Is it Just Me or are the Optimistic Headlines Pointing to Concerns

Ok, I am a pessimist! Well not really but I have been accused of being too conservative concerning finance and investment. Granted most recently some of my portfolio was stopped out during the flash crash only to come roaring back within two weeks. And yes housing in Denver is still in-demand with limited supply and it seems overly eager buyers. However today’s headlines concerned me as follows:

US housing starts total 1.326 million in Jan, vs 1.234 million starts expected

  • New home construction increased to more than a one-year high in January.
  • The market was boosted by a rebound in the construction of single-family housing units.
  • Building permits soared to their highest level since 2007.

On the surface I should be thrilled as housing starts are beginning to mirror our economy which continues to defy conventional cycles and this expansion looks never-ending HOWEVER review last line of the bullet points:

Building permits soared to their highest levels since 2007” Yet just around the corner in 2009 we were in the depths of The Great Recession teetering on the edge of a Depression.

Concerning housing, most would agree our low-interest rate environment has been somewhat responsible for consumer demand i.e. many purchasing based on the amount of their monthly payment versus equity basis. If planning for the long-term hold this is not necessarily an issue as housing usually exceeds inflation. Granted the buyers from 2004-2006 who sold between 2009 and 2011 may have a different opinion. Yet, what happens if interest rates rise another 65 basis point to 5% which is still a low mortgage rate when looking at a historical chart.

According to Redfin: A 5 percent rate would cause more than a quarter of today’s homebuyers to slow their plans and housing affordability is starting to take a hit. The report goes on to advise buyers will still be house hunting however if one’s PITI increases will wages match? At present we have the signs of inflation yet wages remain stagnant.

Concerning employment and wages the good news is we are at a 17-year low concerning unemployment. The bad news the unemployment rate before the great recession was only 0.5% higher than it is today.

January 2018:          Unemployment Rate at 4.1%

January 2007:           Unemployment Rate at 4.6%

Of note the Recession officially started in December 2007 with unemployment rising to 5% that month and at its worst during The Great Recession, unemployment was at 9.5%

On to consumer sentiment i.e. how the average consumer feels about the economy:

January 2018:           Consumer Sentiment 95.7

January 2007:           Consumer Sentiment 96.9

For the remainder of 2007 the Consumer Sentiment stayed relatively strong hovering in the 80’s and 90’s yet by November and December of that year the Sentiment Index dropped into the mid 70’s as the recession began.

And finally an interesting article quoting an apartment developer:

Major apartment developer: ‘There is an acute crisis headed our way’

  • The luxury market is largely overbuilt, while there is a shortage of affordable rental housing.
  • Lower and middle-income households are spending proportionally more on their rent, says apartment developer Toby Bozzuto.
  • Nearly half of all renter households pay more than 30 percent of their income for housing.

As you have probably noticed in downtown and Cherry Creek the crane has again become the “official bird” of the Front Range. Yet many experts are cautioning the cranes are associated with the building of luxury apartments. Of note, multifamily construction is now at a 40-year high; the trouble is, developers are putting up the wrong kinds of buildings. The luxury market is largely overbuilt, while there is a shortage of affordable rental housing, and developers are hamstrung by the now record-high cost of construction.

The statistics are suggesting a potential for an overbuilt/supply coming soon as apartment completions in the 150 largest U.S. cities jumped to 395,775 units in 2017, beating 2016 production by a staggering 46 percent and more than doubling the long-term average, according to RealPage, an apartment management software and data company. Luxury, upscale buildings accounted for between 75 and 80 percent of the new supply in the current cycle.

I am not necessarily sounding the alarm but as a real estate broker with a few decades under my belt AND one who has a good memory of business cycles I remain concerned. My gut feeling is we will begin to encounter inflation which while necessary I believe will exceed the Federal Reserves 2%. Couple this with rising interest rates yet wage increases being stagnant we can run into serious complications leading to a recession. If it is a soft landing or a violent correction, that remains to be seen.

Again based on a traffic signal my light is Yellow and the countdown to Red is fast approaching, thus speed up and if conservative brake now and wait for the light to change and maybe avoid a potential collison.

 

 

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Gyrations can Happen in the Housing Market as Well

The whipsawing of the equities market over the past few days has been challenging for many with the assumption the market will continue to rise. When the equity markets settle the forensics will probably blame a combination of leverage and obscure volatility index trades as the culprit.

Yet what about our Denver housing market?

Earlier this week I posted an article from CNBC concerning a home in Denver listed at $500K, which generated 100+ showings over the weekend. The issue haunted me as 1) at $500K still above the average cost of a home in the metro area, 2) with such interest are prospective buyers chasing a commodity versus a home i.e. low inventory, high-demand and 3) hindsight can be most appreciated.

Concerning hindsight; I take evening walks. Lately I have been keeping an eye on a home close to my residence. In the interest of privacy I will not disclose the address however I will share the following:

Neighborhood: Strong, desirable for families within the City and Country of Denver, well-respected public elementary and middle schools as well as a popular private school.

Street: Literally on the border of the neighborhood, on a minor arterial i.e. two-way, but one-lane in each direction. The street dead-ends about a mile north so not a major arterial mostly neighborhood oriented traffic. Within two blocks of a neighborhood oriented commercial low-scale retail development and within 4 blocks of a neighborhood park, all amenities.

