Two days after putting their Fort Collins home on the market, Jordan and Sarah Lewis got an offer that was $7,000 over their asking price. It came on a Friday, two days after Gov. Jared Polis issued a statewide stay-at-home order because of the new coronavirus.
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The Lewises didn’t wait for the weekend even though at least a half-dozen potential buyers were scheduled to check out their home. They took the offer. And exactly one week later, after a furiously fast house hunt, they put an offer on a home in Littleton so they could be closer to Jordan’s new job.
“Yeah, it’s a very weird time to have to go through this,” said Sarah Lewis. “… If we had the choice, I don’t think we would choose to be selling our house and buying right now, but we just need to because of Jordan’s job, so we’re making it work.”
Strange things are happening in the real estate market during the outbreak of COVID-19, the disease caused by the coronavirus. Amid company shutdowns and growing unemployment, Colorado’s real estate market continues to buy and sell, and adapt. Realtors, after all, are among the “critical businesses” allowed to operate as normal, though at a safe social distance, of course.
Business has slowed, yes. And activities changed — no open houses, fewer home visits, lots of sanitizing of door knobs and surfaces, many pairs of latex gloves, no hand shaking. Some sellers have pulled their homes to wait it out. There’s concern that the domino effect of high unemployment will hurt housing in the months to come.
But right now, the numbers ended March pretty strong and, the industry says, this is nothing like the Great Recession.
“The last recession in 2008 almost shut us down,” said Ann Hayes, a real estate agent for Keller Williams Colorado West Realty in Grand Junction. “It’s very different (now). They (home sales) weren’t happening because there just wasn’t a buyer out there. With this one, it’s the impact that we don’t know — when businesses do reopen, who’s going to have a job or what kind of a job is it going to be?”
A “critical” industry adapts to COVID-19
It’s been just over a month since the first coronavirus case in Colorado was announced on March 5. More than three weeks have passed since the first Polis orders to close ski resorts, then restaurants, schools, gyms and other businesses deemed nonessential. More than 138,000 Coloradans applied for unemployment in three weeks, as of April 2.
But in many regions around the state, there is still buying, selling, closing and, until this week, home showings. On Monday, a new executive order no longer considers in-home showings by agents as critical, according to guidance from the Attorney General. However, the Colorado Realtors Association, as of late Wednesday, told members that they are still waiting for official guidance from the Governor’s Office before banning in-person showings.
On Thursday, the association updated its policy: home inspections and final walkthroughs are critical but home-showings should be avoided.
Agents are hiring 3D photographers to capture room-by-room details of a home. Chris Hardy, broker/owner of Elevations Real Estate in Fort Collins, said that 3D tours “used to be reserved for larger, higher priced homes, but with the increase in online viewers and especially now with the public health orders on nonessential travel, these kind of tours are indispensable if you want potential buyers to really see all aspects of a home without actually visiting in person.”
There are still “open houses,” but they’re held online through a video conference where the agent on the other side of the camera answers questions at set times. Kelly Moye, a Realtor at RE/MAX Alliance in Boulder and Broomfield counties, said showings were down 46% at the end of March. But she and other agents will show a home after a potential buyer has narrowed down the options online. They travel in separate cars and wipe everything down during the visit.
“Online views have skyrocketed. In-person views have totally fallen. That’s what you’d expect. But even with that, we only had 5% fewer houses go under contract” in the last week of March, she said. “So, in other words, people are still buying them.”
For the month of March, there were 9,615 new single-family homes added to the for-sale inventory, up 7.4% from March 2019. Sales increased 0.9% to 6,789 and the median sales price rose 8.1% to $424,050, according to data from the Colorado Association of Realtors. Houses sold an average of four days faster, but one data point had a drastic change in March: The number of active listings dropped 19.9% from a year ago to 12,323 homes.
Here’s the data that’s changed
As March neared its end, the Denver-Boulder metro area had 1,343 active home or condo listings in the last week. During those last seven days, 1,301 had gone under contract and 1,632 sales were completed, said Matt Leprino, broker and owner of The Ridgewood Company in Denver.
“I think a lot of people think we’ve all just frozen up and it’s done and everybody’s waiting and God willing, we’ll be able to transact again in June,” Leprino said. “In all honesty, that’s just not the case.”
But a week into April, some of those numbers are changing. As of Tuesday, active listings had dropped to 1,018 in the past seven days, with 804 of the homes or condos going under contract. Approximately 934 closed. Also, Leprino said, 295 were “withdrawn” from the market.
“My gut tells me that the vast lion’s share are people who are taking their home off the market and will reintroduce it once showings come back on,” Leprino said.
It’s difficult to predict how devastating COVID-19 could be for the housing market, at least if we were to use the same indicators from the last recession. Back then, there was an oversupply of houses for sale. Underwater homeowners went into foreclosure at staggering rates, with filings reaching a high of 46,394 in 2009, up 18% from the prior year, according to the state Department of Local Affairs. By comparison, Colorado had its lowest number of foreclosures since 2003 last year, at 5,610.
The nation’s economists aren’t making predictions either, because there’s never been a recession, depression or massive decline that started with the coronavirus’ immediate impact.
“I think the clearest thing we’ve seen so far is a slowdown in transactions,” said Jeff Tucker, an economist at real-estate data site Zillow. “A lot of buyers and sellers are stepping back and they’re going to wait and see. A pretty clear prediction from that is that the number of sales closing in the next couple of months will be lower than we originally expected for the spring.”
He also noted data coming in from China, where the coronavirus first hit in December. Transactions fell 96% and pretty much stopped for several weeks.
