Home sales drop $1 billion in first 10 months

Denver-area home sales in the Denver area are down $1 billion through October, compared with the first 10 months of 2008, shows an analysis of data by InsideRealEstateNews.com.

Realtors in the Denver-area through October sold and closed on $8.58 billion worth of homes, the lowest dollar volume in the first 10 months of a year in a decade. The last time, in non-inflation adjusted dollars, was the dollar volume of homes sold less than in the first 10 months of a year was in 1999, when $7.44 billion in homes were sold.

And you have to go back to 1997 to find fewer closings in the metro area than the 35,512 closings so far this year.  A dozen years ago, buyers closed on 34,231 homes through October.

For a comparison to the activity this year, in 2001 buyers snapped up $9.47 billion of homes through October, 9.3 percent higher than during the same period this year. When the difference is even larger when adjusted for inflation. In 2001, buyers paid the equivalent of $11.55 billion in 2009 dollars for homes in the metro area.

The analysis is based on figures from Metrolist, compiled by independent broker Gary Bauer.

It shows that the  $1.09 billion drop in closings in the first 10 months of this year represents an 11.3 percent downturn from the same period in 2008. Still, that is an improvement of the 21.06 percent dollar volume drop from 2007 to 2008. In most other years, the dollar volume had increased when compared to the previous year.

The first time on record that the dollar volume dropped in the first 10 months of the year, compared with the same period in the year before, was from 2005 to 2006, which saw about a 2.3 percent decline.

Bauer said the most recent numbers did not surprise him.

“From 2007 to 2008, was the full impact of foreclosures,” Bauer said. “In 2008 to 2009, it is the recession.”

Bauer said it is important to realize that a $1 billion drop has a far greater impact than that on the overall economy.

“If you go back to the trickle-down impact, I have heard that every $1 in real estate has a $4 multiplier effect,” Bauer said. “So this would have a $4 billion overall effect on the economy.”

For comparisons, MDC Holdings Inc., the largest homebuilder based in Denver and parent of Richmond American Homes, has a market cap of $1.54 billion.

“Another quick analogy is that is about one seventh the size of NBC Universal, based on the $30 billion that Comcast is willing to pay for it,” Bauer said.

But economist Patty Silverstein said that from a “strict, economic analysis,” the real estate industry does not overall have a 4-to1-multiplier impact, although she said it may have that kind of an effect on subcategories - possibly sales impact on title insurance companies, for example - that are not measured by broad economic categories.

To complicate things even more, economists break down the impact to sales, employment and earnings. In real estate and construction, the overall multiplier effect ranges from about 1 to 1 to 3.4 to 1, said Silverstein, the chief economist for the Metro Denver Economic Development Corp. and principal Littleton-based Development Research Partners.

“Still, if you take the 2.24 multiplier for jobs created in the construction industry, that is a $2.25 billion impact on the economy,” Silverstein said.

Silverstein said that the Denver-area housing market for the past two years has been hammered by two things - a drop in overall home closings and a drop in prices.

“That said, I would argue that we are starting to see some stability in prices,” Silverstein said. “And with home sales being where they are, there is little reason to construct new properties, until our current inventory starts to see some life in the market again.”

Also, the federal government’s decision to extend the $8,000 federal tax credit for first-time home buyers, as well as offering some existing homeowners a $6,500 tax credit, will help boost the Denver-area housing market in the coming months, she said.

Jeff Thredgold, corporate economist  for Vectra Bank Colorado, said that the $1 billion drop in housing sales volume is the most recent symptom of the worst economic downturn in the U.S. since the Great Depression.

“Housing has been uniformly weak across the country,” Thredgold said. The sales volume drop is “tied to the recession, tied to excess home appreciation – not in Colorado and the Denver market, but in other markets – tied to existing home sales that have been soft and new home construction that has been even softer. This is all a byproduct of the longest, deepest, most painful and most costly recession since the Great Depression.”

Still, Thredgold said Denver is better off in other markets, such as Phoenix and Las Vegas, which had seen unsustainable home apprecaiton of “60, 70 and even 80 percent. Denver housing did not experience that enormous boom, so there is no need for the kind of bust we’re seeing in Arizona, California, Nevada and Florida.”

Mark Lee Levine, head of the Burns School of Real Estate and Construction Management/Daniels College of Business at the University of Denver, said that the $1 billion drop in home sales has a “domino” effect on the entire economy.

“Which means it is not only having a direct impact on sales and brokerage commissions, and appraisals and bank loans, but it impacts people who sell carpets, and paints, appliances, all the way down the line. You cannot just look at how it effects the home industry itself. The $1 billion by itself is a lot of money, but the list of the jobs and loss of income in other areas of the economy just goes on and on.”

Levine said he doesn’t think people who do not directly feel the impact of a drop in housing sales realize that it may be impacting their economic well being.

“It’s the same things when car sales drop,” Levine said. “A lot of people do not care if the unemployment rate is 10.2 percent. But if I lose my job, than I’m 100 percent unemployed. And that is the message that really hits home.”

Related Links:

Overall October Market

Best October for under contracts

Active price bands in October

October housing inventory

Record sales rate in October

Contact John Rebchook at JRCHOOK@gmail.com or 303-945-6865.