The Residence (From Public Remarks): Amazing home in _________ under $600K!! Don’t miss out on this incredible opportunity to live in desirable ________. This beautiful brick bungalow has an updated kitchen with breakfast bar, seating area, and stainless steel appliances. Bright living room with wood burning fireplace and coved ceilings on the main floor and another large family room in the basement. Home has fabulous refinished hardwoods and a large master bedroom. Large backyard with deck and covered front porch. Ample amounts of storage in the laundry area as well as the garage and attached shed. Walking distance to great restaurants, amazing parks, and one of the top-rated elementary schools in Denver. 4th Bedroom in basement is non-conforming.

Style: Bungalow, pre-WWII Construction

Size: Approx 1,100+ SF Main Level, 1,100+ SF Fully Finished Basement

Configuration: 4 Bedrooms/2 Bathrooms

Garage: 2-Car

Lot: 6,750 SF

Now the Pricing History: Please note I am just using month and year to retain some privacy. Of note during its history dating to July 2012 from the images associated with the listing there was no major exterior or interior renovation that I could ascertain.

  • Jul. 2012:       Placed on market for $450,000 / 30-Yr Interest Rate: 3.55%
  • Sep. 2012:      Price reduction $450,000 – $425,000 / 30-Yr Interest Rate: 3.5%
  • Dec. 2012:      Expired, taken off market NO SALE

——————————————————–

  • Jun. 2015:      Placed on market for $492,000 / 30-Yr Interest Rate: 4.05%
  • Jun. 2015:      Taken off market NO SALE

———————————————————-

  • Jul. 2015:       Placed on market $519,000 / 30-Yr Interest Rate: 4.05%
  • Aug. 2015:     Price reduction $519,000 – $498,000 / 30-Yr Interest Rate: 3.91%
  • Sep. 2015:      Price reduction $498,000 – $475,000 / 30-Yr Interest Rate: 3.89%
  • Jan. 2016:      Sold and Closed: $445,000 / 30-Yr Interest Rate: 3.88%

__________________________________________

  • Jan. 2018:      Placed on market for $600,000
  • Jan. 2018:      Price reduction $600,000 – $585,000
  • Jan. 2018:      Price reduction $585,000 – $575,000
  • Feb. 2018:      Price reduction $575,000 – $565,000 / 30-Yr Interest Rate: 4.38%
  • Feb. 2018:      Goes Under Contract

In the above example between 2012 and 2016 one could argue the value did not change. While our collective memories can be subjective; in 2012 we were finally seeing viable sprouts post Great Recession yet it was not until 3.5 years later that the original asking price of $450,000 ($483.182 in 2018) from July 2012 was realized i.e. sold and closed Jan 2016 for $445,000 ($457,000 in 2018).

Now the home is back on the market. From Jan 2016 when the house sold for $445,000 and was placed back on the market last month for $600,000 or basically a 35% gain in two (2) years.

Now granted at the last asking i.e. $565,000 the potential gain is 22%. Yet from July 2012 to January 2016 one could argue there was no gain or most likely the market gained yet the listing was overpriced to when listed in 2012.

Now for some history. Going back to the days before the great recession:

  • 6/1993:         Closed for $120,000 ($204,725 in 2018) / 30-Yr Interest Rate: 7.21%
  • 10/1995:       Closed for $156,000 ($252,347 in 2018) /30-Yr Interest Rate: 7.64%

In the two year period noted above the house appreciated by 30%

The sellers of the house I believe desire to repeat history i.e. within a 2 year period asking for a 22% gain.

The following is added on Feb 7, 2018: In reviewing MLS this morning a classic Mid-Century Modern listing expired. Asking is $1.5M. A beautiful renovation/update as I remember viewing the residence when it was for sale in 2009 sold for $610,000 ($700,949 in 2018). Even more to my surprised I pulled the Chain of Title, the same home sold in 2004 for $629,000 ($820,876 in 2018). Thus in 9 years the home lost $19,000  (during which time  the local economy went from exuberance to recession). That same house was most recently listed at $1.5M. Considering the renovation and factoring for inflation $1.5M while high is not necessarily irrational yet the market has spoken i.e. 85 days on market and no sale. The prior sale in 2009 the home was on the market for 562 days or over 1.5 years! As a wise professor once said off the cuff “History does repeat itself

The question is are such gains sustainable or are we on the verge of irrational exuberance concerning housing prices?

The average price of a single-family home sold in 2017 reached $480,140, an increase of 8.7 percent from 2016. The median sold price, the point where half the homes sell for more and half for less, was $410,000, an increase of 7.9 percent.

Condo prices rose even more on a year-to-date basis, hitting an average sales price of $318,904 in 2017, up 10 percent from 2016, with a median sales price of $270,000, up 12.15 percent from 2016. This is not to be unexpected i.e. affordability both in sales price and overall upkeep.

Yet concerning incomes, the average salary in Denver, Colorado is $60,370. As of Q4 2017, the trend in wages is down 0.3 percent. The cost of living in Denver is 12.1% higher than the national average.

And why am I concerned?

