A Listing in Congress Park May Be a Predictor of the Future of Denver’s Real Estate Market

Reality can be challenging.

As a real estate broker I am also a voyeur. I look at the new listings daily on behalf of clients and also for myself as it is no secret, my wife and I sold our Cherry Creek North residence and are casually looking for a replacement residence.

Concerning the listing; as it is public information and being marketed here is the address: 827 Jackson Street, Denver.

I viewed the listing on the MLS and was intrigued. To be honest I am not the strongest proponent of the eastern streets of the Congress Park neighborhood i.e. Garfield St, Jackson St and Harrison St as they are impacted by Colorado Boulevard coupled with mixed-uses i.e. single-family, rental and condo apartments, parking lots and so forth. Sale prices on those eastern blocks generally lag the more central Congress Park neighborhood streets.

Full disclosure I lived on the east-side of the 200 block Harrison St abutting Colorado Boulevard thus I am well aware of the impacts on real estate values.

Back to the listing. While offering in my humble opinion limited curb appeal I will be honest the interior images presented on the MLS caught my eye, well worth a visit.  I scheduled a preview and visited the listing within the first week on the market.

A unique design with a front room incorporating design elements of a loft i.e. vaulted ceilings, exposed electrical conduit, support beams and so forth. The kitchen while small is efficient and well-designed. The two bedrooms are quite small and the one bathroom on the at-grade level is ¾ i.e. lacking a bathtub and would be challenging for two persons to use at the same time. Also due to location of the bathroom, access is via one of the bedrooms or through the kitchen, no direct access from public/entertainment areas of the home.

The basement is attractive, finished and rarely found, walk-out to the back yard via stairs. There is also a full bathroom in the basement including a tub. However it is a basement and thus some prospective buyers may be challenged by the below grade orientation.

Overall impression, a darling house, perfect for a first-time buyer but definitely not for us for reasons that are personal.

Now concerning the listing, the pricing and the marketing.

First, a history of the residence:

  • April 2008: Listed at $284,900
  • May 2008: Reduced to $277,500
  • July 2008: Sold $280,000


  • Nov 2009: Listed at $329,000
  • Dec 2009: Sold $301,900
    • Gross Profit: $21,900 before commissions and closing costs.
  • Aug 2015: Listed at $400,000
  • Oct 2015: Sold $380,000
    • Gross Profit: $78,100 before commissions and closing costs.

Now this is where the listing becomes interesting. It seems the buyer in October 2015 embarked on a renovation of the interior with the updated loft-style design orientation as mentioned prior.

  • June 2018: Listed for $585,000
  • June 2018: Sold for $620,000
    • Gross Profit: $240,000 before renovation costs, commissions and closing costs.

One must assume multiple bids and sold for $35,000 above the original list price. The Listing Broker and the Selling/Buyer Broker are both affiliated with Liv Sothebys one of the dominant and well respected real estate brokerages in Metro Denver.

Yet less than one year after the sale where the buyer paid $35,000 over the asking price, the residence is back on the market:

  • April 2019: Listed for $650,000
  • May 2019: Reduced to $635,000

The residence is now being listed by Redfin AKA Real Estate Redefined, a full-service real estate brokerage which promotes savings on both listings and purchases. The seller has signed with Redfin and I presume agreed to a commission of between 1% and 1.5% (as noted on their web site) so I assume for this blog entry 1.25% or $7,937 based on the reduced $635,000 asking price. Of note while not a fixed rate based on discussion with peer brokers affiliated with traditional full-service firms, the listing brokers I work with are in the 2.9%-3.3% range concerning a listing commission.

Per the listing on the MLS the co-op commission i.e. the commission paid to the broker representing the buyer which is paid for by the seller is listed at 2.8%. Thus if sold for $635,000 the co-op commission would be $17,780. Add the Redfin listing fee of $7,937, the seller is paying in excess of $25,000 in commissions to sell the property.

However the home is listed at $635,000 down from $650,000. Thus even if sold for the asking of $635,000, deduct $25,000 for commissions and even before closing costs and title insurance we are now at $610,000 or $10,000 below what the seller paid one year ago in what I assume was a multiple bid situation.

The reality is even with the use of a lower-cost brokerage option i.e. Redfin, the seller will still be losing money from their original purchase. This happens and it is becoming more frequent as the pinnacle of the market seems to be behind us and head-winds seem to be ahead of us. Buyers who acquired between 2016 and 2018 seem to be taking the losses especially those on the upper tier of the market.

