Asking Prices vs. Selling Prices: A Dramatic Difference in Denver Housing Market

In the Denver housing market, the slowly widening gap between home sellers’ asking prices and what homes actually sell for, coupled with an overall decline in home prices, means some sellers aren’t getting the return they want - or need - to get out of debt.
The fallout from those trends could have a significant effect on the economy, perhaps further depressing the market for Colorado mortgage lending and spurring more foreclosures. That, in turn, can translate to fewer homes built, loss of jobs, less consumer spending and other drags on the economy.

But local real estate and financial experts think metro Denver will avoid most of these pitfalls. While hot housing markets in other parts of the country have gone cold, the housing market grew more slowly here.

The result? Denver’s housing market has only “cooled.” It isn’t cold - yet.

“In markets like Las Vegas, Phoenix, Boston and Florida cities, which were growing so rapidly, you had the elements of a bubble,” said Mike Rinner, operations vice president at The Genesis Group, an Englewood-based residential real estate research firm. “A bubble implies something that will pop. What we’ve had in Denver is a balloon that just slowly leaks out air. That’s why our prices are holding fairly stable.”

The median sales price for a single-family house in metro Denver dipped 2.5 percent in the first quarter - to $238,000 from $244,000 for the same period last year - according to residential real estate research firm Metrolist Inc. of Greenwood Village. Median condo prices dropped 3.2 percent.

However, real estate professionals look forward to these Colorado home prices improving the rest of the year, as the median price of a single-family home increased to $240,000 in March from $235,000 in February. The median condo price rose to $153,000 from $144,950 month to month.

A positive side of lower Denver-area home prices is that they’re attracting people from cities whose once-hot housing markets have gone cold, such as Las Vegas and the Phoenix housing market. Metro-area home prices are affordable compared to prices in those other markets.

Many of Littleton-based Morrison Homes Colorado Inc.’s customers came here from outside the metro area, including from some formerly hot markets, according to the builder. “People moving to Colorado are saving us,” said Kathy Curtis, Morrison’s vice president of sales and marketing.

Denver-area home sellers got 90.4 percent of their original asking prices in the first quarter, according Metrolist. That’s down from 92.2 percent in 2006 when home mortgage seekers lacked levergae in negotiations.

During the same period, Cleveland’s median asking home price was a relatively low $149,000 and Santa Cruz, Calif.’s, was high at $748,000. California markets such as Los Angeles, San Diego, San Francisco, San Jose and Orange County as well as Honolulu had median asking prices of more than $500,000.

“We’re pretty consistent here, when it comes to the difference between asking and selling price, for a couple of reasons,” said Ed Tomlinson, a mortgage broker at the Re/Max Alliance office in Arvada. “We haven’t had a catastrophic event, for one, like in the 1980s when we were affected by the energy business pulling out and going to Houston. We have a much more balanced labor market now.”

Home sellers and their real estate agents usually arrive at an asking price based on comparable sales of neighboring houses on the market.

“Finding a price is an artistic science, or a scientific art,” said Jerry Golden, a broker associate at Re/Max Alliance in Golden. “You come up with a range of what a house is worth, say $340,000 to $355,000. If you want to sell fast, you go with a lower number.”

Denver homes priced at a relatively affordable $250,000 and less sold for 84.8 percent of asking price in the first quarter. That’s a 15 percent difference in asking and selling price - and the biggest gap in this market.

Some of those sellers are the ones who need to sell the most, having barely qualified for their mortgages, including subprime loans, according to real estate experts.

“That’s what’s happening in the lower-affluent situation,” Rinner said. “People were marginally able to buy their homes, so they have no margin of error.”

The Denver-area’s foreclosure rate in the first quarter jumped nearly 30 percent over the same period last year. The Colorado housing market has one of the highest foreclosure rates in the country.

The metro area’s most expensive houses - those priced at $1 million and more - had the smallest gap between asking and selling price, roughly 6 percent. Those homes sold for 93.7 percent of the original asking price.

Nationwide, median selling price compared to asking price was 99 percent for that period, because other regions had lower distributions.

“Those numbers are above normal,” NAR spokesman Walter Molony said of the 2005-06 data. “In a normal market, sellers get 97 percent of median selling price.”

At the other end of the spectrum, relatively affluent people selling the metro area’s more expensive homes typically can afford to cut asking prices without getting financially strapped, experts said. These sellers are less likely than more needy sellers to take what they consider too low an offer because they don’t have to.

“They have more equity in their homes, so they can cut the prices of their McMansions and still go buy a condo or another home in Tucson,” Rinner said.

There also are the sellers who put their homes up for sale at a relatively high price to see if a home purchae loan borrower will bite.

“Some people put their homes on the market just to see what will happen,” said economist Patty Silverstein, president of Littleton-based Development Research Partners Inc.