  • Average salaries are not keeping up with housing costs.
  • Building permit activity has been most active in rental housing a market many believe had peaked in 2017 and with new construction continuing a potential glut coupled with lessening demand.
  • Lower interest rates may be permitting more leveraging. Yes borrowing standards have tightened YET there are still loans with just 3% to 5% down. Thus if the housing market cools there is the possibility of residences with negative equity.
  • Real Estate Taxes may increase. As assessor data is complied every two years the increase in underlying valuations will translate to higher tax bills.
  • The Goldilocks Economy: We came out of a deep recession with some caution, which seems to have dissipated as the economy continues to expand. Yet with expansion comes higher interest rates (as the Federal Reserve hopes to keep inflation in check) and partially what spooked the equity markets.

Equities are liquid and thus volatility with such liquidity can be expected. 5% moves in the Dow Average were not uncommon over the past 20 years. While housing values in general do not fluctuate I would argue the uptrend is flattening and to proceed with caution.

As the example above illustrates timing can be important. If one is purchasing today for the long term i.e. 5-7 plus years or longer I would not necessarily be concerned especially if able to lock in an attractive interest rate.

However if one assumes the market will only continue to go up, continue to exceed inflation and generate oversized returns year after year…..just remember negative equity, short sales and foreclosures are in the rear-view mirror and could be accelerating.

Remember Goldilocks needed a nap as well.

Your Budget is $1M to $2M. Here is What You Can Purchase in Denver and Beyond

It is no secret among my peer brokers the upper-level of our local Denver metro market is starting to show signs of stress. I am the first to admit inventory continues to be historically low and in the most desirable neighborhoods; a residence if priced correctly  will indeed go under contract in a matter of days.

However there have been some luxury properties that have sold at a loss including within the hot Denver Country Club neighborhood. 575 Circle Drive which sold in February 2013 for $6.8M ($7.15M in 2017 inflation adjusted dollars) was recently resold in December 2017 for $6.5M excluding broker commissions. In tony Cherry Hills 5500 E. Quincy just hit the market asking $4.97M. The seller purchased the property in 2002 for $4.5M or $6.16M in 2018 inflation adjusted dollars thus based on asking factoring in inflation, a loss.

Now luxury and price-point can vary widely. Around the world, a single square foot in a luxury home varies dramatically — from $200 in Monterrey, Mexico, to $4,500 in Monaco. The highest price paid for a home in 2015 was $194 million for the Barker Road Estate in Hong Kong purchased by Jack Ma founder of Alibaba and it needed work!

Recently I have been researching what one can purchase for $1M to $2M in various cities keeping in mind similar neighborhoods based on location to downtown, prestige, history and so forth. Not surprisingly even at the high-end Denver in both a square-foot basis and quality of life show a better value. Yet when average income for the neighborhood is factored in the value proposition erodes. In laymen terms the upper-end of Denver’s housing market is more costly when factoring in average incomes for the neighborhood. In addition percentage gain may be somewhat irrational even accounting for the Great Recession and continued low inflation and historically low-interest rates.

Please note I did not use average metro area household incomes instead opting for neighborhood specific as metropolitan demographics vary wildly. In addition both New York City and San Francisco have “rent-control” laws, which many economists argue inflates the value of free-market residences i.e. sans rental rate constraints.

Below at the findings:

Denver: 446 Lafayette St/ Denver Country Club Neighborhood

  • Size: Single-Family 3BD/2.5BA / 2,646 SF including a small basement
  • Asking: $1,200,000 (last sold in June 2013 for $875,000)
  • Median Income: West Country Club $54,417

A charming turn of the 20th Century Victorian including an expansion designed by locally well-respected architect David Tryba. A pretty block north of the Country Club Gates the block is mostly single-family homes of moderate size. A strong stable neighborhood demand is strong even during times of recession. Easy access to downtown to the northwest and Cherry Creek North to the east.

New York: 2 Beekman Place/ Beekman Neighborhood

  • Size: Cooperative Apartment 2BD/2BA / approx. 1,200 SF
  • Asking; $1.395,000 (last sold in January 2013 for $1,165,000)
  • Parking: available off-site at an additional charge
  • Median Income: Beekman/Sutton $136,300

Designed by one of the foremost pre-WWII architects in New York Rosario Candela buildings are in-demand as the apartments feature gracious proportions not usually found in more contemporary structures. Located in prestigious Beekman Place this enclave of a neighborhood is literally 3 square blocks dominated by pre-WWII apartments buildings and townhouses including a well-known Paul Rudolph creation all adjacent to the East River. Just north of the United Nations and an easy 4 crosstown block walk to Midtown Manhattan.

San Francisco: 2055 Bush Street/ Lower Pacific Heights

  • Size: Condominium Apartment 3BD/3BA / 2,532 SF
  • Asking: $1,198,000 (last sold in June 2001 for $747,000)
  • Parking: available off-site at an additional charge
  • Median Income: Pacific Heights $130,900

Considered one of San Francisco’s premier neighborhoods Lower Pacific Heights has easy access to the Central Business District as well as Fillmore Street, Japantown and neighborhood parks. A two-level condo this expansive unit, one of 4 in a 1904 building brings together classic design and spaciousness within a condominium yet feeling like a single-family home.

