As a Buyer What Your Broker Wants You to Know

As the real estate market in Metro Denver slows or as many of us believe moves towards a more balanced market between sellers and buyers, choices and opportunities will expand for all in the marketplace. In discussing market conditions with peer brokers we began to discuss what we desire the buyers we represent to know before and during their house hunt.

Knowing One’s Budget and Realistic Expectations: One of the issues related to historically low interest/borrowing rates is buyers are looking at a monthly payment versus actual valuations. Coupled with low down payments in an up valuation market this is not an issue. However in a traditional market when a 2% appreciation may be considered healthy i.e. matching inflation such a pro-forma can be an issue when one believes homes should rise 10%, 15% or 20% per year as the norm and may be projecting such a forecast into their future planning.

What most brokers (including me) suggest is to immediately us a home affordability calculator. While not perfect this tool will allow prospective buyers to have a general baseline concerning affordability i.e. a budget and price range. The second step we suggest is to secure a mortgage pre-approval letter; a process involves a lender reviewing a client’s finances and determining how much it’s willing to loan for a home. No matter the market listing brokers and their clients i.e. sellers understand a pre-approval (not to be confused with a pre-qualified) letter shows intent and seriousness. Finally we look at smaller yet potential challenges i.e. real estate taxes, upkeep/maintenance costs and lifestyle i.e. condo, single-family residence and other factors which may not be part of the initial calculus concerning home ownership.

Do Not Contact the Listing Agent: As brokers we know with the Internet and other marketing tools information about a listing is ubiquitous. And yes the Listing Agent would probably be the most knowledgeable about the residence he/she is selling. Of note, the information provided on the web through various distribution channels is only as accurate as the original input.

Yet the Listing Agent is the advocate for the seller. As a buyer it is important to communicate through your buyer-broker whose fiduciary interest is to you. By allowing us, your buyer broker to interface with the selling broker we are showing A) you are represented by a knowledgeable and competent professional and B) We have a strong working relationship. When one contacts the listing broker directly this can undermine the working relationship AND place a buyer in a secondary position with the Listing Broker whose fiduciary duty is to their seller (unless one becomes a Transaction Broker which is rare).

 Silence is Golden: On the rare occasions I host an open house I am always amused at the conversations I overhear. It is similar to the home-flipping shows in which a hidden camera and microphone are set up to capture before and after comments (I will not opine on the ethics of such actions). Yes as brokers we ask probing questions i.e. are you working with a broker? How many houses have your looked at? Any general impressions you would like to share and so forth. If I am listing the house I am representing the seller and the questions I am asking will facilitate my marketing efforts. However the answers may provide insight concerning the prospective buyer; information you may not wish to share except with your buyer broker i.e. motivations, budget, timing and so forth. This is truly proprietary and should only be shared with your buyer broker.

Thus (and a lot of brokers will be angry with me), when attending an Open House please keep your comments beyond ear shot at a minimum. In WWII there was a quote “loose lips sink ships”; while not as dire, go against human nature and discuss the home outside or be sure you are out of hearing range of the broker or their confederates. Even better see if your buyer broker is available to attend with you or set a private showing with your broker so you can discuss the home sans others overhearing.

Trust Your Broker; The Internet is Not Truly WYSIWYG: I actually enjoy when my client’s forward listings they have found on the Internet and I am one of the few. Their actions suggest to me they are serious and doing research. Yet I also understand the frustration of brokers. Many clients will send every listing within a 50 mile radius or similar. A few tips:

  • WYSIWYG: Known as What You See Is What You Get is not necessarily true. Listings on the Internet like most marketing channels are promoting the finest attributes of the property. Do you really believe the listing broker is going to post a picture of the freeway adjacent to the home or the junkyard across the alley? Of course not! Tip: if there are a limited number of pictures or pictures of the neighborhood dominate I would be more skeptical. Even the smallest of residences have a wealth of images available. The reality is your broker probably knows the neighborhood, possibly the residence and has access to information from title companies, assessors records and other sources to provide a truly balanced picture of the residence on the market.

 

  • Billboarding: It is amazing when you input an address of a home for sale and the results include every broker in the market showing the listing. With today’s technology when a listing is loaded into the local multilist service with few exceptions the information is distributed to multiple channels. Thus the information is now in the public domain. Of note my firm is even more proactive as we have a company intranet, which promotes our our listings to our offices worldwide if we wish. The issue is the information presented in the public domain may be inaccurate.

For example my personal residence, which I sold and closed in April 2017 continues showing as “For Sale” on multiple sites including one of the most popular valuation sites 5 months after closing. I once had a listing which was presented on a “Owner Will Carry” site sans my permission; all the calls I received were from prospective buyers looking for a specific product i.e. an owner will carry option, unfortunately a financing method my client would not entertain. The service billboarding the listing was doing a disservice to their clients many who paid for access to this supposed proprietary list of residences available with a seller who is willing to carry a mortgage.

  • Your Broker is In the Know: Your broker will have access to the most up-to-date information and as mentioned prior is your advocate and communication channel with the listing broker and their seller client. Even if a property is Under Contract your broker can inquire if the seller is entertaining back-ups, if the existing contract may fall through and so forth. Thus use your broker and their experience and expertise to your fullest advantage.

Fear of Commitment: I am probably one of the rare brokers who has not continually bought and sold during their career for their own account. Readers of my blog know I was in my previous residence for 27.5 year! This has to do more with not a big fan of change and it was and still is a great residence yet my lifestyle changed. I do, as most brokers do understand the purchasing of a house is a big commitment and not one to be taken lightly.