“They’ve been climbing back upward and seem to have returned by this point to about 50% of their typical level, which is a pretty quick recovery in terms of getting halfway back to normal in the span of maybe four to six weeks,” Tucker said. “This is suggesting that there’s a path forward.”
This doesn’t appear to be anything like the Great Recession, he said.
“That was a recession that in many ways was caused by trouble in the housing market and a lot of mortgages going bad,” Tucker said. “There were a lot of adjustable-rate mortgages and alternative and subprime mortgages. At one point there, 30-year fixed rate mortgages were less than half of mortgages issued, whereas for the last several years, mortgage lending has been very conservative … 30-year fixed rate mortgages are the vast majority of mortgages once again. The housing market is much less risky now and certainly has done nothing to cause this recession that has just begun.”
Home prices in Colorado going into the pandemic were fairly strong, housing inventory is still low and there’s a moratorium on foreclosures until about mid May, at least for federally-backed loans. Some private banks said they’re willing to work with clients who can’t pay the mortgage because of the COVID-19 fallout.
But Leprino noticed one bit of data indicating that it’s not business as usual: the “back on market” homes, or the number of houses under contract that didn’t go through, presumably because of a job loss. Of the 1,343 new listings in the last week of March, 396 are back on the market. That’s about 29%. Typically, that figure is under 5%.
“It’s never been terribly relevant. It was always just inspections (causing buyers to pull out) so there really wasn’t much interest in properties going back on the market,” said Leprino, who is now tracking the data point. “When you’re in a market with multiple offers and not enough inventory, people don’t tend to terminate contracts once they finally get one.”
Location matters; multi-offers in some areas
In the resort town of Telluride, one buyer just walked away from an $850,000 purchase, losing $42,000 in earnest money because he decided the market is too volatile right now, said George Harvey, with The Harvey Team in Telluride.
But for others, it’s a time to buy as sellers decide they need the cash. Harvey said that he has a client in New Zealand who has made unsuccessful offers on a couple of properties in the area. Another broker just called him up asking if the New Zealand buyer was still interested in a house he had bid on before. He was.
“That tells you very simply that there will be some sellers, no matter how affluent they are, that (believe) cash is king and they want to get liquid,” Harvey said. “But most people are looking at this as a short-term thing compared to the Great Recession, which lasted four or five years.”
In El Paso and Pueblo counties, the markets “remain hot” with minimal impact from the coronavirus so far, said Patrick Muldoon, with Muldoon Associates in Colorado Springs and Pueblo.
“I felt like we had seven or eight buyers for every home and now we still have three or four buyers for every home,” Muldoon said. “Even though we’ve definitely seen fallout, it has just been an opportunity for those that were having problems finding a home to get a home.”
In the El Paso County market, new single-family home listings increased 8.7% to 1,524 in March compared with a year ago, while sales increased 3.3% to 1,143, according to the Pikes Peak Association of Realtors. Inventory, however, declined 26.2% so it’s become an even tighter market.
Muldoon said that some folks are deciding to wait to sell or buy. Others are dealing with a job loss, which affected one of his listings last week in Pueblo.
“And then within four hours, somebody else who was looking who was not furloughed put an offer back in,” Muldoon said. “But I don’t know how long this keeps going. If this is two weeks, that is different than if this is six weeks, which is going to be considerably different than eight weeks. I mean you’ve got the Cheesecake Factory who just posted they will not be able to pay any of their leases … That means a landlord that’s not getting their money. A bank could not get their money. So the ripple effect depending on how long this goes on is the unknown.”
So far, the region is seeing a declining number of homes available to sell.
“We still have very low inventory for our area. That was not the case in 2008. We had a ton of inventory,” Muldoon said. “But unlike 2008, we have an instant shutdown of everything. We’ve never done that before. I mean these are uncharted territories in Colorado and across the United States where the government has literally gone from, ‘We are cranking’ to ‘You are now closed’ and we’re already starting to feel the pain.”
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Woe is the rental market
The rental market could face the brunt of coronavirus impact on housing. Many renters fall into the same income group as the bulk of the workers now on unemployment as restaurants, ski resorts, tourist attractions and other industries deemed nonessential shut down. Polis has asked landlords to be lenient on tenants through April 30 and not evict anyone because of their inability to pay rent.
Muldoon, who’s also a property manager with 300 units in El Paso County, said that 40% of rents were paid for April by the end of March. He’s worried about month two for the landlords and building owners who are paying mortgages.
“If rents don’t get paid, what happens with mortgages,” Muldoon said. “ It’s that pebble in the pond, the ripples and the repercussions will take a while before we start seeing what actually ends up happening. But right now, today, it looks like April may be OK. I’m worried about May if this continues.”
There’s also devastation to the short-term rental market. Airbnb, the platform that many people use to offer their properties for rent, let many travelers cancel plans for free due to COVID-19 impacts. That caused a ruckus among hosts who were relying on the visit, or at least to collect a fee on cancellation. Airbnb wound up offering $250 million to hosts to offset some of the loss.
But there’s no telling what some of the owners of multiple properties are doing with no travelers booking nights and multiple mortgages to cover.
The decline could benefit Denver, the mountain towns and other markets that have a low supply of entry-level or affordable housing for sale, Leprino said. If Airbnb-type homes become owner-occupied residences, that would benefit the housing market.
“I can actually see that being a really good thing especially considering people might be losing their jobs or might be underemployed,” he said. “They’re going to be cutting back. They might be selling their larger house and looking for something more modest.”
Updated on Thursday, April 9, 2020: This story was updated with the Colorado Realtors Association’s new policy on in-home showings after the organization’s discussions with state Attorney General and Governor’s Office.
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