Los Angeles: 6747 Gill Way/ Hollywood Hills

  • Size: Townhouse 3BD/3.5 BA /1,718 SF
  • Asking: $1,225,000 (last sold in Nov 2016 for $1,125,000)
  • Parking: 2-Car Attached Garage Median Income:
  • Median Income: West Hollywood $67,500

Located in the Hollywood Hills this townhouse constructed in 2015 would feel right at home in Denver’s Cherry Creek North neighborhood. Similar in design to the townhouses on 4th Avenue between University and Josephine the layout includes a guest/office on the lower level and two master suites above. While close to a freeway highway impact is minimal. Newer construction, energy-efficient and close to Hollywood and easy access (by Los Angeles standards) to downtown as well as to the Valley.

Concerning the home pictured above, asking was $200M, sold for $100M. Curious about the location and provenance, send me a note.

 

 

If your Broker advises Earth Tones maybe it is time for a new Broker

In all seriousness, there is absolutely nothing wrong with earth tones and neutral colors when preparing a residence for sale. Yes I do believe one’s personal tastes and color choices may be challenged by prospective buyers. While I always advise “it’s just paint”, color and the perceived work involved to change can cloud a prospective buyer’s judgment.

However I am seeing more and more houses staged (which I have always been an advocate of as one is truly presenting a lifestyle advertisement and not just four walls). In addition I am always amused with headlines such as “Subway Tile is Out” just begging for one to open the article to find out what’s truly in. And by the way in my humble opinion Subway Tile in white is truly timeless as has been in existence for 100+ years and the gloss sheen always presents a clean and simple presentation, just remember the tight grout line.

Again I am not against earth tones and neutral colors including one color us brokers reference often; “Realtor White” which has been known to cover over many issues.

So what are the Color Trends for 2018 and how can you the home seller use them?

  • Darker is Dominating: It could be houses are larger or we are feeling more secure, darker colors seem to be the trend. Paint experts are encouraging bolder choices with darker hues. Setting the tone, PPG Paints was one of the first to release their new “it” shade for the year with Black Flame, a color described as a rebirth of classic black with deep tones of indigo. On a personal note I am in the process of updating a kitchen and we are actually painting one wall with Chalk Board Paint which allows us to use the wall as a true chalk board! Yes we will finally rid ourselves of the note pad on the refrigerator which really looks ridiculous on a Subzero with the glass doors.
  • Metallics are the new neutrals: Also predicted to be popular in 2018 is Pantone’s Intricacy Palette, which features neutral metallics with accents of dramatic red and yellow. This particular look is especially suited for accessorizing otherwise traditional spaces. I have witnessed such use in entry foyer’s and secondary rooms with coordinating accent pieces i.e. pillows, frames and so forth. Guess what? It works and makes a memorable impression without being shocking. As inventory begins to climb, making your residence stand-out against the competition may be beneficial especially if you are within a planned community/subdivision.
  • Intense color lovers: Embodying a contemporary spirit, Sherwin-Williams has released three bright color palettes for the year: Unity, Connectivity and Sincerity. From social media to technology, each is inspired by the qualities of modern culture. Yes you too will now have an Instagram worthy residence (or at least eye-candy for prospective buyers).

The question is how to put this all together. I am a firm believer some have an eye for design, either born with or trained, I am not one of them. Granted I understand good design when I see it and can opine on what sells and what may be challenging yet I know someone will comment how do I make the components mentioned above work in my own home.

  • Use the 60-30-10 rule.The idea behind this timeless decorating tip is to incorporate your primary color into 60 percent of the room. Your secondary color will take up 30 percent, and your accent color 10.
  • Vary one color throughout.To create a relaxing vibe, go monochromatic and let your main, secondary and accent colors be varying shades of the same hue.
  • Find what feels right.If a formula of 30-30-20-20 works better for you, go ahead and break the rules. Just remember to take note of the color balance in your room.

Finally I cannot stress enough the following:

1) Test a small area before purchasing gallons and gallons of paint.

2) Let it dry before you decide if it works or not.

3) View during different hours of the day and evening and consider different light bulbs as cool and warm, incandescent, CFL, LED can drastically influence color perception.

4) Prepare properly before painting; Kilz is a homeowners best friend for primer as is blue painters tape.

5) It’s only paint, its not structural, can easily be changed.

As a broker I can usually opine as I take into account the architectural design (I still remember a postmodern house’ interior painted in colors of a Southwestern Discotheque circa 1985, new owners repainted before moving in and secured a $15,000 concession), regional tastes and so forth. Concerning top-tier listings I will usually bring along an experienced interior designer or color specialist and let them offer opinions as I have many peers from graduate school in my Rolodex. Again, it’s only paint.

 

Home Prices in Metro Denver Continue to Rise but…..

As a real estate broker and subscriber to our local Multilist service in Denver known as www.REColorado.com (and the site with the most accurate and up-to-date real-estate information) I am provided with information and overviews of the markets on a monthly and annual basis. Thus a year in review and a look back.

In 2017 the average home price in the 12-county metro area rose to $433,000.

For comparison, the average home price in the same area in 2015 was $362,000 and in 2016 was $400,000 or $61,000 and $33,000 gains respectively. Considering inflation has been marginal and barely measurable i.e. below the Federal Reserves target of 2%, the real-dollar gains continue to impress.