When the seller purchased for $620,000 or $35,000 over the asking they probably assumed a continued upward trajectory concerning value and thus bid over asking. I do not know the circumstances for the sale and subsequent loss. I assume a loss of value was not considered when the multiple prospective buyers were submitting their highest and best offers a year ago.




Denver is Number 2 on the List of…..

Most expensive cities to live in; not exactly the top of the list a city wishes to be on.

The list is based on a cost of living index having taken into account a city’s median income and having compared it to what it costs for homeowners and renters to live comfortably in the city. These numbers were derived from Go Banking Rates, which was able to ascertain the ideal incomes in major U.S. cities using the 50/20/30 rule.

The 50/20/30 rule suggests you take 50% of your income for necessities (housing, food, healthcare, transportation), 20% for savings and 30% for personal items you don’t need but want.

#10 San Jose, CA

  • Average Ideal Income: $170,586
  • Median Income: $96,662
  • Cost of Living Index: 1.76

#9 Honolulu, HI

  • Average Ideal Income: $157,765
  • Median Income: $80,078
  • Cost of Living Index: 1.97

#8 Boston, MA

  • Average Ideal Income: $124,901
  • Median Income: $62,021
  • Cost of Living Index: 2.01

#7 San Francisco, CA

  • Average Ideal Income: $197,250
  • Median Income: $96,265
  • Cost of Living Index: 2.05

#6 Oakland, CA

  • Average Ideal Income: $136,778
  • Median Income: $63,251
  • Cost of Living Index: 2.16

#5 Long Beach, CA

  • Average Ideal Income: $131,702
  • Median Income: $58,314
  • Cost of Living Index: 2.26

#4 New York, NY

  • Average Ideal Income: $138,500
  • Median Income: $57,782
  • Cost of Living Index: 2.40

#3 Los Angeles, CA

  • Average Ideal Income: $143,300
  • Median Income: $54,501
  • Cost of Living Index: 2.63

#2 Denver, CO

  • Average Ideal Income: $106,128
  • Median Income: $38,991
  • Cost of Living Index: 2.72

#1 Miami, FL

  • Average Ideal Income: $107,245
  • Median Income: $33,999
  • Cost of Living Index: 3.15

Now that you have gotten through the list let me add the following for thought:

As a trained urban and regional planner one significant geographical feature of the cities listed comes to the forefront; 9 of the 10 cities on the list are coastal. Thus their ability to physically expand horizontally is hindered by water. The one exception is Denver which while in a basin can easily expand in all four directions with the major constraint in the future being potable water supply.

Another interesting observation concerns Denver and Miami and the Cost of Living Index. Miami, while having a diverse economy is also challenged income-wise by its higher than average population of retired residents; thus living on fixed or limited incomes. Thus the disparity between housing cost and income can be somewhat justified coupled with a real estate market that is buoyed by out of the region demand from snowbirds of the north to capital sheltering from Latin and South America.

Denver is truly the outlier on the list. Our economy is more diverse than Honolulu but not by much.  In addition Denver is the only city/region on the list without a major seaport concerning trade and commerce.

Denver has been attracting the best and brightest for many years due to our pleasant climate and until recently an affordable cost of living. Yet is our cost of living and lifestyle sustainable longer-term if incomes do not catch up?

While Denver may be attractive concerning companies looking to relocate i.e. VF and others the reality is cost of living and lifestyle can be a determinate concerning corporate relocations. My concern if Denver continues on this trajectory concerning a disparity between income and cost-of-living coupled with competition for our brightest and best from cities such as Salt Lake, Austin, Dallas, Minneapolis, Atlanta and others; should be we concerned?

Yes! Denver historically has been a boom and bust city and while we may be fortunate to ride this wave of in-migration and housing price inflation increasing our wealth effect the same scenario happened in the late 1960’s before the inflation of the 1970’s. Also happened during the oil boom of the 1980’s until jobs fled en masse to Houston and Calgary in the late 1980’s into the early 1990’s.

This time may be different…yet even The Wall Street Journal advises:

For 2019 Graduates: The New Cities for New Grads: Salt Lake City, Pittsburgh and Baltimore. These emerging locales offer hot jobs for young workers—plus reasonable rents.

Next week a home listed in Congress Park that may be an example of Irrational Exuberance catching up with the reality of a charing real estate market.





Yes the Sky Does Have a Limit

For those old enough to remember The Concorde, the supersonic passenger airplane passengers traveling at 60,000’ were treated to an astonishing site of the blue sky below turning ink black above and viewing the curvature of the earth. So what does this have to do with real estate?

