Can you say housing bubble?
During the Lost Decade Colorado residents felt like Ann Hodges, the only person on record to be hit by a meteorite. While the rest of the nation was enjoying steep appreciation in their housing prices, Coloradans only saw modest gains.
Then their fortunes turned.
When the housing bubble burst in 2006, Colorado prices either remained stable or recorded a modest decline. Comparatively speaking, that is good news. Residents in many other states saw precipitous declines.
The downturn in prices meant that at one point, at least 25% of U.S. homeowners, or more than 11 million people, were underwater on their loans. They owed more than the value of their homes.
This problem can be attributed to the creative financing tools that allowed homeowners to treat their dwellings as “cash registers” during times of steep appreciation. They took on extra debt expecting the steep appreciation to continue. When prices plunged, the additional debt came back to haunt them.
Lower housing prices has theoretically made it possible for first-time buyers, those wanting to upgrade, or those previously shut out of the market to purchase a home. But, there is a catch. Underwater owners have difficulty refinancing their homes and those who qualify for refinancing may choose not to sell at a loss.
The combination of underwater owners and the high number of foreclosures has created chaos for the construction market.
It is not a pretty situation; however, in many cases, the lack of steep appreciation in the first part of the decade has worked to the advantage of Coloradans.
©Copyright 2011 by CBER.