Home Sales Volumes: 2017 witnessed the highest number of actual home sales totaling 53,739 totaling $23.3B. In 2016 sales totaled 51,617 units at $20.6B and in 2015 51,510 units sold at $18.6B. Thus a small year over year increase coupled with limited new construction the trend could be considered steady with underlying values exceeding inflation. Of note historically until this past generation home prices nationally usually mirrored inflation with obvious regional anomalies.

As a broker based in Denver’s Cherry Creek Neighborhood and educated as an Urban Planner (graduate of CU Denver) I view the market activity within the City and County of Denver as the overall indicator of the metro area market as the City is the center of commerce, the largest most dense in the metro area, limited land for additional sprawl/growth and other factors.

Interestingly sales volume in Denver did not follow the trend of the overall metro area.

  • In 2017 13,043 homes sold in Denver for $6B. (- over previous two years)
  • In 2016, 13,265 homes sold for $5.6B (+ over previous year)
  • In 2015, 13,053 homes sold for $5.1B

While one may view the reduction in home sales year over year as troubling, I would suggest looking a little deeper. First statistically the actual physical number of homes sales year over year has been steady with almost no statistical variation. During the 3 years the amount of closed volume based on dollars went from $5.1B to $6B this is a major increase in both real dollars and by percentage.

Or in more simplistic terms, the number of homes sold in 2015 and 2017 was about even, a difference of 10 homes less in 2017 versus 2015 HOWEVER the difference in sales dollars during the two-year period went from $5.1B to $6B, a difference of $900M.

Thus, one could surmise values within the City and County of Denver continue to outpace the metro area and demand is outstripping supply. Yet there is an additional variable; Denver in general has more percentage of sales from non-traditional single-family homes i.e. condos and townhomes. Through November of 2017 within Denver 12,168 residential properties sold with 7,602 of transactions recorded in MLS as single-family homes and 4,566 belonging to condos or townhomes.

Over 1/3 of properties sold were in the multifamily space usually a less costly product versus the single-family home (and yes I am aware of multimillion dollar condos in downtown and Cherry Creek yet their volume is somewhat insignificant against the overall sales volume i.e. limited impact on actual sales dollar numbers).

The question or the BUT… in the title is? Can the City and County of Denver sustain this valuation increase or are we looking at a market that may in fact be over-heated and not-sustainable? I do not know the answer as only future activity can answer this question.

HOWEVER 1) If I were considering selling a residence, I would place it on the market sooner than later. 2) Interest rates are forecast to increase due to the stronger national economy thus placing potential pressure on sale prices and 3) reports of decreased in-migration and increased outmigration are troubling yet not surprising as the State has witnessed this in past business cycles i.e. late 1980’s energy bust, mid 1990’s expansion, late 1990’s plateau, mid 2000’s boom and later 2000’s Great Recession.

While I do not believe we are headed into a recession anytime in the immediate future, the growth in real-dollar values coupled with low-inflation is just not sustainable within traditional economic theory (coupled we have very short memories). While some suggest low interest rates have fueled the housing market as it has the equity market; unlike stocks, housing is not liquid. My advice and the future may prove me incorrect however I would suggest a “Yellow Light” proceed with caution and keep looking ahead for potential issues.

 

Listing in Winter – What Is Going to Maximize the Value

While most homeowners are preparing for the holiday season, those astute owners who are contemplating placing their residence on the market have already contacted brokers with the question “What is going to maximize the value of my sale?”

This is a truly diverse question as each and every home in unique. Yes some would suggest curb appeal (I completely agree however if placing a home on the market in winter before inventory rises, curb appeal especially in snowy climates may be moot). Others mention paint/ carpet and so forth. Yes however exterior no, too cold for paint to adhere and interior great idea but again if north of the Mason-Dixon line, do you really want to air-out the house with sub-freezing temperatures outside?

The following are a few tips I suggest to homeowners contemplating selling sooner than later i.e. placing their homes on the market before the traditional spring rush. Coupled with potential changes in tax laws concerning deductibility and other revisions, this could be a unique selling season coupled being in the 8th year of an expansion which some argue is getting long in the tooth.

As a homeowner, sometimes the work it takes to keep your house in order seems endless. But what if you knew all your improvements were ultimately increasing the value of your property? Read on for a few tips that can help make your home an even better investment.

Opt for replacing instead of remodeling — On average, replacing items in your home yields a better return on investment (ROI) than remodeling projects. Rather than completely redesigning the layout of your living room, consider installing new soundproof windows or switching out your front door. The lead-time can be shorter this time of year as contractors and suppliers are looking for work in tis traditionally slower time of the year for such work.

Keep it simple — Generally, the simpler and cheaper the task, the more likely it is to have a higher ROI. Extravagant jobs such as installing smart appliances in your kitchen or putting in a high-tech security system may not be worth it in the end. Instead, scale back a bit and opt for painting your walls a fresh new color, deep clean your home or add some crown molding. Remember the more particular the taste and wow factor you may be alienating potential buyers. We have a saying in our broker meetings K,I,S,S = Keep It Simple Stupid. While tongue in cheek remember you are the seller, let the next buyer improve or revise to their unique tastes.

Don’t forget the exterior — Curb appeal projects also tend to have a bigger impact. Once again, a little goes a long way, so consider a few strategically placed planters (let the prospective buyer imagine spring flowers or even better illuminated planters, switch out the front door knob/lock-set and replace outdoor lights concerning both design and energy efficiency (LED bulbs have longevity as a benefit). As mentioned above these tasks can be completed during the winter months without too much hassle.

