With all the horror stories about souring mortgages and plummeting home prices, it's easy to conclude that the housing crisis has hit each American neighborhood with equal force. But that's not at all the case, says Ryan Tomazin, the director and chief financial officer of Integrated Asset Services, which tracks real estate prices for banks, investors, and others. Using the company's proprietary data, Tomazin explores the striking divergence of home prices within the state of Colorado and argues that the alarm over falling home values at the national level has overshadowed local pockets of surprising strength. He spoke with U.S. News. Excerpts:
What are you seeing in the real estate market that most people aren't aware of?
Historically, the number of defaults and delinquencies is less than 1 percent of most banks' and servicers' loan portfolios. I just saw the numbers out yesterday, and I think it's nearly 8 percent of all mortgages out to date are in default, and more than 5 percent are in some phase of foreclosure. That clearly tells you that there are a lot of people not making payments and are in trouble. But home values are not exactly following that trend globally. We've got some very, very hard hit and depleted areas that are dragging down the national average.
How is that trend playing out in Colorado, where home prices have dropped some 4.7 percent over the past year?
In the context of Colorado, we've got a state that is definitely down; we've got record foreclosure rates in every county. But there are still people selling homes; there are still very strong areas within the city and within the state. And within those submarkets, it really is determined upon where you are in a neighborhood or even a part of the city. It's not that if you live in the state of Colorado, you should expect that your home value is down.
Let's look at a specific area. What's happening in Denver, where prices overall have dropped more than 5 percent in the past year?
As a whole, it's down. We're seeing historic all-time highs for foreclosures, all those types of things that are currently the storylines. But within the city, there are areas that are very hard hit in Denver, and yet there are areas that have been relatively unaffected or even appreciating.
The map reflects the price change for detached, single-family homes over the past year, according to Integrated Asset Services. Why are the property values of some neighborhoods [those in green or blue] rising?
In Denver specifically, what we're seeing is there are some neighborhoods that are very valuable—old historic neighborhoods. Their values have historically held up just because there is a limited supply. They are located very centrally, and they are in fairly affluent areas.
What about the neighborhoods in red?
Denver had some of the most unregulated lending practices in the country. And many of the borrowers in these areas are not able to meet the new payments of the adjustable-rate mortgages.
What do you expect home values in the green areas to do in the future?
I would expect that the green continues on a positive track, although a lesser positive track. The biggest thing is going to be the recession conversation that's really affecting that group, because they are very market susceptible.
How about the red areas?
The red are going to see a flattening. I think they've seen their depreciations for the most part. If anything, I think there will be an improvement with rates over the next 12 to 24 months, which reintroduces the affordability. The tentative terms of the [housing bill] that is being discussed currently involve things like incentives for foreclosure purchases, and I think that really helps to flatten any sort of depreciation and may in some areas actually turn some of them back into a small positive over the next six to 12 to 18 months.
So you think home prices in Denver are bottoming?
It is in the bottoming stages. A lot of that does have to do with what the mortgage industry is trying to do to get people back to the table to purchase homes. That being said, there is some inventory to work off here. But as we work off some of this inventory, buyers are coming back to the market.