If you want to be a housing Grinch, there’s plenty of doom-and-gloom clouding the Denver-area and national housing markets. But given that this is the holiday season, I asked Lane Hornung if he would deliver a “list of cheer” for the local housing market, even though by some metrics 2010 is arguably the worst housing market in recent history.Hornung, president and co-founder of 8z Real Estate and www.COhomefinder.com, came through in his role of Santa Realtor.
“Well, it is snowing outside,” Hornung quipped Friday morning. “That is something to be thankful for.”
Whether or not we have a white Christmas, Hornung said the No. 1 reason the Denver-area housing market can give thanks is that the foreclosure inventory is going down. A recent Colorado Division of Housing study showed that foreclosures were down 19 percent from a year earlier.
Foreclosures hurt everyone
“I think that is important for a couple of reasons,” Hornung said. “The biggest reason is that fewer people are losing their homes. That is not to say that we are out of the woods. There is a lot of talk about the “shadow” inventory (of unsold homes not yet on the market) out there. I’m well aware of that.” And he knows that reasons such as banks slowing the foreclosure process while they review their paperwork and other national factors, have played a part in slowing the number of houses going back to lenders. Indeed, many believe there could be a surge in the spring, and the drop is only delaying the inevitable.
“But I say take it while you can,” Hornung said. “If you remember, at the beginning of the year, there was a lot of talk about foreclosures accelerating in 2010. For whatever reasons, foreclosures decelerated instead. That means more people are staying in their homes,” or were able to convince the bank to accept less than the mortgage amount in a short sale.
And foreclosures don’t just hurt people who lose their homes, he said. “When homes end up in foreclosure, they reduce the value of surrounding homes sometimes entire neighborhoods. “If fewer homes are going into foreclosure, the value of everybody’s homes are not in as much distress. You are not being impacted as much. A drop in foreclosures is good for everybody.”
Denver’s jackpot: It’s not Vegas
The second reason is simply that this is Denver. Many other markets have been slammed with a blizzard of bad news, and they face much bumpier rides before they began to recover.
“The Front Range market is not Las Vegas, or southern Florida or Arizona,” Hornung said. The closely watched S&P/Case-Shiller report, for example, notes that the Denver housing market is off about 10 percent from its peak, while overall, the 20 metropolitan areas in its index are down almost 25 percent from their peaks.
Sure, that may not warm your heart if you need to sell your home for a loss, but ask yourself: Would you rather have bought a home in Las Vegas in 2006 or a home in Denver that year?
“Denver did not fall off the cliff,” Hornung said. “Falling off the cliff implies that prices went ‘splat’ and are not getting back up any time soon. If you want to see a market that fell off the cliff, look no farther than Vegas. Generally, our prices have been stable. We did not have the crazy volatility that some other markets experienced. Volatility creates stress. Stability creates less stress.”
And who needs more stress during the holiday season?
Another thing that all home buyers, home sellers and consumers can be grateful for is the ease and availability of “data transparency” in the market, Hornung said.
“At 8z Real Estate, data transparency is one of our core values,” Hornung said. “This is so much different than during other downturns. Buyers and sellers have unprecedented access to data. Because of that, they can make better and more informed decisions. They can make decisions based on data and research and not get caught up in headline hysteria. That can be something that people can be truly thankful for.”
Mortgage rates, which hit historic lows of just over 4 percent, and now are hovering around 5 percent, still extremely low by historic standards, truly were blessings for thousands of buyers and owners refinancing in this year.
“I call interest rates the red-headed step-child of 2010,” Hornung said. “They are the gift that nobody really appreciates. It’s the gift that keeps on giving for 30 years. There are people who got 30-year mortgages in 2010 that may never refinance. This is not fake stuff. This is your payment going from $2,500 to $1,800. It is real money.”
Another gift to the market may be the stricter underwriting guidelines since the housing crash, which in part was caused because so many millions of people were given mortgages that they could not afford. The joke used to be that if you could fog a mirror, you could get a loan. Lawrence Yun, the chief economist for the National Association of Realtors, while giving a presentation to Denver-area Realtors recently, noted that nationally, home loans written in 2009 and 2010 have lower default rates than in 2002, years before the housing crisis.
Both Hornung and Yun said that may mean the “pendulum has swung too far,” and lenders are being too conservative by only making loans to the best qualified borrowers, reducing their risk of default to as close as zero as possible.
“Still, that bodes well for the future,” Hornung said. “‘That is creating a base for the future, which should mean continuing de-acceleration of foreclosures in future years.”
8z Real Estate is a sponsor of InsideRealEstateNews. A monthly conversation with Lane Hornung is one of the features of InsideRealEstateNews.