Follow the rules — Before you start making any major changes, be sure to check that you’re abiding by your homeowners association rules and regulations as well as city codes and ordinances. All counties and cities are different, so the best way to find out if you need a permit is to contact your local planning and zoning office. While in a covenant controlled subdivision this is a given even in cities there may be overlay Historic Districts or demand to bring improvements to existing code versus being grandfathered in. My advice, keep all correspondence and permits visible and when the Home Inspector arrives keep copies of all paperwork visible.

Pre-Sale Inspection: I actually did this for my personal resale in the Spring of 2017. I had embarked on a cosmetic renovation as the home was pushing 30+ years old. While still contemporary in design the reality is the laminate counters needed to go, as did the Miami Vice inspired plastic towel bars and so forth. The inspection came out fine however unbeknownst to us the electrical panel we had for the home had been “recalled” in 1990. We purchased the residence in 1989. Long story short we replaced the panel, which would have been flagged by any qualified inspector and thus removed a potential major inspection issue.

 

The Internet Says My House is Worth

Or Why a Licensed Brokers Price Opinion and Valuations Matters

During the last few years Denver real estate market valuations were literally growing exponentially. While many factors contributed including in-migration and low interest rates, many appraisals were literally not keeping up with recent sale prices. Of note the vast majority of real estate financed will require an appraisal as a condition for the loan.

While few brokers are licensed appraisers, we do have the skill set to review comparable’s, ascertain present market conditions i.e. supply and demand coupled with other unique characteristics of a property and hopefully provide guidance concerning a realistic market value concerning sale or purchasing.

Yet in discussing the market conditions and challenges with peer brokers many of us are running into prospective clients who advise us the value of their properties based on real estate sites such as Zillow, Trulia, HomeSnap, Neighborhood Scout and others which provides valuations, forecasts and past trends.

Please note I am not against Zillow or similar sites; I too use the sites for guidance and information especially when I am asked to opine on a residence or a neighborhood I am not overly familiar with. Yet I also know the limitations of their information, which is based on data mining and gathering of information from public records.

One more than one occasion I have had clients advise “Well (fill in the blank site) says my house is worth $XXX,XXX”. I always caution the realistic valuation may be vastly different that what a website may advise especially one that is not locally based nor its information reviewed by humans i.e. brokers or appraisers. We have all viewed the sites advising what a property’s market value is and a forecast. While not necessarily inaccurate, I would not stake my professional reputation on such valuations. While I do not fault such sites as Zillow, Trulia and similar and I do respect their methodology i.e. using technology to ascertain valuations from various sources, let me provide a real life example of why the site’s information should always be verified by an actual broker, appraiser or similar.

Within the Cherry Creek North neighborhood of Denver are The Harrison Townhomes, 262-268 Harrison Street; 4 row house units with common walls. Designed by a world-renowned architecture firm the units constructed in 1984 continue to be considered contemporary. While providing its owners a striking design and unique design features including vaulted ceilings, the units are also adjacent to a major roadway adjacent to the east lot-line, Colorado Boulevard.

Within the past 7 months two of the interior units, #266 and #264 were sold. The two units are of similar size and their valuations as of today’s date November 13, 2017) is similar.

On Zillow 266 Harrison St. is valued at $507,596

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On Zillow 264 Harrison St valued at $495,237

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Now if you look at the screen shots provided you will see some immediate differences most notably 266 Harrison is shown as having 1,780 SF while 264 Harrison St is shown as having 1,650 SF.

While 140 SF may not seem to make a major difference i.e. the size of a walk-in closet; in a neighborhood where lower-end properties trade for $300PSF, do the math i.e. $42,000. Of note the discrepancy may be attributed to the following per the listing information as provided on http://www.REColorado.com which is the regional multilist for Metropolitan Denver:

266 Harrison Street was measured by an appraiser with the appraisers measurements and as-built included in the supplemental documents.

264 Harrison Street measurements were obtained from the Denver Assessors Records.

Now the few pictures shown will advise a tale of two units.

266 Harrison Street was renovated prior to being placed on the market. The renovation brought the unit to the desires of contemporary buyers including newer stainless kitchen appliances, granite counters, new energy efficient windows, paint, refinished floors, trim work, mechanicals (HVAC/Electrical Panel) and even exterior updates. While appearing staged, it is actually the seller’s furnishings.

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264 Harrison Street is an identical floor plan however from the pictures one may easily ascertain the unit is dated from the laminate counters in the kitchen and bathrooms to the earth tone color scheme popular in the late 1990’s. Most of the interior and exterior is original to the 1984 construction (I was able to review previous sales of the unit) showing wear and tear and consistent with age.

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So now we have two units of similar age. Granted one unit has been extensively renovated, the other in a condition closer to the original construction from 30 plus years prior.

Giving Zillow the benefit of the doubt, Zillow has advised a $12,000 difference in valuation with the increase associated with #266, the renovated unit. Disregarding the size difference noted, the $12,000 difference accounts for an approximately 2.5% difference between the somewhat similar units which actually share a common wall. Thus understandable especially if one relies on public records and data mining for valuations.

