Carbondale real estate cools |

Carbondale real estate cools

Jeremy Heiman
Carbondale correspondent
Aspen, CO Colorado
John Stroud/Carbondale Valley JournalMany new houses at Keator Grove in Carbondale are still on the market.

CARBONDALE ” Homeowners and homebuyers in the Carbondale area can expect a change in the price of houses. And it probably won’t be up, according to sources familiar with the local real estate market.

But, at least one person very familiar with the market doesn’t expect prices to fall very far.

The inventory of houses and condos for sale in Carbondale has ballooned since 2004. And, due to problems of seismic proportions in the mortgage banking industry, it’s suddenly much harder for prospective buyers to get loans. The convergence of these factors and others is likely to bring an adjustment in prices, said Lynn Kirchner, managing broker for Aspen Sotheby’s International Realty in Carbondale.

“The upside of this is it’s going to settle the market,” Kirchner said. “There’s so much on the market that’s overpriced.”

In fact, though the average price of a single-family house in Carbondale as of August was higher than at the end of 2007, the median price has already declined.

The average price of a single-family house sold in Carbondale went from $820,949 at the end of 2007 to $906,295 as of the end of August, while the median price went from $677,500 at the end of 2007 to $477,450 as of the end of August, according to figures provided by Land Title Guarantee Co.

The median is the price of the one sale in the middle of the spectrum ” between an equal number of homes sold at lower prices and at higher prices. Seeing the median below the average means more houses and condos sold for prices below the average. The only thing that’s holding up the average price may be the sale of a few very expensive houses.

Dave Townsley, mortgage broker at Liberty Home Financial, doesn’t expect prices to fall too far, though.

“We’re right smack in the middle between Aspen and all that natural gas drilling,” he said. Aspen’s continuing market for second homes and the influx of gasfield workers can be expected to prop up demand, Townsley predicted.

But the high real estate prices in the valley, and especially in Carbondale, have not been strictly dependent on supply and demand. Carbondale saw a 20 percent increase in home value over the past two years ” 6 percent in 2006 and 14 percent in 2007, Kirchner noted.

“That’s just not normal,” Kirchner said. Normal is a 2 to 4 percent annually, and high appreciation is 6 percent, she said. The soaring prices were based on speculation that prices were going to continue to increase.

Buyers were competing with each other to get houses in 2007, Kirchner said, especially during the summer months.

“Anything under a million dollars, there was a bidding war,” Kirchner said.

There was an emotional drive to buy, because prices were going up, and houses would only be more expensive the following week. This emotional demand, in turn, drove prices up, even though the supply was not restricted, creating a vicious circle, or a positive feedback loop. The higher prices got, the harder people tried to buy.

People who already owned homes saw their neighbors selling their houses for inflated prices, and wanted to get in on the action by cashing in on the appreciation of their own houses, Kirchner said. Prices were based on expectations, rather than anything else.

“That’s one problem,” Kirchner said. “Another is that last year, a buyer could overextend.”

Home loans became easier to get. Mortgage brokers wanted to get in on the buying frenzy, loaning people more than they were able to pay off, Kirchner said, and often more than their house was worth. In addition to a standard mortgage, buyers borrowed the downpayment and some even got cash back at closing, which they might have spent on recreation or consumer goods, rather than plowing it back into the house.

Townsley said some mortgage providers, a year or two ago, were issuing home loans to buyers with bad credit without verifying their income. It’s not surprising that a rash of foreclosures followed.

“A year and a half ago, you could have gotten a 100 percent loan,” Townsley said. “But there’s not much of that now.” It’s not likely a buyer will get a loan to cover a downpayment, now.

Things changed quickly in the mortgage market, when a rash of foreclosures precipitated the fall of mortgage backers Fannie Mae and Freddie Mac and Wall Street investment banks such as Bear Stearns and others.

Tightening of credit is making it harder to buy higher priced houses in the Carbondale market. Now, to buy an $800,000 house, buyers need to have 10 to 20 percent down, which is $80,000 to $160,000, plus two to three months of mortgage payments in reserve, documented, Kirchner said.

“Who’s going to be able to afford that?” she asked. “That’s a lot of money to have on hand.”

“Last June,” she continued, “a person could get into a house for as little as $5,000 or $10,000, basically for earnest money only.”

But this kind overlending, Kirchner said, is what led to the nationwide mortgage problems. Paying off exessive loans stretches a buyer so that a serious illness or a job loss in the family can result in foreclosure.

“Any time there’s a hiccup, the first thing that gets behind is your mortgage,” Kirchner said. She said as a real estate agent, she asks her customers to be realistic about the amount they borrow.

“There’s a lot of people we tell, ‘You know what, you need to go back and save some more money,'” she said.

Townsley, as a mortgage broker, also counsels buyers to temper their goals. If a couple has their hearts set on a $600,000 house, but their paperwork indicates the payments would stretch their budget, he might suggest a $500,000 house.

“We reset their expectations,” Townsley said.

Townsley said the changes are for the better. For people who are buying houses they can actually afford, it’s not hard to get a loan.

“It’s a return to good lending,” he said. “We’re putting people in loans now that are much better for them.”

Townsley said 90 to 95 percent of the applications for mortgage loans through his office are approved, but that’s because the applications aren’t even considered unless the applicant pre-qualifies by showing adequate income and savings and decent credit scores.

But the number of buyers is down, Townsley said.

“People are worried, watching this bailout business,” he said.

Kirchner said there are some real estate brokers who are more interested in closing a sale than protecting their customers, and those brokers are more likely to coax their buyers into situations where they are overextended.

“Those are the brokers who aren’t going to be around next year,” Kirchner said.

Sales are not really down, yet, in the Carbondale market, Kirchner said. Carbondale recorded the highest number of real estate sales of any town in Garfield County in 2008, through the end of August.

Carbondale hasn’t really seen the effects of the downturn in the national economy, Kirchner said, except that the inventory available real estate is the highest it’s ever been. The Multi-List Service book that real estate professionals use indicates 391 properties are currently for sale in the 81623 zip code. Of those, 44 were on the market in October, 2007 and still haven’t sold.

“We’ve got the greatest inventory in the valley we’ve ever had,” Kirchner said. “The MLS book is one and three-quarters inches thick. In 2004, it was maybe a half-inch thick.”

Townsley sees this as a cause for optimism.

“It’s probably a better time to buy a house now than a year ago,” he said. “People are willing to deal.”

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