Foreclosures follow Front Range trends |

Foreclosures follow Front Range trends

summit daily news
Summit County, CO Colorado

SUMMIT COUNTY ” In Summit County, as everyone knows, property is hard to come by and housing prices go in only one direction ” up (and up, and up).

As uniquely desirable as it is as a location, though, eventually national trends can affect the High Country, and recent home foreclosure statistics released by the Colorado Division of Housing suggest Summit County is starting to feel the effects of the countrywide credit crunch.

In the first three months of 2008, the county reported 46 total foreclosures filed, compared to 16 during the same period in 2007. Last year’s total filings ” 143 ” had been the most since 1989.

In actual numbers, Summit County is following the statewide historical trend, said Division of Housing spokesman Ryan McMaken.

“We’d peaked (in Colorado) in 1988,” he said. “And, until recently, that was considered a very, very high foreclosure rate.”

Local officials were careful to point out that large numbers of timeshare properties going into foreclosure within the past year have had an impact on Summit County’s statistics.

“Last year, more than half were probably timeshares,” deputy public trustee Karen Holden said.

Even with delinquent seasonal owners skewing the numbers, however, foreclosures are increasing, although by miniscule amounts compared with the Front Range.

According to Holden, by the end of May 2007, 31 non-timeshare properties had entered the foreclosure process. Year-to-date in 2008, she estimated there have been around 46 non-timeshare filings: an increase of nearly 50 percent.

Several factors not present in the 1980s have led to the current spate of foreclosures, McMaken observed.

“Back then, it was a matter of a stagnant economy,” he said. “It was economically driven. It’s very different now.” This time around, the mercurial rise in real estate values and the availability of “easy money” from mortgage companies both contributed to an environment in which it was easy for homebuyers to get in over their heads.

Breckenridge’s Kevin Berkley, owner of Mountain Resort Mortgage, agreed.

“When housing prices were going up, lenders were not following prudent underwriting standards,” he said. In the pre-2007 heyday of sub-prime loans, it wasn’t unusual for homebuyers to get 100 per cent financing without any income documentation. Since real estate values kept rising, lenders figured the property itself was all they needed for collateral. When prices dropped, borrowers sometimes found themselves unable to sell their property for what they owed on it.

While widespread use of sub-prime loans affects foreclosure rates everywhere because less qualified borrowers take on homeownership, Summit County and other similar rural resort areas have been relatively insulated from the brunt of the problem, McMaken pointed out.

“In the mountains, you’re much more likely to have property that’s worth what you paid for it,” he said. “You can always sell it if you can’t make a payment.” The relative strength of the local market may be at least partly related to the limited number of housing units available in an area like Summit County, he added.

“There’s not nearly the amount of development (in the High Country),” he said. “What we see in the Front Range is lots of housing and little demand for it.”

McMaken attributed Summit’s greater percentage increase in foreclosures compared to other ski resort counties, such as Eagle and Pitkin, to its geographic proximity to harder hit areas of the state.

“In Summit County, a lot of second homes and timeshares are owned by people of more ordinary means who live in the Denver area,” he said.

Other areas on the Western Slope, such as Garfield and Mesa counties, are suffering less than the Front Range because the oil and gas boom are attracting many new residents, he added.

The real impact of the credit crunch in Summit County may turn out to be a trickle down effect from other parts of the country, Berkley suggested.

“I think (loan) underwriters are looking at things more critically than they need to right now,” he said.

Breckenridge Realtor Turk Montepare echoed Berkley’s assessment.

“It’s a kneejerk pendulum reaction,” he said. “It’s a counterproductive attitude, but it’s not abnormal.”

Although Montepare has seen qualified buyers stymied by some of the new mortgage practices, he believes the decrease in “easy money” will eventually correct the market. In local real estate for nearly two decades, Montepare said the phenomenon of extremely liberal loans usually precedes a period of economic slow down.

“We don’t like to see 100 per cent loans on vacation homes,” he said.

According to Montepare, more stringent loan practices have affected potential buyers across the financial spectrum, but Berkley believes first-time homeowners have felt the greatest impact in the local market.

“We used to have 100 per cent financing,” he said. “Now they have to put 3 per cent down and still have two months reserve.”

The latest county real estate transaction statistics ” compiled by Land Title Guarantee Company ” suggest that higher priced properties indeed make up a larger percentage of all sales. For the first four months of 2008, sales of homes costing less than $400,000 fell by almost a third from the same period in 2007: from 312 to 215 units. Total dollar volume of all transactions, however, fell by less than 14 per cent, indicating a relative drop-off in sales of lower-priced properties.

Although he thinks the credit crunch will affect the number of overall sales, Berkley cautioned that projections of future trends are difficult this early in the year.

“It’s always slow in May,” he said. “I think it’ll be July ” once the season starts ” before we see how it goes.”

Montepare remains optimistic about Summit County’s ability to weather the current storm, in contrast to the foreclosure crisis in the 1980s.

“We really weren’t an international resort then,” he said. “It was a boom town mentality ” with a lot of speculative buying. What we’ve got here now isn’t going away. We’ve become an established resort and people are here for the long term.”

McMaken is similarly optimistic about the state as a whole. Despite his office’s projection of a continued moderate rise in the number of foreclosures during the existing economic climate, he compared Colorado’s statistics favorably to what he’s observed from other states.

“Colorado’s real estate has been maintaining its value fairly well,” he said. “We don’t see that widespread of a problem.”

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