Now the real truth based on easily attainable public records:

266 Harrison Street sold and closed in April 2017 for $535,000 – $1,500 Concession

Net Effective: $533,000 (or +$25,904 over Zillow’s present valuation)

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Thus two units, quite similar and sharing a common wall were valued within $12,000 of each other today yet within 7 months of resale had a $95,000 difference and both vastly divergent from Zillow’s valuations. Of note while the Denver market did slow down seasonally, the market did NOT correct 20% during those 7 months between the closings of the two sales.

I will admit each seller has different motivations and this could account for a divergent in closing prices HOWEVER, #266 Harrison was listed at $527,500 and sold for over asking within 9 days on market while #264 Harrison originally came on the market at $549,950 and when closed the listing price was $474,900 and closed much below after 182 days on the market.

Again I am not bashing Zillow or similar sites. I believe such sites do offer valuable information and insights and again I too peruse the sites for my own work. However I would caution placing too much emphasis on the valuations and forecasts provided as the most accurate information is best obtained via a true human real estate professional i.e. broker, appraiser or similar who is locally based.

For many their residence is probably their largest investment, most indebted and special to them. No matter the market conditions as real estate brokers and appraisers we are looking out for our client’s best interests; can an aggregator of data provide the same trustworthiness?

And you thought Denver was expensive

Yes we have all read the headlines including one of the nation’s hottest markets, record average prices and so forth. While hard to believe Denver is still much cheaper than many coastal cities. Being licensed in New York I too watch the real estate market in Manhattan and am well aware of the $100M sale of an apartment at 157 West 57th Street as well as $50M+ sales along Billionaires Row. Of note not all is rosy in the ultra luxury segment of Manhattan Real Estate: http://www.businessinsider.com/foreclosures-at-one57-new-york-billionaires-row-2017-6. 

On a recent visit to Hong Kong I visited the Engel and Voelkers Hong Kong Shop located in Mid-levels, a mixed use neighborhood of apartments and neighborhood oriented commercial located above Central (the Central Business District) and accessed via one of the world’s longest escalators (which run up the hill most of the day with the exception of the morning rush when they run downhill). While I was flabbergasted to see listings for 400 SF flats with asking prices over $1M USD, what caught my attention were the recent sales in a neighborhood called The Peak.

The Peak aka Victoria Peak is the most prestigious neighborhood in Hong Kong and many would argue in the world. Located above the hustle and bustle of Hong Kong The Peak neighborhood is home to a limited supply of single-family and apartment homes most offering jaw-dropping views of the Hong Kong’s truly iconic skyline and across the water to Kowloon.

The exclusivity and prestige of The Peak seriously cannot be matched even in a city where land is literally reclaimed from the sea. British and other Europeans first settled the Peak in the 19th Century; the elevated location providing a natural respite from the Hong Kong summers. If visiting Hong Kong, a must-visit is The Peak Tram. For a sample of what views you may enjoy: As seen from Victoria Peak.

Now for prices: In June 2016 an under construction home measuring  9,212 SF sold at 15 Gough Hill Road. The closing price HK$2.1Billion or USD $269,180,730.00, yes over $269M or just over $29,000 PSF based on present exchange rates.

Granted, # 1 & 3 Pollack Path considered a more prestigious street did have a sale in January 2016 recorded at HK$2.8 Billion or USD $358,907,640.00 however with 51,000 SF this was considered a bargain at just over $7,000 PSF and consists of 8 units (word on the street, possible conversion into a single family home).

So the next time you feel Denver is becoming over-priced just be glad you are not in Hong Kong searching for a home. If considering a visit to Hong Kong, an easy destination to visit, no visa required and English is widely spoken (from Denver one-stop options via United through San Francisco, Chicago and Tokyo) be sure to visit the Hong Kong Tourism Board and download their excellent apps. Of course if you find yourself considering real estate in Hong Kong, contact me as I can provide a referral to my peers in the local Engel & Voelkers Shop.

Of note when visiting I usually stay at The Renaissance Harbour View in the Wan Chai neighborhood adjacent to the Hong Kong Convention and Exhibition Center. On this most resent visit I stayed at the JW Marriott within Pacific Place, a mixed-use development of luxury hotels including and adjacent to The Upper House (be sure to dine or at minimum have a cocktail at Cafe Gray), Island Shangri-La, Conrad Hong Kong, office and a luxury retail mall (including a beautiful Shanghai-Tang store) all connected to the Admiralty MTR Station.

What a Hole in the Ground May Indicate About the Health of the Real Estate Market

I have lived in the Cherry Creek North neighborhood long enough to watch our neighbors to the south i.e. Cherry Creek East blossom into a diverse neighborhood from rental and condo high-rises to townhomes, mid-height rentals, an assisted living facility and oh so many townhomes built usually as rows versus the duplexes you see north of 1t Avenue (as most of Cherry Creek East is zoned Planned Unit Development).

On my walk this afternoon I was stopped in my tracks at The Cassidy (basically S. Harrison Street between Cedar and Bayaud Avenues). I had watched over the past weeks as the earthmovers excavated for the foundation with the assumption of full ceiling height basements. The units directly to the south seem to have sold and thus now a larger lot with plans for 37 units and a well-known broker who represents many new developments in the area as listing broker and sales point person.

