Real estate healthiest since 2007

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News that home sales fell year-over-year in March did little to scrub the optimism from the voices of local real estate agents or the El Paso County Public Trustee this week.

Trustee Thomas Mowle released his monthly report Monday and announced that his office processed 4,065 deed releases in March, more than any month since stimulus money drove home purchases between April and August of 2009. And it’s the first time since October of 2007 that market forces alone pushed the count higher than 4,000, Mowle said.

A release of a Deed of Trust is triggered by one of three events: completion of scheduled payments on a loan, refinancing or a private-party sale of property.

In a “normal” market the trustee’s office typically processes 4,000 deed releases, Mowle said. It has handled just 1,500 to 3,200 releases in the previous three Marches.

“It snuck up on me,” Mowle said. “When we got the numbers, I had to double check. I didn’t think we’d get quite that high.”

Mowle contends that the number of deed releases in a month is the most accurate indicator of real estate market health.

“An increase in the number of releases is going to be directly related to the number of private party sales,” Mowle said.

It won’t include the sales of foreclosed properties, but it will include for-sale-by-owner homes not tracked on the multiple listing service.

“This means people have been able to sell their houses and use the proceeds to pay off their mortgages,” Mowle said. “Markets are so psychological that a sense that prices are starting to go up causes people to think this is the market turning and they get interested in buying.”

Connecting the numbers

Area brokers say feel optimistic. But the numbers don’t all add up.

“Believe it or not, sales for March were down 6.8 percent over last year,” said Joe Clement, broker and owner of Re/Max Properties Colorado Springs.

The Pikes Peak Association of Realtors released data this week that counted the sale of single-family homes at 723 in March of this year, down from 776 in 2011.

Clement was surprised when he saw the figures because his team has been busy and it seemed like the numbers would be higher. He said that last March was also busy.

Overall, sales for the first quarter were up about 2 percent this year, he said.

Benjamin Day, a broker with Pikes Peak Urban Living at the Selley Group Real Estate, is a numbers guy and he was surprised by the association’s numbers.

“I personally have had the busiest two months I’ve ever had in the 12 years I’ve been doing this,” Day said. “I’m busier than I was in 2009 with the stimulus and I’m busier than I was in 2004 and 2005. “

He said it’s hard to account for the different indications from the MLS numbers and the trustee’s figures. One explanation could be that he’s seen many more homes for-sale-by-owner in the last year.

Of course, it’s more likely that a surge in refinancing activity can account for many of the deed releases, Day said.

It makes sense that there would be a spike in refinancing activity in March as people are dealing with credit card bills from the holidays and the mortgage rates popped up above 4 percent for a few weeks in February.

Roy Clennan, president of Freedom Financial Services said his office has seen an increase in volume across the board.

“I think it’s both,” he said, “Sales and we have had extra refinancing business the last four months because interest rates have been so low.”

Mike Betzer at CB Title said he’s seen a lot of refinancing activity and that about 70 percent of his business in March resulted from refinancing applications.

Even if the deed release numbers are due more to refinancing activity than actual sales, Day said it’s still a good sign for the overall market health.

“If refinances are pushing through, that indicates a lower rate of sensitivity to appraisal values,” he said.

Appreciation

While MLS data show a year-over-year drop in sales, it also shows an increase in sales price. The average home price climbed from $211,000 in March of 2011 to $217,000 this March. That’s almost a 3 percent appreciation, Clement said.

The median home price also jumped from $180,000 to $189,000, almost a 5 percent jump.

The home prices are moving up, Clement said, because of simple supply-and-demand economics. The inventory of homes on the market fell from 4,470 last March to 3,269 this March, almost a 27 percent decrease.

That means there is about a four-and-a-half month of supply at the current rate of absorption, Clement said.

“That’s way down,” he said.

In a healthy market, a four-month supply is typical. The inventory numbers have been high with more than 5,500 homes on the market in September of 2010, Clement said. They have steadily fallen since.

“This is exactly what we need to happen to get this real estate market straightened out,” he said.

Fewer homes on the market and a sentiment that values are heading back up will stir buyers to action.

A different kind of buyer

But it will take a long time before the market returns to where it was before the collapse if it ever does, Day said.

Market appreciation will only happen if buyers let it, he said. They have to be willing to pay more for a house than the person they’re buying it from paid, which has not been common in the last two years.

“I’m seeing a unique set of buyers who are looking at staying put 10 to 15 years,” he said.

His clients who are interested in buying now are not interested in being mobile. And that eliminates a large chunk of the population that would buy a home in a strong market where there is enough appreciation that they could move in four years without losing money.

“The market doesn’t work for everyone,” Day said.

A large percentage of his clients are moving up into higher-end homes in the $500,000 range. Those homes are still slipping in price now, but buyers who plan to stay put can take that risk.

“The buyers who are really squeezed right now are the ones who are looking at property under $200,000,” Day said. “That’s a sellers’ market.”

Before the market opens up, buyers will need to see a couple years of appreciation, Day said. Unemployment will also have to edge downward.

However, the trend is still positive.

“I think we’ll see appreciation this year,” he said.