I have always believed the deluxe and luxury real estate market was and is an indicator concerning the future of the overall housing market. I have noticed anecdotally when markets are climbing out of recession the deluxe and luxury real estate shows early activity as it seems astute buyers understand the opportunities these properties offer in an up-cycle market.  I also find the same concerning markets that have crossed the pinnacle and are now on the downside of the curve. In Denver during the past 18 months we have witnessed a slow-down concerning the upper-end of the market including longer days on market and price adjustments: below is an example:

461 Race St:

  • 9/17: Placed on Market $4.85M
  • 6/18 Reduced to $4.65M
  • 8/18: Reduced to $4.1M
  • 4/19: Relisted $3.85M

My concern is a recent statistic concerning Billionaire’s Row in New York City. (Full disclosure I used to reside in a building adjacent to 220 Central Park South one of the buildings included in Billionaire’s Row).  While not actually a row the moniker concerns a section of Midtown West Manhattan bounded by 55thStreet on the south to Central Park South on the north, 5thAvenue on the east and 8ThAvenue on the west. Of note 432 Park is included in Billionaire’s Row as though east of 5thAvenue it does back onto 57thStreet and was also one of the first condo buildings to sell units for over $50M USD.

The construction of 157 West 57thStreet completed in 2014 (a mixed use structure with a Park Hyatt on the lower floors and condominiums above designed by architect Christian de Portzamparc many believe was the catalyst for the moniker and due to savvy marketing reinvigorated a bland congested segment of Midtown Manhattan and turned it into the supposedly most desirable address in the world in a similar league of One Hyde Park, Peak Road, Avenue Foch and other prestige addresses.

Subsequent to 157 West 57thStreet other towers are being constructed. I use towers conservatively as many are taller than the Empire State Building one mile south a defining structure of the Manhattan skyline.  Height sells as many of the buildings promote their unobstructed view of Central Park to the north as a selling point (as the structures tower over the neighboring mostly pre-war apartment and office buildings.

Yet of interest is a report from Miller Samuels a respected appraisal and market guidance firm based in New York. The New York Post nailed it: “Swank apartments are begging for buyers on Manhattan’s “Billionaires’ Row” — with more than 40% sitting unsold in towers that top out at 100 stories.

Concerning 157 West 57thStreet as mentioned prior, only 84 of its 132 pricey condos have been bought — leaving more than a third of them still on the market and none under contract. Six other nearby buildings (as noted above) have as much as 80% of their units available, the figures show, with the total value of all the unsold inventory estimated by one analyst at between $5 billion and $7 billion.

Another building that’s set for completion next year — Central Park Tower, at 217-225 W. 57th St. — will put an additional 179 apartments on the market.

Back to market forecast. As mentioned having been through three market cycles in my real estate career I truly believe the deluxe and luxury market is a forecast for the overall housing market. As one broker in NYC mentioned: “This happened in 1988 to 1992, when there was a glut of condos that didn’t sell. They were smaller and less expensive, but it led to bad times”.

The issue with Billionaire’s row could be timing. Yes a glut of condos all coming on-line with prices starting at $7,000 USD per square foot and some breaking the $10,000 PSF price. The reality is there are only a finite number of prospective buyers in the world at that level of wealth. Coupled with world events i.e. sanctions on Russia, limiting of currency departing China, increasing but below inflation oil prices, South American money heading to Miami, uniform cash thresholds,  reality is the finite market for these units continues to shrink.

Is Billionaire’s Row an anomaly? Of course. The first to the party i.e. Time Warner Center and 432 Park Avenue seem to have done OK. Those joining the party subsequently and potentially in haste should be concerned.  As developers, their success is their sales. However with leveraged capital and banks/financial institutions providing working capital exposure the risk is spread. However at some point mortgages need to be paid, asking prices may have to be slashed and as I have shown in past blogs re-sales have incurred losses.

Am I concerned about the developers and the banks? On a micro level, no. I am concerned about the fallout from massive defaults to empty buildings to job losses as when such real estate does not sell the multiplier effect does impact down the food chain.

During the Internet bust of the early 2000’s Alan Greenspan warned of irrational exuberance.  Prior to The Great Recession that begins in 2008, real estate on all levels was suddenly considered a commodity. Is the lack of sales activity on Billionaire’s Row a harbinger of the overall real estate market? When the deluxe and luxury market sneezes there is a good chance the overall market will eventually catch a cold.