What stopped me in my tracks was not the glossy marketing sign; it was what someone attached to it. Someone had cut out and highlighted the foreclosure notice on the property dated 9/28/17 from The Denver Post. Yes, the foreclosure notice.

The Cassidy Foreclosure Notice
Someone posted the foreclosure notice as published in The Denver Post (9/28/17) on the marketing sign.

While foreclosures were front and center during the Great Recession of a few years back, lately all we see are cranes on the horizon and continue talk about growth and the desire for Amazon to locate HQ2 to Denver.

Yet maybe it is irrational exuberance rearing its ugly head or our desire not to confront reality. I have been forecasting a downturn documented in this blog for months. Even the Wall Street Journal mentions rent-concessions and other activities, which may suggest not only is the boom loosing steam but also we may be moving into an overbuilt scenario.

Yes record prices were recently paid for the Steele Creek Apartments in Cherry Creek (of note the original developer Eric H. Bush who assembled the land on which Steele Creek was developed recently committed suicide). While I am not suggesting any nexus, I would just be concerned when we have record sale prices and 7 blocks east a foreclosure on massive lot on which 37 for-sale units were proposed.

Just food for thought.

Does the Record Sale of Steele Creek Apartments Cherry Creek Signal a Top

I remember when Steele Creek Apartments were proposed for the Southeast corner of Steele Street and 1st Avenue, at the time occupied by a few Class C buildings and a discount dry cleaner.

With the news hitting that the building set a new record on a per-unit basis for the sale of an apartment building of $570,000 per unit does the valuation make sense even considering future equity appreciation?

Working in both New York and Denver such numbers are not surprising as in NYC such a deal would be a steal especially for a newer construction building minus any rental controls, statutory affordable housing or long-term leases. Yet Denver is not New York.

Granted we have seen other close to blockbuster deals in Central Denver concerning rental properties as excerpted below from my morning daily read BusinessDen including but not limited to:

However are these deals good money-chasing returns, which are far from guaranteed? One could argue Denver at present is in an up cycle with record high rents (even though some buildings are offering rental incentives). Yet I am concerned as follows:

The New Rental buildings are oriented to deluxe and luxury tenants offering studio to 2-bedroom configurations limiting marketability to affluent singles and couples. In New York and San Fracisco the highest prices on bith a per-unit and PSF basis are “family-oriented” apartments considering of usually 2-4 bedrooms and minimum 2 bathrooms where a family can be reside comfortably.

Is there a glut on the horizon in the marketplace? Between Lower Downtown and Cherry Creek along the Speer Boulevard/1st Ave. corridor we are witnessing new buildings sprouting up like weeds with the assumption that demand for luxury rental apartments will continue unabated.

The Millennial Generation Will Age: I am witnessing it in my real estate practice; millennial’s are pairing up, starting families and due to price pressure are looking at homes to purchase in outlying Denver and suburban neighborhoods; not much different how Brooklyn became chic when Manhattan rents became unaffordable (with some help from Michelle Williams and Maggie Gyllenhaal and for us old timers, Patty Duke lived in Brooklyn Heights).

If the Influx Slows Who Will Rent these Apartments? While certain buildings have a reputation for attracting empty nesters (25 Downing Street) and those whose change in lifestyle may necessitate move to an apartment from a home (The Seasons at Cherry Creek), while renting is an option, many opt to purchase. Again anecdotally I know two empty-nest couples who moved from Country Club to condos, one in downtown, one in Cherry Creek.

What is Trendy Today is a Maintenance Headache Tomorrow: We see this in buildings throughout Capitol Hill, the party rooms with the naugahyde chairs on brass wheels and the pool table that has seen better days or the pool which requires constant expensive maintenance and upkeep.

While I understand the attractiveness of the cost on a per unit basis when compared to other in-demand cities including San Francisco, The Northeast Corridor (from Boston to Washington DC), Los Angeles and so forth those cities have physical geographic constraints and draconian rent-control laws which circumvents true market supply and demand laws thus raising rents on the free-market inventory.

Thus I do not see how the numbers work based on existing rental rates even when factoring in equity appreciation and nominal inflation. Granted there is always the option of conversion from rental to condo. The process includes upgrading the common areas and interiors of unitsoriented to the for-sale market AND developing a legal condominium, HOA and so forth. Not unheard of in Denver i.e. The Barclay (which when first converted were offered with developer backed below-market financing), Brooks Towers and other buildings have experienced such conversion.

However at present transaction cost per unit, is there really the demand for the $600K one bedroom condominium? We have seen such sales in smaller boutique developments including 250 Columbine (which does have a Starbucks on the retail level), but it is rare and definitely a niche market.

From experience such condos sell to those looking for a pied-a-terre in which their primary residence is NOT Denver or potential investment however for a decent cash-on-cash return the rents do not justify the selling price.

In New York City developers take the opposite approach developing condos and if the plan if sales do not meet the pro-forma then re-branded as a rental with the option to sell individual units when the market strengthens.

At present looking at prices coupled with construction activity I would be “short-selling” the apartment market if such a vehicle existed. Long-term I may be proven wrong, however within the three-five year time horizon and even in the present as leasing entities/developers are offering rent concessions, I would be more concerned versus excited at the blockbuster record prices being recorded.