Buying a house, especially one’s first residence is a big step and commitment. As part of our client review and why we request pre-approval letters and so forth is a sense of commitment from our clients as in general brokers are not compensated unless a transaction closes. We also understand life presents us all challenges as no one’s employment is ironclad and other issues can question one’s commitment concerning home purchase into doubt. Yet with careful planning and foresight coupled with communication, commitment phobia can be curtailed.

As I advise clients a residence is not necessarily a ball and chain (and trust me there is the same look every one has when they review the mortgage repayment schedule at closing, I call it the Ball and Chain look). There are always options from resale to rental to refinancing and so forth.

An acquaintance I met while walking in my neighborhood one day mentioned a unique situation; she is single, a senior citizen with a larger home yet straddled with a sub-prime mortgage and job loss. If she sold her home; even with a strong market the proceeds would just cover the outstanding mortgage and penalties accrued over the past 6 months. Thus her credit report would be healthier yet she would be homeless.

As an acquaintance and not a broker we discussed and I suggested checking out the following blog on Seniorly concerning programs for seniors looking for roommates or housing. The upside for the owner of the home, the opportunity to collect some income, dig herself out of the financial hole and have a peer in residence. While not for everyone a viable alternative to selling and having no equity to fall back on or worse, foreclosure and being forced from the house.

As Brokers we are truly your advocates. As there some bad apples out there? Of course just as in any profession. However the vast majority of brokers I know and trust are those who truly look out for their client’s best interest and desire to build long-term relationships and a referral network based on honest quality service.

Happy House Hunting.

Advertisements

Is Irrational Exuberance Giving Way to Rational Behavior

I recently enjoyed a conversation with a friend who is about to list their residence in one of Denver’s most affluent neighborhoods (of note I was NOT in the competition for the listing). He mentioned what they plan to list the home at. I asked if they were planning to use the broker whom they have a personal relationship with and they advised no as what they wish to list the home at, the broker would not take the listing feeling the asking price was overly aggressive. Another broker has since been retained to market and sell the home.

Full disclosure, the home is spectacular from a conservative design perspective including solid pre-war construction, beautiful curb appeal, and a park-like oversized lot professionally landscaped and so forth. Of course there are some minor deficiencies yet nothing insurmountable. However when I was advised of the asking price my immediate reaction based on my experience in the present market was “Good Luck”.

I personally went through a similar situation with clients in 2011. Due to a change in employment status and other factors including owning the largest home on the block purchased at an inflated 2006 price, a challenging layout  and across the alley from a primary school  the sellers and this home had multiple challenges. At the Listing Presentation with a peer broker in attendance we advised the seller the asking price should be between $710,000-$720,000. The seller requested I place the house on the market for $839,000 (their purchase price was over $800K plus interior upgrades leading to a cost-basis in excess of $840,000). As a friend first and broker second (and I have since learned my lesson) I did as requested. After one month, multiple open-houses and two formal showings the sellers agreed to lower the price. The new asking $739,000, still above what was advised the prior month. Fifty yes 50 showings later and 9 months on the market not one offer! We decided to part ways. The seller hired another broker, within one week did a price reduction and subsequently sold the residence for $715,000.

It took the seller ten(10) months to sell for $715,000 which I had advised, from day one AND at $4,000/month mortgage, do the math, $40,000 before interest deduction, not exactly the most brilliant strategy.

Thus based on the above examples and seeing signs of a slowing market and for my own edification I decided to look at market activity both present and looking back at Sold Activity over the past 6 months.

Let’s start with Country Club (the borders are from Downing St. to west-side of University Blvd, 1st Avenue to 6th Avenue).

Sales Activity over the last 6 Months Country Club Neighborhood of Denver:

  • # Of homes sold: 7
  • Avg. Finished SF: 3,510 SF
  • Avg. Total SF: 4,482 SF
  • Average Sold PSF Finished: $568.38
  • Average Sold PSF Total: $445.01
  • Average Days on Market: 24 Days

On the Market at Present:

  •  # Of homes on the market: 8
  • Avg. Finished SF: 3,186 SF
  • Avg. Total SF: 4,419 SF
  • Average Sold PSF Finished: $557.31
  • Average Sold PSF Total: $424.36
  • Average Days on Market: 68 Days and counting

Based on size the differences between the Sold’s and on market is marginal and same concerning the Price per Square Foot however what is telling is Days on Market (DOM). The Sold’s over the last 6 months on average sold in 24 days. Yet those on the market today is average 68 days and counting. The difference, over one month, almost a month and a half.

I admit one could argue the homes on the market at present may have challenges from location to upkeep however as asking prices based on a Per Square Foot basis stayed relatively the same, the issue is the longer on market time. Number of days on market has more than doubled. Yes there are seasonal factors however many pundits argue the selling season is now year round.

My personal view is market demand is softening and asking prices are yet to adjust to the new market realities.

Of note, Country Club is a small, insular neighborhood with limited inventory and limited turnover. Thus I also looked at Cherry Creek North (1st Avenue to 6th Avenue, University Blvd to Colorado Blvd) to provide a more balanced view, granted however balanced one of the metro’ area’s most affluent neighborhoods can be. However with the diverse housing stock and density, a clearer picture may emerge.