Why I Avoid Love Letters Attached to Offers

I understand the trend of sending a personalized note when placing an offer on a property especially when there may be a multiple offer situation. I as a broker adamantly refuse to open and review such attachments to an offer and I advise my selling clients to avoid yet it is their decision.

As a listing broker I provide a service to my clients. In the event of a multiple offer situation (which may also suggest the residence is priced below market thus the strong interest) I review the offers, present the offers and will opine which I believe may be strongest and the one to proceed with.

Choosing the strongest offer may include a verifiable pre-approval letter. A larger down payment leading to a potentially easier loan process. Other variants may include a check for the earnest money or down payment provided with the offer versus an IOU i.e. to be tendered three days after mutual execution of contract.

Personally I am not a fan of waivers of appraisal and inspections. Yes such waivers may be attractive to a seller however if issues arise and worse one enforces specific performance there is generally ill will at the closing and worse potential litigation in the future.

Back to Love Letters, I hate them. Again I understand the psychological comfort associated with composing and sending with an offer. I as a buyer have too been tempted but also know as a Broker the strongest offer is the winning offer. As I advise clients in a multi-offer situation; I do not care what is the highest price offered I want the offer that will close.

As a Listing Broker the Love Letter puts us brokers in jeopardy of potentially violating multiple local, state and federal laws concerning Fair Housing. Many letters come with pictures of the prospective buyers. Such letters usually include detailed information concerning occupation, ethnicity, family structure, disabilities and so forth. Such information, even being exposed momentarily, while you may not be bias may alters one’s subconscious decision-making process.  This is why I advise do not open or review Love Letters when working with sellers.

As a Buyer Broker I understand the desire by clients to enhance their position in a multi-offer situation. I always advise buyer clients to have their paperwork done prior i.e. pre-approval if a loan is procured, have inspectors and others lined up prior to be able to offer an expedited schedule and subsequent close and to not have an emotional attachment to real estate as options are always available.

The following distributed by the Colorado Real Estate Commission and Department of Regulatory Affairs transcends boundaries. I have shared the advisory with peer Brokers in both Colorado and New York: Real Estate Broker Licensee Advisory: Buyer Love Letters

Some readers are familiar with my personal journey concerning our present NYC residence. We had actually looked at another apartment that we truly loved. A spacious duplex (2 levels) in a neighborhood we truly desired. I literally walked by the building multiple times day and night checking out our future apartment. Not to provide details but the deal fell apart. Were we feeling dejected? Yes.

However we continued to look and found the apartment we are in at present. We truly love our apartment including the wood-burning fireplace, our building, the staff, management, private courtyard and our neighbors!

I continue to walk by the other apartment building (on way to my NYC office) and now realize beyond the apartment, the building was not as desirable as where we are now. The monthly Maintenance/HOA dues is much higher, staff and management did not seem overly welcoming and we are in the same neighborhood on what many peers suggest is a nicer street with fewer cars and cross-traffic.

While I challenge myself with the mantra “Things Happen for a Reason and Will Work Out in the End”, it is true. In real estate we sometimes get caught up in the emotion and perception of what will make our lives complete, wholesome and happy. I should know, as a real estate broker I am one of those salesmen. I do believe home ownership is important on many facets from wealth generation to stability to tax benefits. However there are always opportunities when you least expect and why we should all keep open minds when working in real estate and please avoid The Love Letter.


Could Greenwich CT be a harbinger of the overall luxury housing market

Greenwich CT. may not be the most familiar community to those of us who live west of the Mississippi. A wealthy commuter suburb for Manhattan, Greenwich has historically been one of the gilded enclaves of wealth and prosperity for multiple generations looking for a beautiful leafy green suburb and attractive state income tax laws. Yet recently Greenwich and other wealthy commuter suburbs of New York City have witnessed challenges to their historical demand for luxury housing.

Over the weekend The Wall Street Journal ran an article titled ” Wealthy Greenwich Home Sellers Give In to Market Realities”. The lead paragraph reads as follows:

After four years on the market, and three price cuts, a stately Colonial-style home on Greenwich, Conn.’s tony Round Hill Road is being sold in a way that was once unthinkable in one of the country’s most affluent communities: It is getting auctioned off. Once asking $3.795 million, the four-bedroom property will be sold May 18 with Paramount Realty USA for a reserve price of just $1.8 million.

