Even Within Denver, Some Areas Are Doing Better Than Others

I have a buyer who's trying to decide between Thornton and the northwest Denver Highlands area. Well, he's actually pretty well decided, but I did some research anyway, to demonstrate that all real estate is TRULY local, right down to the neighborhood. I checked sold statistics for each area over the past 12 months. What I found was fascinating.

Let's start with Thornton, a suburb north of town. I have other buyers under contract up there, and I've been amazed at how much house one can buy up there for around $200,000. No wonder. Prices have come down significantly. Over the past 12 months, the average home price in Thornton has decreased 7.7%, while the median price is down 5%.

Meanwhile, in the Highlands neighborhood, the average price is UP 17%, while the median is up 16%.

Of course, it's important to keep in mind that there is a lot of scraping going on in the Highlands neighborhood, which can skew the price statistics. If you scrape a $100,000 house and erect a $750,000 house in its place, the average sold price in the neighborhood is going to skyrocket, but it won't reflect the increase in value of the individual homes. So, since my buyer is looking in the 200K price range anyway, I searched the Highlands for sold properties under 300K, to eliminate the "scrape effect." And I still found that the average sold price was up 1.3%, while the median was up a whopping 14.3%.

So, what's a buyer to do? Well, if he needs a lot of house for the money, and plans to stay a while, and wants to take advantage of recent price drops, he might want to look at Thornton. However, if he's buying with resale in mind (and wants a very cute, charming area) he might want to stay in northwest Denver, knowing that it has held its value even in a declining market.

This kind of knowledge is important, not just for buyers, but for seller, and for everyone who owns a home or who follows the market. So often we hear news reports that say "Home values in Denver dropped x% over the past year" or even "Home values nationally dropped x%", and we automatically think "Well, what's x% of the value of my house? That must be how much value it has lost."

But it doesn't work that way. Not only are different cities appreciating and depreciating at different rates, but so are neighborhoods within those cities. Often values can shift fairly dramatically within a block or two. Even though a metro area (like Denver) may be depreciating, neighborhoods within that metro area can be appreciating -- sometimes significantly.

Location, location, location.

Is Now a Good Time to Sell?

In a word (or two), “it depends.” Obviously, conventional wisdom says that you don’t want to sell when prices are at their bottom. So, in general, if you don’t have to sell right now, you might want to think about staying put.

There are, however, a couple of caveats to that. First of all, what do you do if you’re selling in order to buy a new place here in town? You want to get in on the great deals inherent in a buyer’s market. But you have to sell to make that happen.

Obviously, the best case scenario would be if you didn’t have to sell to make that happen. Renting your current property might be an option. That way, you can wait until the market turns around to sell it. Plus, during the interim time, you’ll have someone else making payments and contributing to the equity on the property. There are disadvantages, however. First and foremost, you have to be (or hire) a landlord. Second, you wouldn’t have the proceeds from the sale of that home available as a down payment on your new home. You could borrow against the equity you already have to make your down payment, but that would increase the amount of rent you would need to cover the mortgage payment. And finally, you would need to be financially stable enough to cover that mortgage payment yourself on any months that the property remained vacant.

So let’s assume that renting isn’t an option. Well, then the question remains – is the loss you’d take on your current home made up for by the gain on the new house you’d be acquiring?

That all depends on where it is and what’s been happening in that neighborhood.

The trick is to look up the sales for houses like yours, in your area, for the past few years. (I know you can’t do that. But I can.) See if prices have dropped, remained stable or increased. Trust me – there are plenty of parts of town where values are still rising. Given those figures, can you sell the home for enough money to cover your mortgage and closing costs? Would you have enough left over for whatever down payment money you need?

And then look at where you want to move. What are housing prices doing in that part of town? Flat? Dropping or rising?

If you’re moving from a flat neighborhood to another flat neighborhood, it’s probably a wash – especially if the homes are in a similar price range. The same is true if both are depreciating or appreciating at roughly the same rate. This might not be a good time to move from a depressed neighborhood into an appreciating one, unless you’re afraid that your current home will continue to drop in value, and you want to cut your losses and jump onto the uphill train.

And finally there are the cases of sellers who have to sell. They’re being transferred, moving out of state, need to get out from under the mortgage – whatever. All is not necessarily lost in a case like that. But it’s a big enough topic that it deserves its own entry.

Which I’ll do tomorrow

Is Now a Good Time to Buy?