Sales Activity over the last 6 Months Cherry Creek North Neighborhood of Denver:

  •  # Of homes sold: 53
  • Avg. Finished SF: 2,396 SF
  • Avg. Total SF: 3,335 SF
  • Average Sold PSF Finished: $436.10
  • Average Sold PSF Total: $332.28
  • Average Days on Market: 53 Days

On the Market at Present:

  •  # Of homes on the market: 94
  • Avg. Finished SF: 2,393 SF
  • Avg. Total SF: 3,416 SF
  • Average Sold PSF Finished: $595.36
  • Average Sold PSF Total: $412.07
  • Average Days on Market: 95 Days and counting

Again as with Country Club based on size the differences between the Sold’s and on market is marginal and same concerning the Price per Square Foot however what is telling again is Days on Market (DOM). The Sold’s over the last 6 months on average sold in 53 days. Yet those on the market today is average 95 days and counting. As with Country Club the difference is almost a month and a half.

Conclusion: In both neighborhoods asking and closed prices have stayed somewhat status quo. However in a hot housing market the number of days on market is telling. Granted one could use the seasonal differential argument. Maybe; however in both neighborhoods we are seeing the Days of Market mirror each other i.e. almost a month and a half difference.

I may be incorrect and I admit when I am however I believe the market is definitely showing signs of slowing based on Days on Market coupled with levels of inventory. Yes the two markets are considered luxury markets yet what happens at the upper-end of the market historically trickles down to other market segments. What will be interesting is when we will begin witnessing price adjustments.

It seems the pinnacle of the market may have been 6-12 months prior and the market is now possibly taking a well-deserved breather or maybe showing signs of a changing business cycle.

Considering interest rates have remained stable; actually still close to historic lows, the stock market continues to flirt with record highs and the recent issues with N. Korea are too recent to influence the housing market.

I believe the optimists will advise it is a natural seasonal shift, me being the conservative pessimist would advise, hang tight if you can it may be a bumpy ride ahead.

 

 

 

 

 

Opportunity Knocks in Cherry Creek North

Even in an overheated market opportunity knocks.

Every day I scan www.REColorado.com which is the MLS for Denver metro concerning potential opportunities including new listings, price adjustments and days of market. If the property is priced correctly and within a desirable area it will usually go under contract within days if not hours due to pent up demand and limited supply.

As many of my readers know I too am in the market as I sold my primary residence a few months back. However unlike many I have the luxury of living in what I hope is a temporary situation with below market rent thus I am willing to wait out the market. And while I may be incorrect; I believe the market will continue to slow in the middle to upper price ranges. While I am not suggesting a hard fall; existential issues may happen i.e. world events, interest rates and a getting long in the tooth bull market in equities…..my personal view business cycles have not ended and memories are short.

Yet for those looking long term I wanted to provide some real examples of properties presently for sale that have languished on the market yet may provide a good opportunity for someone looking longer term.

Cherry Creek North (1st Ave to 6th Ave, University Blvd to Colorado Blvd): Arguably one of the most in-demand neighborhoods in Denver with asking prices to match. Between the shopping district, The Cherry Creek Shopping Center coupled with easy access to Safeway,  Whole Foods and Trader Joe’s and a diversity of housing styles all within close proximity of downtown, its true location, location, location.

I pulled some statistics as follows:

Sold over the last 6 months:

Average Sales Price: $941,000

Per Sq. Ft. Above Grade: $447.73

Total Per Sq. Ft. i.e. including basement/unfinished: $340.39

On Market at Present:

Average Asking Price: $1,085.000

Per Sq. Ft. Above Grade: $484.83

Total Per Sq. Ft. i.e. including basement/unfinished: $394.84

Granted the numbers above may be skewed due to larger homes, new construction and of course location, location, location. However there are a few bargains available. Please note I have provided “my prediction” concerning closing sale price. This is just my personal forecast as I have no relationship with the sellers or the brokers listing the units and thus have no idea concerning motivations. Thus consider my predictions based on if I was representing a buyer and they asked me what they should offer and eventually close at.

525 Jackson Street: Located in the eastern part of the neighborhood 525 Jackson Street is a smaller 28 unit condo building on the NWC of 5th Avenue and Jackson Street, a pretty tree-lined quiet block. Built in the 1940’s the building is basic with some art moderne elements i.e. glass blocks illuminate the stairs (it is a 3-story walk up). The condos have nice expansive layouts, many closets and off-street parking, individual storage units plus a laundry/bike room.

At present there are two units for sale. Of note some of the challenges for some include no rentals allowed i.e. investors need not look. Per the bylaws there are various restrictions concerning air conditioners. There are no amenities beyond off-street parking, individual storage units and the laundry/bike room. Yet the building (new windows) and grounds (professionally maintained) fit right in with Cherry Creek’s streetscape.

525 Jackson Street #102: This is a smaller 2BD/1BA with 814 SF. The unit has been renovated including granite countertops, a designer bathroom and a unique tin ceiling in the master bedroom. Hardwood floors and ample east sun filtered through mature landscaping. This is a charming unit with an easy layout. Some may object to the 1st floor location and the smaller size, however at $350 PSF with an asking of $285,000 one can afford the Cherry Creek lifestyle for an entry-level price. My prediction concerning closing sale price: $250-$265.

525 Jackson Street #209: This is a larger 2BD/1BA with 917 SF. The unit has been partially renovated with a nice open kitchen. The bathroom is closer to original. It is a corner unit thus nice cross ventilation as it faces north and east. Windows have custom shutters, there are ample closets including 2 walk-ins and 3 hallway and off-street deeded parking. Asking is $299,000 or $326 PSF. My prediction for closing sale price: $270-$285.