Even the wealthy are not immune to price adjustments. According to Realtor.com there were 45 properties in Greenwich priced at more than $5 million that had their price reduced by 10% or more in the 12-month period between April, 2018, and March, 2019. Not to worry Greenwich continues to be one of the wealthiest communities in the United States and its reputation is intact.

However there are winds of change that may be longer-term concerning wealthy suburban enclaves and their demand for the upwardly mobile and those who have attained status of being counted within the wealthiest 1% of earners.

Property Taxes: The revised federal tax code reduced deductions concerning real estate taxes. While many pundits believed the revision was to penalize the New York Tri-State region where many suburban communities have tax bills exceeding $10,000 annually even on a modest home, the reality is here in Metro Denver the $10,000+ real estate tax bill is becoming more common in neighborhoods such as Denver Country Club and in suburbs including Cherry Hills Village and Castle Pines.

Changing Lifestyle: While the pinnacle of affluent home ownership used to be a large home with acreage surrounding for croquet and lawn tennis more and more affluent are flocking to the inner-city i.e. Billionaires Row in New York City, One Hyde Park and even here in Denver high-rises such as The Four Seasons in Downtown Denver as well as homes in Cherry Creek North known for their enormous size on lots more akin to a postage-stamp.

Concerning Greenwich the news gets worse: The median price for a home in Greenwich dropped by 16.7% last year to $1.5 million in the fourth quarter of 2018. On the luxury end of the market, characterized by the top 10% of sales, prices dropped by 18.8%. 

In addition, the average time a luxury home sits on the market in Greenwich is 357 days from its most recent price adjustment. The only segment of the market performing well appears to be smaller, entry-level homes close to the train station, which are being snapped up by a new generation of buyers. The lowest priced condos currently on the market in that area start at around $330,000, according to Zillow.

Should we be concerned in Metro Denver? Maybe. The blockbuster sales of 2016 and 2017 have not been replicated in 2018 and 2019.  In prior blog posts I have provided evidence based on public sales records how some sellers are taking real dollar and inflation adjusted dollar losses on their luxury homes in the most in-demand neighborhoods of Central Denver and Cherry Hills Village.

Of note with the stock market continuing to gain value and the economy seemingly running on all 8 cylinders seems to defy logic that luxury real estate should be lagging. While I do not read tea leaves I do review sales data; if I were considering dropping a few million on a home in Metro Denver at present I may want to take a breather.

Foreign Investment in Colorado Real Estate Should we be Concerned

A few weeks ago local Channel 7 news ran a story about foreign investment in Colorado Real Estate titled: Foreign investors continue their real estate spending spree in Colorado. I am glad the producers included the word “continue” in their story as this is not a new phenomenon. Back in the late 1980’s my thesis for undergrad in Political Science was titled Direct Foreign Investment in Downtown Denver an era when Canadians were slowly divesting from commercial real estate downtown and surprisingly Europeans, specifically Germans were purchasing. Of note this was a time when our local economy was on the skids post oil boom in the mid 1980’s.

Also foreign investment in real estate within our mountain resorts is goes back to the development of our modern ski resorts with Vail and Aspen starting the trend and foreign investment can be seen throughout our mountain resorts.

Of note the article seems to focus on Denver and how foreigners are purchasing real estate at above market rates and thus placing additional stress concerning demand and by simple economics pushing prices higher. However the story did not look at the pitfalls of such investments concerning our local economy.

While many will suggest to look at Vancouver as a cautionary tale concerning foreign investment I could not agree more. With a large influx of Mainland Chinese buyers using Vancouver real estate as both an investment and monetary shelter it is not uncommon to see homes and flats vacant for most of the year. Yet due to this purchasing activity Vancouver has become unaffordable to many of the locals. The local government is pursued a speculation tax to address the issue. Other popular attractive destinations around the world including New Zealand seem to be following Vancouver’s lead to try to dissuade foreign buyers.

Yet on the flip side foreign buyers can also have disrupt segments of the market with nothing to do with affordability. In New York City condo towers presently under construction on Billionare’s Row* AKA West 57th Street believed the demand from foreign buyers specifically Russian and Chinese was sustainable; it’s not and losses happen. Related in New York City there is support for a pied-a-terre tax to provide capital for the city’s aged mass-transit system.

Even Mansion Global an influential read for those in the luxury housing market advises in a recent article how to attract foreign buyers in a slowing demand marketplace: Strategies for Sellers as Chinese Buyers Scale Back on Foreign Real Estate Investment.

