The number of unsold homes in the Denver area dropped in July for the seventh consecutive month, an indication that the real estate market could start to recover from its six-year slump.

The 5.4 percent drop in July from July 2006 is the biggest percentage decline so far this year, according to reports released Tuesday.

But the average price of a single-family home in July was $316,024, down 6 percent from the $334,833 average price in June and down 4 percent from $328,721 in July 2006.

The median price dropped 3.1 percent to $255,000 in July from June and was down 1.8 percent from July 2006, when the median price was $259,500.

"The two most significant things in the report this month are the drop in the unsold inventory and the drop in single-family home prices," said Brian Bartlett of RE/MAX Southeast.

When the unsold supply of homes goes down, prices usually go up if the demand is the same, but that didn't happen last month because of the record number of foreclosures on the market, dragging down overall prices.

Also, sales of million-dollar homes dropped by 2.7 percent in July from July 2006, only the second time this year that high-end homes dropped, according to the reports by independent broker Gary Bauer and Coldwell Banker Residential.

There were 30,272 unsold homes on the market in July, compared with 31,989 in July 2006, according to reports based on Metrolist data. Metrolist is a data base system owned by area Realtor groups.

There were 5,951 homes under contract in July, 7.5 percent more than the 5,538 in July 2006, a sign that demand is strengthening.

There were 4,980 homes sold and closed in July, a 2.7 percent increase from the 4,850 closed a year earlier.

Because closings represent home sales that occurred earlier, they are not considered as good an indicator of activity as homes under contract.

So far, the percentage drop in the unsold inventory from the same month a year earlier has increased every month. It started in January with a 0.2 percent drop from January 2006.

The 5.4 percent drop in July surprised Chris Mygatt, president of Coldwell Banker Residential in Colorado, "because this is a busy time of the year," when people historically list their homes.

"But this is a very good sign," Mygatt said. "From the health of the market perspective you need to have a balance between the properties available and the number of buyers, and last year we had too many properties."

Mygatt said people aren't putting their homes on the market unless absolutely necessary.

"It's a very wise decision to not sell your home until the market improves," he said.

"It's like there are two markets in the Denver area. The foreclosures, which don't accurately tell the story of the entire market but have a significant impact on the lower end of the market and overall prices."

Also, the record number of foreclosures keeps some people from selling, Mygatt said.

"If the house next to you is in foreclosure, you don't want to put yours on the market to artificially compete with it," Mygatt said.

However, the number of foreclosures flooding the market - almost 300 of them sold at auctions in Denver over the weekend, for example - also has kept the lid on prices.

"It's still sort of a sluggish market," Bauer said. "It's still clipping along, with no big positive, no big negatives."

Jeff Bernard, a Realtor and infill developer, said pockets of strength exist in the metro area. For example, condo prices in northwest Denver in July jumped by 49 percent to an average price of $312,538, compared with $209,706 in July 2006.

"The real story is street by street, not the aggregate numbers," Bernard said.

Bauer said the meltdown of the subprime mortgage market also is affecting the market.

Bartlett of RE/MAX Southeast said that while the drop in unsold homes is a good sign, there are still so many choices that buyers have no urgency.

"They know they have 30,000 homes to choose from," Bartlett said. "It's not like when we had 9,000 homes for sale in 1999."

The soft market could persist for another two years because of the large number of adjustable-rate mortgages that are adjusting upward, he said.

"There's a trillion dollars in ARMs that will be adjusting each year on funny money loans made a couple of years ago," he said.

rebchookj@RockyMountainNews.com or 303-954-5207

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