Take these ingredients – falling home prices and rising rates of foreclosure – and add creeping unemployment, and you’ll have a recipe for Durango’s real estate market.

“We’re still not in good shape,” Fort Lewis College economist Robert Sonora said.

Sonora believes area home prices aren’t returning to prerecession levels any time soon. He said that before the crash, too many people owned homes they couldn’t afford. And many still treat houses like investments, not living spaces. They “overinvest” in real estate and have reduced holdings of other assets in their nest eggs.

Recent indicators point to a market that is recovering slowly.

In the third quarter of 2010, the most recent period for which figures are available, median home prices in Durango fell 20 percent over 12 months, from $409,000 to $325,000. Average county home prices have fallen from $442,000 in third quarter 2008 to $387,375 this year, or about 12 percent.

Meanwhile, foreclosure filings are poised to surpass 300 this year – a number five to six times higher than the average before the crash.

While Sonora doesn’t see a rebound on the horizon, professionals in the local industry are cautiously optimistic.

“It’s still a buyer’s market,” said Heather Erb, president of the Durango Area Association of Realtors. “I feel like the in-town market for single-family homes stabilized this year, and we are slowly absorbing the inventory.”

Elizabeth Salkind with the Home Builders Association of Southwest Colorado said that while construction activity has been slow the last two years, she’s hearing from architects and builders that interest is picking up and that several stalled projects are resuming.

“We’re certainly seeing a better picture,” Salkind said. “There’s some optimism that activity will increase next year.”

She said some certainty has returned to home financing, and feeder markets such as Phoenix have come closer to stabilizing.

The average sale price of a single-family home in Durango in 1995 was $170,540. The number rose by 178 percent – an average of 8.8 percent each year – until the market crashed in December 2007.

The sharpest increases locally were between 2002 and 2006, when the average home price was climbing about 14 percent annually. Average prices peaked in the fourth quarter of 2006, at $474,240.

Sinking home prices since then have coincided with a rise in foreclosures and unemployment.

The number of foreclosures filed so far this year – 297 – is equal to last year’s total. La Plata County Treasurer Ed Murray cautioned that 171 of this year’s filings have been either withdrawn or otherwise resolved.

Unemployment in La Plata County – while not as bad as the state as a whole – continues to inch up, making it hard for residents to take advantage of the good deals and low interest rates.

According to the Bureau of Labor Statistics, the jobless rate through October was 6.1 percent, compared with 5.9 percent in February 2009. Sonora thinks the local rate soon could overtake the state’s.

DAAR president Erb acknowledges recent years have been hard for the industry. DAAR membership has fallen in the last two years, from 347 licensed Realtors at the end of 2008 to 271 last week.

In La Plata County, total assessed value of all new construction is down from last year, but the value of residential construction is up slightly.

The 541 building permits processed through the end of November are assessed at $35 million, off from the $41 million for 578 building permits during the same period last year.

Eighty-three of the permits are for new single-family residential units, valued at $22 million. Last year, 72 permits were approved, for a total value of $20 million.

Butch Knowlton, director of the La Plata County Building Department, said less of the building activity this year has involved large-scale subdivisions.

“We’re not seeing that concentrated development this year. It’s all over the county,” Knowlton said.

It may be a buyer’s market, but potential homebuyer Louise Edwards said she will wait until she’s in love.

In the market for a much smaller house than the 3,000-square-foot Victorian she has on East Third Avenue, the retired naturopath can afford to be choosy.

She wants a much smaller home, with unique qualities and good “energy.” She likes an active neighborhood and rarely uses a car.

One day earlier this month, Edwards was viewing downtown homes with Joe Bob McGuire, a 20-year Realtor with the Wells Group.

She walked through a one-bedroom, one-bath across the alley from Park Elementary School and liked the noise from the children and the sauna.

But she raised more questions than McGuire had answers for.

“I’m not going to buy anything unless I absolutely love it,” Edwards said. “I’m not an investor; I’m buying a home.”

gandrews@durangoherald.com