In a word, “yes.” Now is most definitely a good time to buy real estate in Denver. I remember Denver’s real estate bust in the 1980’s. I wasn’t living here at the time, but I’d come home to visit and see that I could buy a condo in Denver for less than I paid for my car. (Well, less than the average person paid for the average car. I don’t think my ride at the time was worth a whole lot.) I, of course, had no interest in buying any of these bargain-basement condos because a) I didn’t live here, b) I had no money, and c) I naively assumed that their value would always remain low.

If I’d only known then what I know now. If I had scraped together every dime I had, bought one of those condos and rented it out, I’d be thanking my young self for it today.

Unfortunately, my crystal ball is in the shop, so I don’t know at the moment when housing values in Denver will start to climb. The market indicators show that we’ve reached the bottom. So it should happen sooner rather than later. I don’t know if the wider economic crisis will delay it. I do know that Denver’s economy frequently runs counter to the national economy. Given that interest rates are likely to remain low, and that Denver’s employment situation looks good, I have every reason to be optimistic about the Denver market.

So yes, I believe that this is an incredible time to buy. Market conditions have driven prices down in many areas. Housing is “on sale.”

Get in on the sale while you can.

Did My House Drop 14%?

So I’m sure at least some of you were reading yesterday’s post about the Denver real estate rebound, and kinda got stuck at the part about the average home price dropping 14.8% in the past year. "Did my house drop 14.8%?"

Don’t panic. It probably didn’t. Heck, it may have even increased in value. It all depends on where you live.

All real estate is local. Not just “local” as in “city.” “Local” as in “neighborhood.” When you average the prices of all of the houses in all of the neighborhoods that sold this September, you get a figure 14.8 lower than the same data for last September.

Values are falling fast in certain neighborhoods. Neighborhoods that have seen a lot of foreclosures, for example. Foreclosures tend to sell for less. The banks want to be rid of them. But when all of those low-priced foreclosures show up in a neighborhood, their non-foreclosure neighbors can’t get as much for their houses any more, and prices drop.

Prices are also falling in the market segments that have seen the greatest decrease in the number of buyers, namely the higher end. The number of homes sold in the 500K to 1M range dropped nearly 22% in the past year. The number of million dollar plus homes sold dropped over 40%.

Of course, that fact in itself contributes to the decline in the average sales price. Sales in the under 200K category are brisk, because demand is high for well-priced, low-end foreclosures. So if a lot of lower priced houses are selling, and very few high-end houses are selling, the average price will be dragged downward.

Some neighborhoods are appreciating. That privilege goes to neighborhoods that in demand for some reason. Areas that are close to the center of town. Areas that have unique architecture. SmartMoney magazine says:

. . . established, close-in neighborhoods are often holding up better than suburbs, because they didn’t endure overbuilding and because higher-income owners were less likely to need subprime or adjustable-rate mortgages.

Of course, another reason many of those neighborhoods are appreciating is because of the “scraping” going on. When you buy a shack for 200K, and then tear it down and build a mansion on the lot that sells for 1.5 million, you’ve upwardly skewed the average sales price for that neighborhood.

There are other reasons. My house has appreciated in the three years since I bought it because it’s fairly close to downtown and it’s a patio home. There’s a higher demand for these types of homes among retiring baby boomers, and very few of them have been built in the close-in suburbs, so the value goes up.

What’s happened to your house’s value? I don’t know. But if you’d like me to find out for you, drop me an email at mb@mblovesdenver.com and let me know. I’d be happy to check it out!

Condos are Rebounding, Too

Just as a postscript to the last post – the figures above are for single family homes. The condo market’s rebound looks even more dramatic. Inventory is down nearly 26%, days on market is down 3%, and months’ supply is down over 33%. And the prices have “only” dropped 11% average price, 5.5% median price. (I know – it’s a lot of money when it’s your money!) Sales are up 11%, and units under contract is up 17%, which means the number of units sold is still rising. Good news!

Numbers Don't Lie: The Denver Market Bounces Back

Everywhere I turn, I hear that the Denver market has turned and is poised for a rebound. (See the SmartMoney entry below.) Great news. But I wanted to see exactly where all of this optimism was coming from. So I started digging into the numbers. The numbers look very, very good.

From September 2007 to September 2008, inventory (the number of homes on the market), dropped nearly 20%. The number of houses sold increased 15%. The average days a home is on the market before it sells dropped 5%. And – get this – the “months’ supply” of homes on the market dropped a whopping 30%.

