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.

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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.

The Brady Bunch may wish to consult with middle sister Jan as she has been quite successful concerning real estate investing

A few months back all over the popular news was the story of the North Hollywood home at 11222 Dilling Street used as the model for The Brady Bunch being placed on the market. The home subsequently sold to Discovery Inc.‘s HGTV network and is now bring renovated by the Brady siblings with additional guidance from The Property Brothers.

While the Brady kids have varied careers including Christopher Knight AKA Peter Brady who now produces a furniture line the siblings may wish to look to Eve Plumb AKA Jan Brady the misunderstood middle child; as real estate investor she as been quite savvy on the East and West coasts and definitely not misunderstood.

At present Ms. Plumb and her husband’s Ken Pace just listing a property on the  Upper West Side of Manhattan at 2025 Broadway for $735,000. The unit 22-J is on the 22nd-floor, 716-square-foot co-op is in a full-service building by Lincoln Center and Central Park. For those who may not know Manhattan, a desirable area. Of note Ms. Plumb purchased the unit for $589,000 in January of 2013, not a bad profit at all.

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Back in 2016 Ms. Plumb purchased a penthouse at 330 East 49thStreet just east of the heart of Midtown Manhattan for $1,557,000. The unit, a 2 bedroom is approximately 1,100 SF yet has three (3) setback terraces which are most desirable in an open-space starved city. In addition, the penthouse features a windowed galley kitchen, two marble bathrooms, hardwood floors and lots of closet space, according to the listing.

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The two buildings in Manhattan are known as post-war construction which usually trails the market versus pre-war apartments and of course the new in-demand curtain wall designs yet savvy investors know such apartments in these buildings usually have locations that cannot be replicated and can be purchased for 20-35% below comparable new and pre-WWII constructed apartments. For more about NYC apartment styles the following is an excellent primer: Postwar, Prewar and Everything Before

Yet most impressive is probably Ms. Plumb’s first foray into real estate. In 1969 at the age of 11 she purchased with the assistance of her parents a beach cabin (850 SF – pictured above) in Malibu for $55,300 or $377,225 in today’s inflation adjusted dollars. The bungalow style home, which is located on Escondido Beach Road and thus on one of Malibu’s most picturesque beaches, includes three bedrooms and 1.75 bathrooms and NO heat or air-conditioning. Of note the quite modest home sold in 2016 for $3,900,000 off an asking of $4,150,000. “Way to go Jan“.  Below the smaller home on the foreground.

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Tuesday’s Real Estate News Should Signal Caution Now and in the Immediate Future

OK, I am the first to admit I have an alert concerning local real estate. I usually receive updates from The Denver Post, The Denver Business Journal, BusinessDen and other local sources of business news. However Denver and Colorado are not an island in a vast sea and at times we seem to forget we are part of a larger country and may be missing signals concerning the overall national housing market.

Last week a grouping of news came out on the same day that cause me to suggest proceed with caution. Granted many of my peers suggest I am a pessimist, however with almost three decades in the real estate business I have witnessed everything from exponential growth in prices to foreclosure listings offered by The Department of Housing and Urban Development (HUD) when published in the newspaper secured their own pullout multipage section.  Thus when the following news hit the wires last week I said to myself “The Dow is at 26,000 however the tea leaves concerning housing seem to be advising caution”. The following is a longer than average blog post for me, thus highlights are in BOLD and there are various links as well.

Home DepotThis retailer is actually one of my favorite indicators concerning the housing market. In flush times Home Depot’s stock is in-demand due to being a favorite supplier for independent contractors, homeowners and related entities. This is a stock so sensitive to housing that when a Hurricane hits a populated area not surprisingly Home Depot stock price rises and the company has its own Hurricane Command Center.

On Tuesday 2/26 Home Depot reported fourth-quarter earnings and sales that missed analysts’ expectations and offered a weaker-than-anticipated outlook for fiscal 2019. With U.S. home sales and prices under pressure, fewer shoppers are heading out to buy materials for home projects and renovations. For much of last year, confidence in the U.S. housing market soared, benefiting Home Depot and Lowe’s. But with mortgage rates climbing, attitudes have since started to turn sour. This may lead to home prices rising at a slower rate and the market cooling down, which has sparked some fears for the sector.