Of note the last resale was unit #306, top floor (a walk-up building), nicely renovated including interior swamp cooler vent from the building common area system. An expansive 600 SF one bedroom which was asking $250K and sold for $255K in June 2017. The interior design and finishes were truly top-notch.

264 Harrison Street: A fourplex row house this complex is unique as it is a row house thus no common HOA fees; each unit is fee-simple and sits on its own tax lot. 264 Harrison has been through multiple and dramatic price adjustments. This is not a row house for everyone. The positives are the 2-car attached garage, modern, timeless design by a well-respected firm, Arquitectonica and a unique multi-split level design with the 2 bedrooms, one located on the 1st level, the master on the 3rd level and the middle level constituting the entertaining areas. There is a small private backyard and a balcony off the kitchen. The challenge with this unit is its location; the rear is adjacent to Colorado Boulevard (yet there is a 6′ brick sound wall  coupled with mature landscaping). The interior is dated including the appliances and cabinetry original 1984 with an interior palette of colors more associated with Santa Fe versus Denver. At present asking $474,950 or $287.85 down from $549,900. The value play, the neighboring unit 266 Harrison sold for $535,000 in April 2017. Granted it was completely renovated including updated interior including granite kitchen and Kitchen-Aid appliances, mechanicals, new windows, gas fireplace, built-in surround sound system, rear landscaping and so forth. However if one is willing to invest some dollars into renovation the value is there. Also sans HOA fees additional affordability and no restrictions concerning rentals. Please note I am in total disagreement with Zillow’s valuation of $501K which I assume is based on the sale of neighboring 266 Harrison. My prediction for closing sale price: $415-$440.

149 Harrison Street: Located on the west-side of Harrison Street i.e. not on Colorado Boulevard, a true single-family home for under $1,000,000 in Cherry Creek North. Originally a duplex and part of a larger 4-plex development the two units were combined and the lot separated allowing for a true single-family home on a standard 50’ x 125’ lot back in 2012. This home is not for everyone as 1) it is a ranch thus no basement or 2nd level. While offering 3 bedrooms and 3 bathrooms it is within a tight 1,826 SF. The yard is fenced in; there is a 2-car garage. However for comparable pricing of townhomes on the 100 block of Harrison Street one can own a single-family and the lot value (closer to the main business district similar lots are asking $900K). Yes there is a discount for being on Harrison Street across from Colorado Blvd and the eastern part of the neighborhood. However for a true SF home, renovated, newer mechanicals and materials all for $764,900 or $419 PSF down from $795,000, may be a good option for the buyer who desires a true unattached residence and possible future equity appreciation due to the lot with its G-RH3 zoning. My prediction for closing sale price: $725-$740.

Happy Hunting

July 2017 Statistics Show The Denver Real Estate Market Is Cooling

And this is not necessarily negative. Recently I have been blogging both statistical and anecdotal information about the Metro Denver housing market. I have predicted a slow down as I noticed activity in the upper-end luxury tier of market i.e. $1M and up was softening. From experience this segment of the market is usually first to show signs of the direction of future trends as it is the segment of the market that is least dependent on external influences including mortgage rates, liquidity, household income, employment levels and inventory issues.

In addition there haven been signs of a possible formation of a bubble concerning real estate in metro Denver including continued rising prices and a wider divergence concerning affordability and inventory.

One of my first reads each morning is the REColorado.com site  (an excellent source the most accurate information for both consumers and brokers) which is the Multilist service and keeper of statistics for Metro Denver Real Estate. The following is copied from their site in “italicized quotes“:

The latest data from REcolorado shows the eleven-county Denver metro real estate market experienced a summer cooldown across most major housing indicators.”

Granted a summer cool down is relative as while average prices dropped one(1%) percent from the prior month Metro Denver prices are still 10% higher year over year. And while inventory expanded (6 weeks of inventory, up one week) it is still at close to historic lows and we are witnessing more activity in the upper end of the market with homes at $700K+ accounting for 9% of the market (which in turn skews the average sales price which would be lower if upper-end sales were less of a factor concerning volume). While one month does not make a viable trend line the signs of movement towards a flattening or potential adjustment of the overall residential real estate  to the downside are not deniable.

Home prices in the greater Denver Metro area decreased for the first time since February. In July, the average sold price of a single-family home was $444,108, one percent lower than last month. Average home sale prices are still 10 percent higher than this time last year. As compared to last month, the average price of a single family detached home remained relatively unchanged, while the average price for a condo/townhome decreased by nearly three percent.

In July, we saw a seasonal decrease in sales, which is typically brought on by the July 4th holiday and summer vacations. Throughout the month, 4,697 homes sold, down 20 percent as compared to last month and 11 percent lower than this time last year.

Home sales were strongest in the $300,00 to $500,000 price range, where nearly half of all July home sales took place. Sales of higher-priced homes are becoming more common across the greater Denver Metro area. In July, sales of homes priced $700,000 and above comprised nine percent of all sales.

Inventory levels remain tight, as new listings of homes for sale fell 15 percent from June and were down four percent from a year ago. Still, the number of available homes for sale is maintaining at levels we saw earlier this year. July ended with 6,450 active listings of homes for sale, seven percent lower than the 2017 peak, which was reached in June.

At the current sales rate, there is six weeks of inventory, up one week as compared to June.

Homes continue to move quickly, especially in the counties with average home prices in the $300,000 to $400,000 price range. In July, homes spent an average of 22 days on the market, two days more than last month. In Adams and Arapahoe Counties, homes were on the market an average of just 17 days. Broomfield County saw the lowest days on market, at 15 days.”