Granted there are other macro economic forces at play as well including the value of the US Dollar against other currencies i.e. when the US Dollar is weak our real estate looks even more enticing to foreign buyers just as US based buyers flock to Mexican real estate when the Mexican Peso is weak.

Back to Denver; I would be concerned. At present we may have pockets of foreign money purchasing residential rental properties and thus may be adding stress to our already over-heated housing market (based on the divergence between local housing costs and local income levels). My concern is more macro i.e. if the US Dollar continues to strengthen or if there is a world-wide recession; foreign money can take flight as easily as it comes in.

While I do not believe foreign investment in Denver’s residential real estate market is a concern due to the limited capital investments against the full local real estate economy there are places in China now known as Ghost Cities where speculation’s negative extranalities are on full display.

* Full disclosure, I used to reside part-time in a co-op located adjacent to Billionaire’s Row. Our building actually sold our air-rights to the developer of adjacent 220 Central Park South. In the 13 years of ownership, when sold generated a profit of just shy of 500% partially due to timing and mostly due to luck.

Yes There Are Still Bargains in Real Estate. How about $75 PSF

While traveling on the East Coast last week probably one of the most intriguing bargains in the real estate market sold and closed at $75 per square foot! Yes $75 PSF Finished. While many may assume the house is a wreck or was sold for land value or is inhabitable; all such assumptions are incorrect.

Actually the home located at 50 Poplar Drive, Farmington, CT is a bit gaudy for my personal tastes however the home does offer 21 bedrooms and 35 bathrooms, as well as a movie theater, gym, indoor pool and basketball court. The strip club room complete with stage and stripper poles may have alienated some prospective buyers yet one can always renovate. The location; while located in Connecticut, away from the popular  commuter rail lines and inland thus no water views.

Now for the history. The home was once owned by boxer Mike Tyson (who tried to sell the home for $22M in 1997). In 2003 as the national economy was heating up, rapper and entertainer 50 Cent paid $4.1M to Mike Tyson to take the mansion off his hands. Then 50 Cent invested millions into the house concerning renovations.

The real estate market has not been kind to 50 Cent. He first listed the home in 2007 at the height of the real estate boom, one year prior to the Lehman Brothers implosion and the start of the world-wide recession. The downward price adjustments continued soon after:

  • Initial Ask – 2007:  $18,700,000
  • 7/2009: $10,900,000
  • 1/2011: $9,999,999
  • 10/2015: $8,500,000
  • 7/2016:  $5,995,000
  • 12/2017:  $4,995,000
  • 3/2019:  SOLD for $3,900,000 or $75 PSF

In general the larger the home and cost the fewer prospective buyers. Within Denver the largest most luxurious homes usually sell for less on a per square foot basis than smaller homes on the same block or neighborhood. While the average home in the United States has steadily increased in size, there is a limit.

Of note in 1950 the average American home was 983 SF, in 2014 it was 2,657 SF .

While anomolies include the blockbuster sale at 220 Central Park South in New York or the Hongtian Chen residence purchased for $270,000,000 USD in Hong Kong; most real estate experts agree bigger is not always better and the larger the home and pricing and more finite the market. BTW: the Central Park South and Gough Hill Road (where a nice rental is available) homes are priced beyond traditional jumbo mortgage options. 



Do Not Be Lured Into a False Sense of Business Acumen By Low Interest Rates

The dominant story in the real estate industry last week was the drop in interest rates on mortgages. The timing for many is welcome i.e. the beginning of the traditional spring selling season. While I can advise yes lower interest rates may make a transaction more palatable with a lower monthly payment I would be remiss not to mention lower interest rates usually signal an economy that may be challenged in the foreseeable future. In economic principles lower interest rates are considered a tool to increase economic activity. In addition while housing prices have stabilized and in many markets adjusting downward many believe housing prices are still inflated overall.

The above brings me to the topic of not only interest rates but also the timing of the market. In a conversation with my CPA last week we discussed how so many seem to have forgotten about the Great Recession. It was not that long ago when distressed properties dominated the MLS, short-sales were common, credit scores were dropping and homeowners were literally walking away from their homes knowing what they owned on their mortgages far exceeded the present value of the home.