Housing Starts: The number of homes being built in December 2018 plunged to the lowest level in more than two years, a possible sign that developers are anticipating fewer new houses to be sold this year. The Commerce Department said Tuesday (2/26/19) that housing starts fell 11.2 percent in December from the previous month to a seasonally adjusted annual rate 1.08 million. This is the slowest pace of construction since September 2016.

Over the past 12 months, housing starts have tumbled 10.2 percent. December’s decline occurred for single-family houses and apartment buildings. Builders have pulled back as higher prices have caused home sales to slump, suggesting that affordability challenges have caused the pool of would-be buyers and renters to dwindle.

The S&P/Case-Schiller Index: I have profiled the Case-Shiller Index in past blogs and is one of the statistics that I am most interested in and intrigued by as it offers an immediate snap-shot of the market’s health as well as historical reference and thus while somewhat complex concerning its data; the empirical information provided is invaluable.

Home prices increased 4.7 percent annually in December 2018, down from 5.1 percent in November, according to the S&P CoreLogic Case-Shiller U.S. National Home Price Index.That is the slowest pace since August 2015. The 10-city composite annual increase came in at 3.8 percent, down from 4.2 percent the previous month. The 20-city composite rose 4.2 percent year over year, down from 4.6 in the previous month.

Las Vegas, Phoenix and Atlanta reported the highest year-over-year gains among the 20 cities. In December, Las Vegas prices jumped 11.4 percent year over year, followed by Phoenix with an 8 percent increase and Atlanta with a 5.9 percent rise.Three of the 20 cities reported greater price increases in the year ending December 2018 versus the year ending November 2018. Of note impressive gains for Las Vegas and Phoenix; two cities that represented the irrational exuberance of real estate speculation during the 2000’s only to be the symbols of foreclosures and negative equity during the Great Recession.

In addition affordability is at the lowest in about a decade, and home sales were sharply lower at the end of 2018. Prices usually lag sales, so it is likely price gains will continue to shrink until sales make a move decidedly higher.

According to the National Association of Realtors sales of existing homes were 8.5% lower in January 2019 compared with January 2018, Homes are now sitting on the market longer and sellers are cutting prices more frequently.

 I am the first to admit anyone can manipulate statistics yet it seems there is a convergence of cautionary news out there. I do not see myself as a pessimist, more of a realist. Yes real estate is emotional, it is not liquid like equities and for most of us it represents the largest purchase and subsequent debt servicing of our lives. Thus why I suggest proceed with caution and be rational.

 

 

 

 

Seasonal Adjustment or Starting of a Trend

January is a peculiar month for real estate. As residential brokers we generally experience a slow down concerning transactions during the 4th Quarter of the year due to the holidays i.e. Thanksgiving and the December holidays. With few exceptions usually due to tax strategies closings during the last week of December are rare.

When January comes along we assume New Year’s Resolutions may include a new home. Historically January is a slow month as the days are short, the weather is cold and not the most conducive month of the year to go touring houses. Yet I have advised buyer clients January is a great time to look. Even though inventory is generally limited the slower pace and lack of competition can be an advantage.

Yet even I was surprised with the January 2019 market report. According to the latest marketing statistics from REcolorado, the Denver Metro market continued to experience increased inventory levels in January, due in part to 4,817 new listings coming on the market, more than double what we saw last month (December 2018).

This means buyers have even more options than they’ve had in quite some time, which may help relieve some of the stress home buyers have been feeling over the past few years. There is currently 8 weeks of inventory, 1 week more than last month and 2 weeks more than last year.

In January, home sales decreased 8% from last year and are down 24% from last month. The number of homes that moved to Under Contract in December was 8% higher than last year, indicating it was an active month. The rate at which home prices are increasing has continued to moderate in January, with the average price of a single-family home rising to $460,525, up 3% year over year.