Head and Shoulder Pattern in Denver Real Estate

As readers of my blog know I am somewhat a statistician as I look at various statistical measurements including the well respected Case-Shiller index concerning housing costs. Please note statistics are similar to an appraisal; they are a look back and not necessarily a look forward. I also believe history repeats itself as I have been a broker for 20+ years and have watched with interest the effects of business cycles on our real estate market.

Please note I am not advocating the following analysis concerning a Head and Shoulders pattern adopted from the stock market HOWEVER housing prices in general trend with the stock market. Thus reviewing the latest statistics and graph patterns I noticed a head and shoulders pattern-taking place in the Denver (and other) housing markets: The following is a graphic of a Head And Shoulders Bottom as related to equities:

H_and_s_bottom_new

Per Wikipedia: This formation (Head & Shoulders Bottom) is simply the inverse of a Head and Shoulders Top and often indicates a change in the trend and the sentiment. The formation is upside down in which volume pattern is different from a Head and Shoulder Top. Prices move up from first low with increase volume up to a level to complete the left shoulder formation and then falls down to a new low. It follows by a recovery move that is marked by somewhat more volume than seen before to complete the head formation. A corrective reaction on low volume occurs to start formation of the right shoulder and then a sharp move up that must be on quite heavy volume breaks though the neckline.

Another difference between the Head and Shoulders Top and Bottom is that the Top Formations are completed in a few weeks, whereas a Major Bottom (Left, right shoulder or the head) usually takes a longer, and as observed, may prolong for a period of several months or sometimes more than a year.

Screen Shot 2017-08-11 at 8.41.30 AM

In May 2017 according to the Case Shiller index the average home price in Denver reached $456,100 which is 41%+ higher than the previous peak experienced in Denver in August 2006 which many will remember was the pinnacle before descent into the Great Recession.

While the graph is not the easiest to comprehend yet the visual is strikingly similar to the Head and Shoulders Bottom, the following is the pricing and trend over a 17-year period, which I have mentioned in previous blog posts including the pricing history and activity of a home in Country Club.

  • 17 years: Average Annual Increase: 5.8%
  • 10 Years: Average Annual Increase: 4.6%
  • 3 Years Average Annual Increase: 10%
  • 1 Year Average Annual Increase: 7.9%

The average cost of a home in Denver throughout the past 17 years:

  • 2000: $230,000
  • 2007: $313,500
  • 2010: $290,000
  • 2014: $350,900
  • 2016: $422,800
  • 2017: $456,100

Are times and trends different from the Great Recession at present? Yes. Lending standards have tightened, sub-prime lending seems to be under control and we continue to be in a Goldilocks Interest Rate environment.

However just on a business cycle trend I have some concern and this does not include outside influences i.e. saber rattling concerning North Korea which impacted the equity markets worldwide yesterday with the largest point downtown since May 17th, 2017.

I am not a market forecaster however based on the statistics and graphs presented in this blog my level of concern for a retrenchment in prices is ratcheting upward. We are witnessing price adjustments in the upper-end of the market and if interest rates were to increase we would see affordability challenged further and average prices go down. Not necessity a negative as we continue to be in a seller’s market and average buyers are challenged concerning affordability and inventory, not a positive long-term trend for our housing market. I am not making any predictions, just showing statistics and voicing some concern.

 

 

Is A Real Estate Bubble in Colorado’s Immediate Future

Many of my real estate peers continue to bask in the glory of this continued bull market in Metro Denver. I understand this as both personally and professionally I too am frustrated with the lack of inventory; a marketplace which continues to show a demand side bias seemingly unabated.

Yes I have been accused of being a pessimist. As I advise I have been in this business for 20 plus years AND been a resident of the State of Colorado since 1984. Thus I have been through a few business cycles and was fortunate to purchase the home I just sold back in 1989 as Denver was coming out of a commodities influenced regional recession which was a catalyst for Denver’s now more diversified economy.

This morning, during my scan of the headlines a story came across the wires; this one relates to states with potential real estate bubbles. Posted on AOL Finance the article mentions 8 states in which a real estate bubble may be forming.

Per the article and quoted as follows it is important to understand “Today, most experts agree that, on a national level, we are not in a real estate bubble. The absence of nationwide or statewide housing bubbles doesn’t mean they’re not forming, however, or that they don’t already exist within some states on a more local level.”

The States mentioned in the article are California, Texas, Florida, Washington Tennessee, Colorado Oregon, and Nevada. On the national level due to changes in mortgage requirements and desires for home ownership we have witnessed income to house value ratios increase. Historically from 1950-2000, median home values have been roughly 2.2 times the median income. Today, that number is roughly 3.36 times higher, 50 percent higher than the historical average. Granted there are more choices concerning mortgage instruments and our society in general has collectively accepted the concept and use of leverage. We now know leverage and inflated valuations led to the most recent Great Recession. Unlike the Depression of the 1930’s which was particially caused by a bubble in tradable equities, The Great Recession began with a housing bubble as housing was and continues to be viewed as an investment vehicle and thus being leveraged.

Driving through Cherry Creek North and Downtown and seeing the cranes on the horizon coupled with the frenzied construction activity all along the Front Range from the Foothills to the Plains, I am starting to be concerned. A low-interest rate, high-demand environment must at some point correct, when is the question:

The following is excerpted from the AOL Finance article:

Colorado’s housing market is overvalued, according to Fitch Ratings. But why is overvaluation important to real estate bubbles?