Which brings me to today’s blog. A lovely home in tony Cherry Hills Village just came on the market. Located in Old Cherry Hills, the 8,100-square-foot residence and guest house (above the 5-car garage) is located at 1120 E. Tufts Avenue. The home is listed at $4.5 million ($778.28 PSF above grade), by Cherry Hills standards while not the most expensive, not a bargain either. At present there are 37 active listings within Cherry Hills Village ranging from $900,000 to $22,000,000, the Medain PSF above grade asking is $492.98):

The 7-bed, 9-bath residence is just over 8,100 square feet and sits on 1.28 acres. The 1,600-square-foot basement features a home theater, bedroom and bathroom. All seven bedrooms have bathrooms en suite, and the master suite boasts a balcony overlooking the property.The two-story home is surrounded by a professionally landscaped backyard complete with an orchard, vegetable gardens and a pool pavilion.

As mentioned there is a one-bed, one-bath guest house with a kitchenette and its own fireplace atop the five-car garage.

I am a bit of a statistician and when looking at real estate I try to take the emotion out of the equation. My feeling is a residence’s value should at minimum keep up with inflation; any gain beyond is icing on the cake. Yes there are limited various tax advantages yet also costs concerning maintenance and upkeep of a residence. Of course pride of ownership may trump all the perceived challenges of home ownership (and of note a wise person once said “If you have a mortgage you do not own the home, the bank does”).

Back to the residence on the market. Trust me if I hit Powerball I am a potential buyer. Yet how did the sellers financially on the house during their tenure of ownership?

  • The owners of record paid $3.96M for the home in 2006.
  • The asking in 2019 is $4.5M. On its face a potential profit of $540,000.
  • Impressive over 13 years or $41,000/year gain during ownership.

Yet let’s consider the following. Even if the seller sells for $4,500,000 when one factors in commission of 6% and Closing Costs of approximately $10,000 the net to seller is $4,220,000, still an impressive gain.

However, the $3,960,000 paid in 2006 when adjusted for inflation is $4,965,000 in 2019 Dollars or $465,000 below thr asking which equals an average home in Metro Denver. Thus the home did NOT keep up with inflation.

Now let’s assume the seller had a mortgage and placed 20% down on the purchase price. Of note in 2006 mortgage interest rates were at a 4-year high with the average 30-yr rate at 6.75%, or 3.75% higher than rates quoted last week. The Principal/Interest/Taxes and Insurance (PITI) on the $3,168,000 would exceed $22,000/month! High mortgage interest rates usually signal a strong economy and in 2006 the national economy was booming as few would have believed two years later the economy will go into the worst downturn since the Great Depression of the 1930’s.

For the prospective buyer concerning potential write-offs; real estate taxes as of 2019 can only be deducted up to $10,000. The real estate taxes on the residence for 2017 were $24,472.

The message here is: I assume the sellers when purchasing their dream home in 2006 assumed their home would only increase in monetary value, their mortgage rate (assuming they obtained a mortgage) was within expectations and even at 6.75% was half of the rate of the early 1990’s. Overall a positive investment of both capital and lifestyle. At asking of $4.5M the seller will profit slightly yet when reviewing the 13 years of ownership, the residence was a financial loss in terms of inflation adjusted dollars. 

A home should first and foremost be considered shelter not an investment. I am worried with the sudden downturn concerning mortgage interest rates of last week; are buyers purchasing based on a monthly payment in a still inflated housing market versus sound financial judgement and future wealth aspirations.



First Time Home Buyer In Denver…..May Wish to Reconsider

I know I am a realist; I guess that comes with the three decades in the business and having been through three regional boom and bust cycles. Personally I was fortunate concerning the housing market; I bought my first house in 1989 for the grand sum of $140,000 ($285,000 in 2019 Dollars) the seller had purchased 5 years prior during an up-cycle i.e. the oil and gas boom of the 80’s before the S&L crisis had paid $200,000 ($238,000 in 1989 Dollars, $486,000 in 2019 Dollars) for the house. When I purchased the home, the seller still owed $160,000 on the mortgage and a 6% ($9,600) brokerage commission at the time of the sale. Yes I was fortunate concerning timing and insights i.e. in 1989 it was more advantageous for me to purchase based on the mortgage payment coupled with tax benefits (15 yr mortgage with 20% down) than the monthly rental of a comparable residence.

Thus it was disheartening to review the following article in this past weekend’s New York Times titled The Best Places to Be a Buyer – and the Worst. Spoiler alert, Denver was at the top of the list; for worst places to be a buyer followed by Los Angeles.

Denver was once a city and region which attracted the brightest and motivated with its mix of affordable housing, varied styles/neighborhoods, great climate and many more attributes, to many to list. Yet in the span of one generation housing has become not necessarily shelter but more of an investment. We also have collectively short memories i.e. the mid 1990’s when the Wednesday HUD foreclosure listings in The Rocky Mountain News were as thick as the newspaper itself and more recently The Great Recession of 2008-2010.