Why does this signal a rebound? Because the problem in our market (and in any difficult real estate market) has been that we’ve had a lot more sellers than buyers. And -- thanks to the law of supply and demand – when you have less demand for a product, the price tends to drop. How do we know we have more sellers than buyers? Inventory. When a lot of houses build up on the market, we know we have more people trying to sell their houses than we have people willing to buy those houses. So, with all of the competition for fewer buyers, houses sit on the market longer, reflected in the average days on market statistic. All of this leads to the “months of inventory”, which is what you get when you take the number of houses on the market divided by how many are selling every month. That tells us how long it would take to sell all of those houses if no new houses were to come onto the market.

When more houses are selling and less houses are sitting in inventory, that tells us that the market is becoming more balanced. It tells us we have more buyers in the market, buying houses and reducing inventory.

Why has this happened? Well, the average sales price might give us a hint. It has dropped 14.8% in the past year. Median sales price dropped 11.8%. Apparently prices have dropped to a level where homes are attractive to buyers. It’s the law of supply and demand again. When the price drops, demand increases. As demand continues to increase, prices rise to meet the demand.

At any rate, it’s very good news for Denver real estate.

The "Smart Money" is on the Denver market

Haven’t I been telling you that the Denver market was ready to turn around? The Wall Street Journal’s Smart Money magazine has confirmed it. In their November issue, they published their list of cities most likely to rebound. And guess which city was in the top seven? You guessed it. Our very own Denver.

According to the article:

Denver’s overall outlook is sunnier than for most western cities because neither inventory nor prices spiraled out of control during the boom. Dinged by a telecom bust earlier in the decade that cost the city 5 percent of its jobs, the local economy wasn’t primed for irrational exuberance. Now with six months’ worth of homes in inventory—the level most experts judge to be roughly in balance—the city offers considerable upside.

So why do we find this so hard to believe? The media tends to focus on national averages, which are dragged down by the hardest hit markets – Phoenix, Las Vegas, Miami, etc. These are the markets where prices spiraled out of control during the boom. If the four hardest-hit states – California, Arizona, Nevada and Florida – are taken out of the mix, the statistical picture for real estate looks much better.

Will the Housing Bill Rescue You?

Today, President Bush signed the “Housing Rescue Bill.” So it seemed like as good a time as any to learn about it. There’s a lot to it, and a lot of fine print. But a couple of things stood out to me, as someone who represents buyers and sellers here in the real world:

Foreclosure “rescue”: Homeowners facing foreclosure can refinance into low-cost fixed rate loans insured by FHA. But “can” is a tricky word. There are a lot of hoops to jump through first, and not everyone will be able to clear them. Homeowners must be spending at least 31% of their income on the mortgage. (Where do they come up with these numbers?) They must be able to prove that they can’t continue to make the payments. They must “retire” any second mortgages or lines of credit taken out against the home’s equity.

AND – here’s the biggest “but” – the new loan cannot exceed more than 95% of the current appraised value of the house. This is the whole reason homeowners are in trouble in the first place – their current mortgage balances are for more than the home is worth, and they don’t have the cash reserves to make up the difference. So if the new loan will be used to pay off the old loan and the new loan can only be up to 95% of the value, then the new loan won’t be enough to pay off the old loan. Which means the whole system will only work if banks are willing to accept less than the full value of the loans and “write off” the difference. I don’t know if government pressure will make them more likely to do that, but my experience with “short sales”, where the lender agrees to take less than the full balance when the home is sold, it won’t be easy. Short sales are notoriously difficult transactions.

Also, seller down-payment assistance will go away. There are several loan programs, including one FHA program, where the seller can contribute up to 3% of the buyer’s down payment. I’ve never been a huge fan of these programs, because what ends up happening is that the seller just adds 3% to the price they expect to get from the sale. But in today’s market, appraisals are a lot closer than they used to me. Adding 3% to the price can mean the house doesn’t appraise and the deal dies. That happened to one of my listings last spring.

Nevertheless, it seems like most first-time buyers these days – at least those in the lower price ranges -- are using these programs. On October 1st, when they’re no longer available, my guess is that a lot of those buyers will be looking to rent instead. Not only will they have to come up with the down payment money, but the amount required will go up from 3% of the purchase price to 3.5%.

That, of course, might be a good thing in terms of keeping people from buying homes when they can’t afford to buy homes. But I don’t see it doing anything to stimulate housing sales.

The flip side is that first time buyers will be eligible for a tax credit of 10% of the purchase price of their home, up to $7500. That sounds great, too, until you read the fine print. You don’t get to keep the money. It has to be paid back to the government, in equal payments over 15 years. It’s really more of a no-interest loan.

