Own a Piece of Denver History

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I just listed this beautiful Potter Highlands Victorian home. It was built in 1896, and it has been lovingly restored/remodeled in a way that combines historic charm with modern amenities. There's a large beautiful kitchen, a master with walk-in cedar closet and master bath with Italian marble, a cozy attic/loft, a finished basement, and a full carriage house/apartment in the back! Check it out here.

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 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.

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.

Thinking of buying with no money down? Better hurry!!

So if you’ve been thinking about buying a house (condo, townhouse, duplex, etc.) but weren’t planning on putting any money down, the time to do that would be now. As in right now. Why? Because, according to the provisions of the “Housing Rescue Act”, no-down-payment loans will be disappearing. Actually, these types of loans have been gone for some time now, but there was a loophole.

Up until now, there have been a handful of loan programs in which a 3% down payment is required, but the seller has been allowed to make that down payment on behalf of the buyer. In other words, the seller credits that 3% of the sales price back to the buyer at closing, and means they need to borrow 3% less than the sales price, so that’s considered the down payment.

A lot of mortgage “hucksters” have been advertising recently that this is the last opportunity for buyers to take advantage of “free money.” But that’s a bit of a stretch. There is no such thing as “free money” in the real estate world. If a seller knows he is crediting 3% back to the buyer, he’s going to add that 3% to the lowest price he will accept for the house. Which essentially means that the seller tacks an extra 3% onto the price, and them gives it back to the buyer.

Of course, tacking 3% on to the price of the house doesn’t work so well if the price was already close to top dollar. I’ve had listings where buyers offered 3% more than asking price, in exchange for the down payment assistance. But we couldn’t do it because they property wouldn’t appraise for the additional 3%.

Nevertheless, these programs helped a lot of first time homebuyers. And as of October of this year, they are going away. Buyers will be required to bring their own money, not the sellers’, to the table for a down payment. And the FHA minimum down payment will increase from 3% to 3.5%.

So if you’ve been thinking of buying but don’t have the cash on hand to make a down payment, you will want to move ahead now. As in immediately. Obviously, you shouldn’t buy if you’re not financially prepared. But if you’re confident you can handle the payments and you want to buy with no money down, you’ll have to find and close your new home by the end of September.

That’s not a lot of time. But given the large inventory of houses, condos and townhomes on the market, and given how many of those are foreclosed or for some other reason vacant, closing a property by the end of September would be quire do-able.

And there are some danged good deals out there!!

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.