My gut is Denver will always be an attractive place to live and attract the brightest, most talented and entrepreneurial. However if we do not witness prices return to levels in-line with regional incomes and move beyond housing speculation we will be at risk of “Killing the goose that laid the Golden Eggs“.

The reality is there are a lot of cities in the Midwest, South and Southwest that would welcome the young, best and brightest coupled with a much lower cost of living. If our housing prices and challenges to ownership continue unabated the outcome may not be what we collectively desire.

When Future Housing Value Forecasts Disagree    

A while back I posted a blog concerning Zillow and how their valuation of a specific home was off by 20% as their valuations are based on data from public sources yet does not necessarily account for tangibles including specific location, neighboring uses, traffic impact and so forth. Here is the link: https://denverrealestateinsights.wordpress.com/2017/11/13/the-internet-says-my-house-is-worth/

Thus I was intrigued when Zillow predicted a 4% gain for the Metro Denver Housing Market for 2019 yet the Colorado Association of Realtors (CAR) predicts a loss for the same market.

Let me be clear I do not know the methodology of Zillow or CAR. However I am inclined to go with the CAR forecast.

  • Anecdotally we as brokers witnessed a slowdown in the market concerning both sellers and buyers.
  • CAR using local MLS data including market activity i.e. price increase, decrease, withdrawals and so forth probably has a more accurate prediction of the market.
  • Houses entering the market at present may have languished prior, taken off the market and placed back on; a micro indicator of market conditions i.e. did not sell, try, try again
  • All of the above coupled with slowing in-migration.

Even a 1% loss is not worrisome as the housing market continues to outpace inflation. Also the run-up we have witnessed since the end of the Great Recession while impressive if you are a homeowner or seller has various negative externalities.

Back to the forecast; while data mining and algorithms are important and valued the reality is local and regional knowledge based on eyes and ears on the local scene is generally more accurate.

When did the tide turn? I believe we need to go back to the Savings and Loan crisis of the late 1980’s to 1990’s. Before the era of mega-banks that crossed state lines mortgage origination and appraisals were handled locally. The local bank would actually offer and service the mortgage. In the purchase process the local bank would hire the local appraiser and so on. The end result realistic valuations and risk assessment based on local conditions.

Yet the Savings and Loan crises in part began with banks lending beyond their markets thus beyond their local/regional market intelligence, using appraisers that were not familiar with the local/regional market and the desire to secure highest and best returns without assessing risk.

Does not sound much different than the Great Recession of 2008/2009 when real estate markets such as Las Vegas, Phoenix and others boomed based on speculation versus true market demand from employment and in migration and other factors that influence a local housing market.

Personally I can share two examples when appraisers not familiar with the local market showed how lack of knowledge of the local market can truly under-value and at times over-value a subject property.

  • Lexington Avenue versus Fifth Avenue, NYC: The two apartments were identical i.e. building design, floor plan, interior condition, date of construction and so forth. Yet the 5thAvenue apartment was on the market for 50% more than the Lexington Avenue sale within the prior 6 months.
  • The appraiser used the Lexington Avenue apartment as a comparable and based his appraisal of the 5thAvenue apartment on the prior sale. HOWEVER the Fifth Avenue apartment not only has a direct view of Central Park, 5thAvenue is considered one of the most highly valued and sought after residential streets in the world on par with Eton Square in London, Avenue Foch in Paris and Peak Road in Hong Kong.  Needless to advise the appraisal was challenged.

Locally here in Denver when selling a row house in Cherry Creek North I had to supply the appraiser with comparable and subsequently challenge his valuation. While the property was located in Cherry Creek North he was using comparable sales from Congress Park and The Hale neighborhood i.e. within one mile of the subject property. Also he was using condos and townhomes yet the row house had an individual land plot and thus was unique in that respect and more valuable. Finally he used a comparable in the complex yet the subject property went through a gut renovation one-year prior interior and exterior including windows, mechanicals and related. The comparable adjacent in the original condition and state of disrepair from 1984.

Granted appraisers only have access to so much information usually provided via the MLS and pictures. However as brokers we literally deep dive and understand market nuances that may not be evident in pure market statistics or within an algorithm. Thus while I am a fan of technology, AI and all the opportunities coming down the pipeline, considering real estate, I am old school and realize humans while flawed can actually make subjective judgments that are more accurate versus objective data driven information.