Colorado Housing Market Softening Sparks Concern
The softening of Colorado home prices and the buildup of unsold homes is already creating headaches for owners trying to sell.
But there could be far more worrisome implications for all of us if this current housing trend affects the overall economy.
The Colorado housing market has cooled considerably this past year, raising anxieties among homeowners and economists alike, the Denver Post reports.
Indeed, the metropolitan Denver area is stumbling through one of the weakest home-resale markets seen since the early 1990s.
Median homes prices were down in August, and in areas where homes continue to appreciate, they are doing so at a slower pace.
The median price of single-family homes sold in August was $252,900, down from $259,500 in July and from $255,000 a year prior.
Nationally, the pace of home sales fell for a fifth straight month in August, with prices dropping from year-earlier levels for the first time since 1995. New single-family home sales were down 21.6 percent in July compared with a year before, according to the U.S. Commerce Department.
Homeowners trying to sell their homes may well be facing a stern market. Patience, a fresh coat of paint and a little luck are often needed.
The numbers hold significance for the rest of us as well. The housing boom not only created lots of jobs, but the rising values of millions of homes also boosted consumer confidence and stimulated spending. Unfortunately, a stagnant market can yield just the opposite results.
Sparked by historically cheap mortgages, the boom created about 1.2 million jobs throughout the industry from 2003-2006, according to one estimate. But employers have stopped hiring, and since this spring, some 25,000 jobs have been cut.
A decline in the housing market likely will cause consumers to rein in spending, and consumer spending accounts for about 70 percent of economic activity. That could trigger a recession.
The chairman of the president’s Council of Economic Advisers said this past week that housing will be a “significant drag” on growth this quarter.
“A soft spot in the economy is the housing market. It appears that the housing slowdown will be a significant drag on third-quarter growth,” Edward Lazear told the Senate Budget Committee.
Robust home sales helped pull Colorado, California and much of the nation through the 2001 recession. As prices rose, home owners borrowed against the value for spending money, in the form of home equity loans. It kept the economy chugging — but for many families, the bills are coming due.
For many homeowners, the inflated value of their homes provided a false sense of security. In fact, U.S. consumers have outspent their take-home pay each month since April 2005. That’s the same year Americans’ personal savings rate actually fell below zero.
And as home loan rates go up, people with huge debts no longer get double-digit investment returns and lose confidence in the economy.
It also becomes harder for some folks to afford homes they are in now. Colorado was a national leader in the number of risky mortgages, such as interest-only loans, so it stands to reason that today the state also has the nation’s highest foreclosure rate.
“People have maintained their spending by borrowing,” regional economist Tucker Hart Adams recently told The Post. “That debt doesn’t go away.”
That’s not a unanimous view. Some economists expect an expansion of the housing market, albeit a slow one.
For homeowners looking to sell, you may not be able to move your home for what you thought it was worth. For those looking to stay put, make sure you have a competitive interest rate on your fixed-rate mortgage and hope for a soft, soft landing.