April 8, 2009
KEYSTONE ” Local real-estate agents and builders looking for hopeful signs in a moribund economy heard Wednesday that Colorado is well-positioned to lead a recovery in the housing market when consumer confidence returns.
“Colorado is one of the key growing markets. The long-term outlook is extremely bright,” said Dr. Lawrence Yun, chief economist for the National Association of Realtors.
Yun, speaking to a full house at a joint membership meeting of the Summit Association of Realtors, local chambers and the Summit County Builders Association, said projected population growth in Colorado will fuel a demand for homes.
Based on several factors like a strong housing rebound in California and incentives from the economic stimulus package, Yun said the market is bottoming out. Sales volume could climb 10 to 20 percent in the second half of this year, he said.
But the housing market overall still faces some tremendous challenges, including unemployment that’s expected to climb into double digits and very low levels of consumer confidence.
Yun compared the current recession to the last sustained downtum in the early 1980s and said it’s worse this time around because home values are falling, with declines of 30 to 40 percent in some parts of the country. That has led to a $3 trillion drop in real-estate value from the peak of the market.
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In some previous recessions, home values continued to grow, helping consumer confidence and buffering the impact to the real-estate market.
But not now.
“It feels worse this time because people’s lifetime savings have evaporated, and home values are actually falling. Growth is weak because consumers have given up. … Spending is contracting at a really fast rate,” Yun said.
Weaknesses in the housing market have a ripple effect across the broader economy, said local real-estate broker Bonnie Smith-Allen.
“This is a business community issue, not just a real-estate issue,” Smith-Allen said as she introduced Yun Wednesday morning.
Yun said there is growing consensus among political and economic decision makers that spurring the housing sector could be one of the keys to overall economic recovery.
Despite high unemployment, there are still people with the financial capacity to buy. The question is how to get them back into the market. Many people are playing a waiting game, hoping for prices and interest rates to drop even more. That can become a self-fulfilling prophecy, with unintended and negative impacts to the rest of the economy, Yun said.
To counter that, the National Realtor group is pushing for specific policy measures, including interest rate buy-downs, low fixed mortgage rates, low subsidized rates for refinancing and permanently higher loan limits of up to 125 percent of median home prices, Yun said.
Summit County’s real-estate market depends in large part on second-home sales, a sector that has been hit especially hard by the credit crunch. The supply of jumbo loans needed to finance second homes dried up as the bubble burst.
A general improvement in the credit climate would help, and the government could also step in by having the federal reserve buy jumbo loans, Yun suggested.
“I feel pretty good about what’s going on around here,” said Frisco-based real-estate agent Butch Elich. Some sellers are approaching the market with a postive attitude, realizing that they may not get quite as much as they would have a year ago, but that they are still getting a good return on their initial investment.
Elich said raising consumer confidence is critical. The psychological aspect of the real-estate market can’t be overlooked, he said, calling on the real-estate community to work together to highlight the positive side of the real-estate market.
“We have a lot of buyers, but we’re working in a challenging lending environment,” said Smith-Allen. “The rules have changed,” she said, referring to conditions imposed on buyers, sometimes at the last minute.
For the long-term, the second-home market in areas like Summit County could be in good shape, helped by a wave of baby-boomer retirement and a generational transfer of weath, Yun said.
It’s more difficult to find good news on the home-building front, at least for the short-term, Yun said. For now, a glut of housing inventory will likely suppress recovery for the next year at least.
Builders need to take a long-term view, realizing that continued population growth in the country will at some point fuel demand for new homes.
But for now, local builders like Dave Koons are retrenching. Koons said he expects very little in the way of new home starts in Summit County this year. Some builders have already moved away for lack of business.
Koons is refocusing part of his business to retrofit existing homes with energy-efficient upgrades. Federal funds for those activities should spur consumers to consider those upgrades, he said.
“It’s not real good and I don’t think we’ve seen the bottom yet. I don’t think we will until we see a loosening of the credit market,” Koons said. “There’s just no financing for spec homes,” he said, referring to the practice of building homes on credit with the expectation that they’ll quickly sell.
Breckenridge community development director Peter Grossheusch said it’s still too early to tell what the summer will bring. For the past few months, the number of applications has dropped compared to last year, but it’s still early in the season, he said.
“We’re down, but we’re starting to see some activity,” he said.
“People are talking about remodels, but I’ve heard very little about starts,” said local builder Mark Sabatini.
But for now, it looks like Summit County might avoid some of the worst impacts seen in Pitkin County. The Aspen Times reported that there is a “potential sea of unbuilt or half-built buildings” at Snowmass Village, where developers suspended work, citing an inability to secure financing. Construction on the partially built Little Nell Residences Snowmass stopped last week for the same reason, according to The Aspen Times.
Summit’s big base-area projects at Breckenridge are on track, according to Vail Resorts spokeswomen Kelly Ladyga.
“One Ski Hill Place is on schedule to be completed in 2010,” she said, adding that other big Vail Resorts projects in Eagle County are proceeding as scheduled.
But further out on the horizon, a planned hotel at the base of the new Keystone gondola is on temporary hold.
“We’re waiting to see what happens,” Ladyga said.
Bob Berwyn can be reached
at (970) 331-5996, or