People believe that the asset, often real estate, is going to become more and more valuable in the future. If it becomes more valuable because it produces more income, that is one thing,” said David Reiss, a real estate expert and law professor at Brooklyn Law School. But if it becomes more valuable just because people think it is going to become even more valuable, that is another. At some point, the merry go round stops and the current owners are left with an asset worth less than what they purchased it for.

In Colorado, home prices in major markets like Fort Collins and Boulder are not just overvalued, they’re more overvalued than they had been at their peak during the 2005-2006 housing bubble, hardly an encouraging sign. Making matters worse, incomes are failing to keep up with rising price.

Several Colorado metro areas are seeing price-to-income ratios above both the national level and their historic averages. The median home price in Denver and Fort Collins are roughly five-times the median income. In Boulder, the home price-to-income ratio is even higher at 6.6 and is more than 100 percent higher than the historic average.

To be clear, high home prices don’t necessarily equate to a bubble, said Jeff Shaffer of McKinley Partners, a real estate private equity firm. “A typical bubble starts with high prices causing capital to start flowing quickly into that space because of attractive returns. So high housing prices may spur a bubble down the road, especially in markets like Denver, where you see a lot of new home development in the pipeline to open up,” he said.

According to RealtyTrac, a real estate information company and an online marketplace for foreclosed and defaulted properties, Denver County has the nation’s lowest affordability index as of second quarter 2017, meaning it has the least affordable prices compared to historical averages. Adams County and Arapahoe County, both in the Denver metro area, also rank among the worst for housing affordability.

Personally I am more concerned about the Front Range versus the State of Colorado. Yes our resort communities are very dependent on real estate transactions for transfer taxes and so forth. However I am not seeing the frenzied activity west of the Continental Divide that I see on the Front Range. Thus if a bubble is forming, I believe it may be Front Range specific and while impacting the whole state if it bursts, the damage I believe will be most acute along the I-25 corridor from the Wyoming border to Pueblo.

Denver Now 3rd for Year over Year Price Appreciation. Sustainable?

The most recent Case-Shiller Index for Metro Denver shows continued strength in our market which is now at #3 behind Seattle and Portland for price appreciation. Within the last year the price appreciation for Denver has been 7.9%, which is very, very healthy (nationally the increase was 5.6%). Even more interesting is the following statistic from the report: “Denver’s Case-Shiller home price index in May rose to a new record of 198.32. That means that local home resale prices averaged 98.32 percent higher than they were in the benchmark month of January 2000, based on non-seasonally-adjusted data.”

Yes as a broker I should be celebrating. However I have been curious about business and real estate cycles as I have learned over the year’s lessons from history should be respected.

Case in point a charming house on a nice corner lot in one of Central Denver’s most desirable neighborhoods recently came in the market. The house is of a desirable size with 2,000 SF above grade and a fully finished basement with 1,300 SF. In addition the home is located within a most in-demand public elementary school which is within walking distance.

I decided to do a title search to see the activity on this house as it relates to the Case-Shiller index. Fortunately I could go as far back as 1992. Here is the history based on public records, please note the information reads as follows

Transaction/Date/ Price/Gain/Loss over Prior Transaction in $/%/ From 1992/ % Int. Rate:

  • Sold June 1992 – $225,000 Average 30 Yr. Mortgage Rate = 8.51%
  • Sold Nov 1993 – $238,500 + $13,500 or +6% gain/ 30 Yr. = 7.16%
  • Sold Aug 1999 – $480,000 + 241,500 or +101% / 113% gain from 1992/ 30 Yr. 7.94%
  • Sold Oct 2003 – $690,000 + $200,000 or +43% / 206% gain from 1992/ 30 yr. 5.95%
  • Sold Sep 2007 – $825,000 + $135,000 or +20%/ 260% gain from 1992 / 30 yr. 6.38%
  • Foreclosed Nov 2010/ 30yr. 4.3%
  • Sold Aug 2011 for $625,000 (- $200,000) or (-24%)/ 170% gain from 1992/30 yr. 4.27%

Placed on market July 2017 for $1,950,000/ 30 Yr. 3.88%

Assuming a sale for $1,900,000 + $1,275,000 or 204% Gain/ 740% gain from 2002

Thus from 1992 to 2007 which many consider the pinnacle of the last market upturn before the Great Recession, the gain over the 15 years equaled $600,000 or 73%.

In the three years from the pinnacle of the market to subsequent foreclosure in 2010 and sale the following year in 2011 the home lost $200,000 or 24% in value in 4 years. Yet from 1992 the increase still equals $400,000 or a 200%+ gain over 19 years.

If this home sells for close to asking in the 6 years of most recent ownership, looking at a $1,275,000 gain or $204% over their purchase and 700+% over the 1992 sales price.

Again I assume there have been renovations. Of note I am not factoring inflation as the $225,000 in June 1992 would equate to $393,000 in 2017.

However if one were to graph the history of this home it is unique as it shows true cycles in the market. In 1994 Denver and all of Colorado was experiencing a similar economic boom as we are enjoying at present. Granted the present expansion cycle is exacerbated coming off the Great Recession however I continue to argue fundamental business cycles have not ended.

Yes we are in a Goldilocks fiscal environment with historically low interest rates. I purposely included the average interest rates at the time of each transaction based on the 30 yr. fixed rate. Also with unemployment at record lows eventually we should see inflation tick up. During times of inflation housing generally increases in value HOWEVER when mortgage interest rates increase there is historically an inverse relationship i.e. rates go up on mortgages prices can come down concerning housing as more of the monthly is debt service.