Buyers don’t get the credit until after they’ve purchased their homes, so it won’t go toward the purchase price. It’d be charming if they put it into an interest-bearing account or invested it or something, but most people will probably just spend it, and then face an extra $500 on their tax bill every year for the next 15 years. Of course, if they sell the home, they have to pay the remaining balance back in one lump sum. Which will make it even more difficult for them to break even if housing prices don’t rise.

There are other provisions, of course. A bail-out of Fannie Mae and Freddie Mac. Money for states to buy homes and fix them up for sale. Etc., etc.

As I read about this, my main thought was a) this is sort of ridiculously complicated, and b) what do these Congresspeople really know about real estate in the real world?

Whatever. They’ll keep passing laws, and we’ll keep selling houses.

More Good News for the Denver Market

So the PMI Mortgage Insurance Company, released its Summer 2008 U.S. Market Risk Index yesterday. The list looks at the top 50 U.S. housing markets, and assesses the likelihood that home prices will be lower in that market it two years than they are today. At the top of the list, Riverside-San Bernardino-Ontario California, with a 95.5% chance of lower prices in the next two years. In other words, they're nearly 100% sure prices are going to drop. Hovering at the bottom of the list: Denver Colorado, with less than a 1% chance that prices are going to drop in the next two years.

Isn't that lovely news?

Good News for Denver Home Sellers

Forbes magazine just released their list of the 10 best cities for home sellers in 2008. And guess which market came in at #7? Our very own Denver!

To assess each market, Forbes looked at unsold vacancy rates, construction starts (to see if a lot of new construction would be cropping up and making vacancy rates worse), job creation (to see if buyers would have jobs, so they could buy houses) and Freddie Mac and Fannie Mae's new conforming loan limits (to see if those buyers could get loans without having to pay premium "jumbo" mortgage rates).

Apparently Denver looks good. We have a 3% unsold vacancy rate, which is great news because last year our rate was 23%. A 20% vacancy drop is a very, very good thing. We've also seen a 2% jump in new jobs, and -- best of all -- a 49% cut in construction starts. This makes me happy. Less new homes springing up means less inventory on the market, and more buyers gravitating toward purchasing existing homes.

And, if you'd like anecdotal evidence to back up the good news, I listed a 1970's Littleton townhouse a few weeks ago, and it went under contract within a week.

If you really want to feel better about our market, compare it to some of the riskiest markets. Phoenix, for example. When I lived there in the late '90's, housing prices were skyrocketing. Now they've tanked. There are over 53,000 homes currently on the market there. Fifty three thousand. That's over a five-fold increase over the past three years. Can you imagine competing with 52,999 other homes to sell yours? And the Catch-22 is that the local economy is built heavily on construction jobs. If construction starts decline (which they really need to do, with 53,000 existing homes in current inventory), then construction jobs are lost and buyers fall out of the market. It's tough to win in a scenario like that.

Yep, we've got it pretty good here in Colorful Colorado!

Realtors Bailing Out?

I just read a Christian Science Monitor article that said that the slump in the real estate market is forcing many realtors out of the business.

The evidence was mostly anecdotal , with very few actual statistics to back up this theory of mass exodus. The only actual figure I saw was that Oregon Association of Realtors reports an 11% drop in their membership over the past year. Aside from that, it was a lot of talk about "experts" who say that realtors are leaving the business in droves.

It's not particularly surprising, and not a particularly bad thing, as far as I'm concerned.

When the market is hot, everybody decides they want to sell real estate. Well, not everybody, literally, but a lot of people. It looks like easy money, and people want a piece of that. So the rolls of the licensees are clogged with agent "speculators" looking to make a fast buck somehow.

But then the going gets a little rougher. And guess what happens? The Johnny-Come-Lately's bail out. They were never serious about real estate as a career they might have to work at. They wanted the money to be easy.

Quite frankly, I prefer to work in a market that's a little more challenging. It cleans up the industry. The agents who jumped into hot markets looking to make a quick buck are generally not good agents, and they're generally not a lot of fun to work with. Their incompetence contaminates any transaction they touch. A good agent knows how to make a "go" out of any market. And in a rough market I'm a lot more likely to look across the closing table at a strong, capable real estate professional.

I like that.

The market in Denver is not "hot" by any means, but it's not free-falling, either. It's flat. And that hasn't hurt me yet. My business has grown every year since I started, and I don't expect this year to be any different. Sure, I have to work a little harder. But I don't mind that at all. It hones my skills. It helps me to grow as an agent and find more and better ways to serve my clients.

So I'm not going anywhere.

Four Multiple Bids and Counting

Okay, so now I'm up to four multiple bid situations in two weeks. Still don't know whether my buyer got the property.

