Price Appreciation Continues at Robust Pace" (OFHEO March 2006) or "House Price Increase Shows Dramatic Increase" (OFHEO March 2004), we were muddling along with 2% and 3% annual price increases. The same holds true today, just in the reverse. While many areas are reporting double digit home price decreases, we continue our straight, flat line.
Look for our column in tomorrows Sunday Real Estate section for a review of the last five years of our local market compared to the OFHEO numbers for other selected markets.
Pam & Dave Pettigrew, Real Estate Brokers and Certified Residential Specialists are available to answer your questions on real estate. Write to them at Prudential Rocky Mountain, REALTORS, 2700 S. College, Fort Collins, 80525, call them directly at (970) 282-9305 or email FCRealtor@msn.com. For an archive of past columns and market information visit their award winning web site at www.FortCollinsRelocation.com
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