Thus one may conclude the phenomenal increases in values may be attributable to the influx of capital and population to Denver, attractive pricing when compared to coastal cities and all coupled with cheap borrowing costs. However is this growth sustainable?

Ask me in the next 12-18 months.

Personally I would be a seller at present and only a buyer assuming a longer-term hold i.e. over 3-5 years at minimum while locking in the low-interest rates. Just my humble opinion.

 

 

 

Where the Chinese are Buying Real Estate Beyond China

When I was living in a rowhouse in Cherry Creek North, a late 20’s Chinese couple purchased the rowhouse bordering my south wall (presently for sale again). Both had been educated in the southern United States and were presently working in Denver. They purchased the residence I assume in cash while I was away on an extended business trip as I came home and met the new neighbors.

Within one year the rowhouse was put up for sale. Selling for a healthy 9.3% gain yet considering commissions and closing costs the couple broke even. I asked why they were selling? The answer; their visas were not approved for permanent residency.

As a licensed real estate broker in Colorado and New York I was curious where the Chinese are purchasing. Hong Kong has become a major market for Mainland Chinese pushing prices to record levels (a parking space just sold for in excess of US $600,000) and angering the local populace as prices continue to rise in a market that has been considered the most expensive in the world. Anecdotally I know New York is a favored place to park Yuan as well. Also, if in the market for a parking space I can fix you up with a nice space in Vail Village for $200,000.

As outbound Chinese tourism continues to increase worldwide, real estate purchases usually do not lag too far behind. In a report titled Immigration and the Chinese High Net Worth Individuals 2017, 300 plus individuals with net worth ranging from US$1.5M to $30M were interviewed.

The top destinations for these individuals concerning immigration in order of preference were the United States, Canada, the United Kingdom, Australia, Malta, Portugal, Ireland, Spain, Antigua, and Dominica. Of note, 2017 was the first time Antigua and Dominica have made the top ten list. Having been to Antigua; its UK heritage may be an attraction for Mainland Chinese of which many are fluent in English.

For the United States, the top destinations in descending order were Los Angeles (4th year at the top of the list), Seattle, San Francisco (which was 2nd last year) and New York. The location demand is partially due to geography as air-lift to Mainland China is most plentiful from the West Coast (Vancouver in British Columbia is very popular) yet also cost is a factor as San Francisco has become prohibitively expensive when compared to Seattle or Los Angeles.

Of note activity has slowed with the election of President Trump. Prior to the election per this article from Forbes titled Chinese Investments in U.S Real Estate Is Going Strong, this is not a new phenomenon.

Additional interesting findings from the study:

  • Education opportunities was the top concerning for 76% of the respondents
  • Living Environment came in second at 64% of the responses

Concerning Economics:

  • 84% of responses were concerned about the devaluation of the Yuan
  • 50% were concerned about their housing market yet many feel values will continue to rise

In speaking with brokers familiar with the Mainland Chinese purchasers a few general themes came about concerning their real estate purchases in the United States including but not limited to:

  • Education opportunities for their children and grandchildren.
  • Stability of the investment i.e. bricks and mortar coupled with the US Dollar.
  • Quality of Life i.e. concerns about pollution and environmental challenges in Mainland China.
  • The sheltering and protection of their assets into what is considered safety i.e. housing and real estate in general.

In the worldwide market with some exceptions capital is fluid. During times of instability jewelry and precious commodities are in demand as a hedge against inflation and offering portability i.e. jewelry, gold, precious stones. Yet in this era of modern economics and worldwide interconnectivity housing and real estate have now become the preferred asset class for stability and protection.

 

 

 

Denver’s Luxury Real Estate Market Continues to Break Records

As the upper-end of the Denver real estate market continues to set records have we reached the pinnacle?

In May 2017 according to The Denver Metro Association of Realtors (DMAR) 179 homes priced over $1M sold and closed. This number was 21% above April 2017 closings and 38% over the May 2016. The record-breaking number of sales is coupled with a 1% reduction in overall inventory during a month when inventory surges i.e. summer selling season with at present a 5.8 month supply of inventory.

Yes the luxury market ($1M and above) continues to be active yet headwinds seem to be evident.

In May 2017 the highest priced single-family home sold was $5,850,000 (1991 E. Alameda #6, Denver) representing five bedrooms, nine bathrooms and 7,358 above ground square feet in Denver.

The highest priced condo sold was $1,837,500 (105 Fillmore St #103, Denver) representing two bedrooms, three bathrooms and 2,338 above ground square feet in Denver.

In the $750K-$999K price range there was a 19% increase in home sales month over month and a whopping 50.7% gain year over year.

Yet within the hottest luxury neighborhoods of Central Denver while inventory is historically low buyers are advising pricing by their actions or inaction. A few listings in particular may be showing the upper-end of the market is being challenged. Out of respect for the sellers and their listing brokers I will not be providing exact addresses.

House I: Is a lovely brick Cape Cod style home with 3,600+ total square feet (3,150 SF Finished) on a quiet corner lot measuring 6,250 SF with a 2-car detached garage including loft area. The home is in one of central neighborhoods most coveted historic districts. The home came on the market in March at $1,100,000. At present the listing after three price adjustments is now listed below $950,000.

House II: In hot markets homes located on major arterials or other challenging streets i.e. one-ways and similar seem to come on the market en masse taking advantage of the additional demand in the marketplace. House #II i(located 4 blocks south of House #I is one such listing.