I was contemplating this situation, and have concluded that it indicates that buyers are indeed out there. They've just been waiting for prices to adjust -- which in some segments they have. Two of my multiple bids have been foreclosures. Another was home on a large lot in a popular "scraping" neighborhood. And the fourth was a family home in an established, suburban neighborhood.

At any rate, it strikes me as a good indication of the direction of our market!

Forbes lists Denver in Ten Best Cities to Buy a Home

They say all real estate is local. And it's really true.

Forbes magazine recently did an analysis of estimated 2008 housing inventory, sales rates and turnovers to determine where there is most likely to be an increase in sales in the near future.

Guess what city came in at #5?

The article, called Best Places for Real Estate Deals, said that a pure "buyer's market" is one where there are far more sellers than buyers. That creates a drop in demand, which leads to a drop in prices. Or, in Denver's case, a stall. The article shows Denver's price growth since 2006 at exactly 0.0%. But if that market is expected to drop further, buying may not be a good idea.

So Forbes set out, using sales and inventory models from Moody.com, to determine which markets are expected to experience upswings that will make buying today worthwhile.

About Denver, they said While other markets have experienced meltdowns, Denver has been quietly correcting its inventory glut, which at the beginning of the year was one of the worst in the country. Though prices aren't expected to rebound quickly, if Denver sellers continue to unload their properties at discounted rates, it could be a strong year for buyers, with less risk than the past two years.

So don't believe the gloom and doom you read in the local papers. Now may be a very good time to buy!

What exactly is happening to the mortgage industry?

You've probably been reading the headlines about tumult in the mortgage industry. Nothing truly bad has happened to me (or to any of my clients), but we have had one close call. A lot of mortgage lenders are closing their doors, which gets kind of scary when you've got listings under contract and getting ready to close.

It's not as bad as the newspapers would have you believe. But it is an unpleasant situation.

I'd love to explain to you exactly what's going on, but to be perfectly frank, it's kind of hard to understand exactly how it all works, much less explain it. Fortunately, the Certified Mortgage Professionals Institute did a really good job in this article, The Saga of the U.S. Mortgage Industry.

Check it out!

Are housing prices going to drop?

Everybody asks me. "Should I sell this year or next?" "Should I wait to buy until prices drop?" "ARE prices going to drop?"

I always tell them I don't have a crystal ball. And I don't. And neither do the people at PMI Mortgage Corp. But apparently they have much more sophisticated market forecasting tools than I do. And they have released a report detailing the likelihood of declining home prices in the 50 major U.S. markets.

It's not such good news if you live in Florida or California. But it's really not bad if you live here in Denver.

The report was based on the percent likelihood that a specific market will see declining home prices. The average likelihood across the U.S. was 34.6%. The "top" markets (and by "top" I mean "most likely to head towards the bottom" were Riverside/San Bernardino California (65.2% likelihood), Phoenix (64.6% likelihood), Las Vegas (61.4% likelihood) and West Palm Beach/Boca Raton (60.7% likelihood).

Where did Denver fall in the list? 38th out of 50, with a 15.6% likelihood of declining prices.

Real estate is local. So many people read books about falling real estate values, and they're convinced that the real estate "market" is going to fall like the stock market falls. And it just doesn't work that way. Real estate is not one "market." It's a collection of smaller markets, each of which rises and falls based on local factors. Sure, there are national trends -- recession, inflation, interest rates -- that can affect a local market. But those factors are mitigated by what's going on in that area. After all, people have to live somewhere, regardless of how the economy is doing.

So why are some areas poised to take a dive while others are relatively stable. One of the main factors is a recent history of rapidly appreciating prices. Real estate values as a whole tend to increase over time. But what goes up too fast is bound to come down. When home prices rise much faster than wages, affordability declines. The people who live there can no longer afford to buy there. And so demand dries up and prices drop. In Phoenix, housing prices have climbed steeply for the past few years. One agent there says that, two years ago, homes were appreciating at a rate of 54% annually. Last January, there were about 3500 homes listed for sale on the MLS. Now there are about 54,000.

Why has Denver been spared? Our growth the past few years has been slow and steady. Yes, we had a pretty big run on prices back in the '90's. But it was never anywhere near 54% annually. Our prices leveled off around 2001, and we experienced what experts call a "soft landing." No big price drops. We just stopped growing at 10% - 20% per year and dropped down to 2% - 5%.

I've always believed that Colorado's desirability as a place to live factors into the equation as well. Even when prices climb, people are willing to try harder to find a way to stay, because it's a danged nice place to live!