Over the next few months, I predict we are going to see some absolutely brutal headlines about the real estate market, both nationally and locally. But will it really be as bad as it sounds? Or is there a larger picture to consider?
Let's start with the numbers we already know about. We've all seen reports about the dropoff in year-over-year activity since the tax credits expired in April. The overall number of Denver area homes under contract in August, for example, was down 22% from a year ago.
Part of this is because so much demand among first-time buyers and move-up buyers was pulled forward into the first four months of this year. That's a fact. So some buyers who may have waited until the fall were part of the spring frenzy.
But the other factor that's going to make the headlines look bad is that a year ago at this time, our market was piping hot because buyers were scrambling to beat the original November 30 tax credit deadline. Last fall was an artifically super-charged market, and this autumn we are seeing an artificially depressed market.
Compare the numbers side by side, and it's going to look bad.
But let's go a little deeper, because the reality is there are most definitely some "green shoots" in the data.
Let's start with a more in depth look at the August numbers. Last month, just about 2,800 homes went under contract in the Denver MLS. One year ago, by comparison, nearly 3,800 homes went under contract during the same 31-day period. That's a 27% drop, which is consistent with the kind of negative headlines we saw.
Drop back to 2008, however, and we see that in August about 2,800 homes went under contract - exactly the same level of activity we are seeing today. And that occurred with buyers pursuing the original 2008 $7,500 first-time buyer tax credit.
Now it doesn't sound so bad.
I'm firmly convinced that the next four months are going to create some extraordinary opportunites for buyers, because negative (but mostly superficial) headlines will hurt market pyschology. Fence sitters will stay put, and sellers will have to make additional concessions to compete. Interest rates will stay low, at least through the end of the year.
Psychology will start to change quickly at year end as the direct comparisons to the super-charged numbers from last year die out. The headlines will start to look a lot better, and at that point I expect to see a true shift in attitudes about the housing market.
Wait until then, and you're likely to see higher rates, more competition, and sellers far less eager to negotiate. This is exactly why so many investors are in the market right now, and why a lot of people are going to do well purchasing real estate in the final quarter of 2010.
