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

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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.