The home like Home #I is located within Central Denver and a Historic District, a neighborhood which commands the highest PSF in the area. The 3,600 SF Finished home sits on a large lot of over 10,000 SF. Built in 1960 the home has more of a suburban design including a 2-car attached garage, a rarity in the historic neighborhood yet attractive to prospective buyers who desire a post-war design and construction within the historic neighborhood. Of issue the home is adjacent to a busy roadway however the lot is surrounded by a 6’masonry sound wall and mature landscaping.

The home first came on the market in April of 2016 at $1,350,000. The listing expired in October of 2016 sans buyer. The listing reappeared on MLS with a new broker in March of 2017 at $1,300,000. In June there was a slight adjustment to the asking to $1,280,000. As of July 1 the home remains on the market.

Home III: A true mansion located on a historic residential street with a landscaped medium has been interesting to watch. Located 4 blocks east of House #II it was last purchased when Denver was showing some life post The Great Recession. The buyers were pretty astute. The 6,600+ SF Finished home sits on 12,800+ SF cornet lot. Again adjacent to a throughfare yet a sound wall and mature landscaping minimize the impact.

Concerning transaction history, this mansion may be a market bellweather (please note I cannot opine on interior renovations or other improvements as that information was not readily available):

  • The mansion first sold in March of 2004 for $1,030,000.
  • The mansion then sold again in March of 2006 for $1,650,000.
  • The last resale was in June 2013 for $1,275,000

After the sale in June 2013 the mansion was placed on the market in March of 2015 for $2,995,000.

Three months later the asking was reduced to $2,595,000. The listing expired in August 2016 sans sale.

In September 2016 the mansion was placed back on the market with a new broker for $2,445,000. Within 45 days the asking was adjusted downward to $2,295,000.

In January of 2017 another downward price adjustment brought the asking to $2,195,000. In March an additional adjustment brought the asking down to $2,095,000. The mansion went under contract as of 3 weeks ago.

The most recent buyers of the Mansion if they sell at close to asking i.e. $2,095,000 will have done quite well as their purchase 4 years prior was $1,275,000 or a gain of $820,000 before commissions and closing costs assuming again sold at close to the present asking price.

However here is a Mansion that in a 2 year span between March 2004 and 2006 appreciated in price by $620,000 yet when sold in June of 2013 LOST $375,000.

Even its most recent listing history, which began in March of 2015 at $2,995,000 and as of June 2017 was listed at $2,095,000 or a $900,000 reduction of the initial asking price.

One can infer their own interpretation concerning this Mansion and pricing as some would argue the sellers were initially too aggressive concerning pricing, the market for 6,000+ SF mansions is finite, the adjacent roadway is a challenge and so forth.

However looking back over the 13 years history of this Mansion’s activity i.e. massive appreciation over a 2-year span between 2004 and 2006 and subsequent equity loss, purchased at a fire-sale i.e. $193 PSF Finished and now on the market asking $317 PSF Finished or a 60%+ return in 4 years somewhat mirroring the overall gain the Denver market during that time period.

Let’s see if House/Mansion III closes and what happens to Houses I and II. I will keep you all posted.

 

 

 

 

 

You have the Porsche How About the Condo for It

If my readers will indulge me as this posting is NOT related to Denver real estate; once in a while I desire to go off topic geographically.

A few months ago when I was clearing out my house of 27+ years as it had sold, I ran across a pair of Porsche Design Sunglasses. During the early 1980’s when introduced; they were the pinnacle of design and at the time luxury priced, low $100’s (prior I was a fan of Vaurent, the sunglasses of choice for skiing). Living in NYC the Porsche sunglasses were a must have; a black metal frame and most impressive interchangeable lenses with a carrying case reminiscant of Porsche automobile designs.

Well fast-forward a generation. Porsche Design continues to design products (their retail stores are akin to a candy store for design aficionados like myself). Thus I was thrilled and desired to discuss a listing from our Engel & Volkers Miami , Florida shop. a never lived in condo at the beachfront  The Porsche Design Tower in Sunny Isles (Miami) Florida. I will save the suspense, the piece d’ resistance; the car elevator allowing you to park and keep an eye on your car within your condo. The following video via YouTube gives new meaning to having an attached garage: The Dezervator.

The following is from the sales brochure. If any interest please reach out to me and I will do an introduction with the listing broker:

A truly unique living experience awaits in the Porsche Design Tower, the first building of its kind with a breathtaking car elevator that delivers you directly to your private garage at the door of your never lived in apartment… All with the added distinction that comes with the Porsche name and reputation. 

With a total of 4,750 sq. ft. of living space, the residence features three bedrooms, three full and two half baths, large rooms, timeless white marble floors, state-of-the-art kitchen and a fireplace surrounded by views of the ocean and city. Outside, there is a large terrace with private pool and summer kitchen.

Located at 18555 Collins Avenue on beautiful Sunny Isles Beach, the Porsche Design Tower offers an inspired luxury living experience. With just 132 units on 57 floors, each unit has the finest finishes and touches that you would expect with the name Porsche. Building amenities include private restaurant serving the beach and pool, personalized wine storage, lounge bar with fireplace, two oversized spas, community room with pool table, auto racing simulator, golf simulator and movie theater complete with “new release” capabilities. The gym features state-of-the-art Milon equipment and there are yoga rooms, massage rooms, steam, sauna and ice therapy rooms as well as space for personalized, private services. 

For those who wish to purchase the asking price is $6,500,000 US and of course if you wish to lease (think of this as a test drive) available for $25,000/month.

The following is the link to the Virtual Tour by the listing broker:

Porsche Design Tower # 2803

For even more information the following is the original promotional video: Porsche Design Tower