From experience while a two month supply of housing may be positive for buyers based on historical averages the market for buyers and sellers is closer to equilibrium when inventory is in the 4-7 months range depending on the specific regional market.

The 3% year over year increase in average price mirrors inflation thus while may be disappointing to many homeowners who purchased within the last 12-24 months in reality a 3% growth is healthy and sustainable.

I believe February and March 2019 will be interesting to watch i.e. how much inventory increases and to see if buyers are active. Interest rates are 1% point higher year over year yet are still historically low. The factors that we should watch for beyond inventory and closing activity are:

  • Migration Into and Out of Metro Denver.
  • Activity in the luxury market; usually an early indicator of market trends.
  • Price Adjustments from Original List Price.
  • Days on Market, higher number weaker market.

Anecdotally I am seeing softness in the market. At present I am listing a residence in Congress Park. Due to its existing cosmetic condition the home is priced 20% below 6 month sales market comps for the neighborhood. While viewing activity has been strong; an offer has not been presented. If the home was on the market 18-24 months ago at the same asking price there would have been multiple offers; many above asking sans contingencies. Will keep you all posted.

Of note concerning last week’s blog about the unit in Writer Square there has been a price adjustment from $725,000 to $710,000.

A Gem in Downtown Denver’s Writer Square is In Search of a Buyer

Over the weekend I was with clients who had a most specific request: a condo unit with its own separate and private entry. The clients did not want an attended lobby or similar.  Yet the vast majority of condos in Downtown Denver have a communal lobby, shared hallways to the unit and many of those lobby’s are attended.

Yet there are a handful of legal condos which are designed in the vernacular of a townhome. While you may not know the name of the complex, if you have been in downtown Denver you probably have experienced/walked-through Writer Square.

Dating back to the days of Urban Renewal, Writer Square was in vogue during a time of mixed-use developments inclusive of residential, retail and office. The Writer Square development which is bounded by Larimer St, Lawrence St, 15th Street and 16th Street Mall is literally the poster child of such developments.

At present one of the townhomes is for sale. 1512 Larimer St #27 aka Writer Square is a gem. Located towards the southwest of the square block complex the unit is set-back from 15th Street and Larimer Street thus not impacted by the vehicular traffic on those streets. Yet due to its location within Writer Square offers a view of the historically preserved 1400 block of Larimer Street.

Unit #27 is a two level unit that has undergone a gut renovation. While the exterior is late 1970’s contemporary the interior of this unit offers a warmth in design with a nod to French provincial. The main level includes a formal entry, an office (easily a 3rd bedroom), dining area, living room w/ gas fireplace, access to a private outdoor deck, double-height peaked ceilings, full bathroom and a beautifully designed and functional kitchen including a built-in espresso maker (trust me, my Mr. Coffee was quite disappointing this morning).

The upper level has two additional bedrooms including a master with an expansive en-suite and a secondary bedroom with another full bathroom. Extensive use of built-ins add voluminous storage space truly bespoke to the design of the unit.

The icing on the cake, two deeded parking spaces and storage.

If one is looking for a high-floor, city or mountain views with on-site amenities i.e. door staff, health club and so forth best to bypass. However if one desires a truly central location, a townhome design inclusive of privacy and security, private outdoor space and truly a turn-key opportunity i.e. no renovations.updates needed, this is a unit not to be missed.

 

A 1894 Congress Park Victorian in the Rough Comes to Market in Denver

Every once in a while a home enter the market that is truly unique concerning design and opportunities. I have run across a few of these in my career including an intact Burnham Hoyt in the Country Club neighborhood and a Lang Mansion in the 1400 block of Race Street.  I am soon to bring such a gem to the market.

1353 Clayton St. is an intact Victorian home located in the desirable Congress Park neighborhood. When constructed in 1894, the home matches others on the block and must have benefitted from the Gold Coast moving south and east from Colfax Avenue and Capitol Hill.

Recently painted the exterior color palette embraces its Victorian heritage sans being gaudy or trendy. A more subdued color palette verses the Painted Ladies found in San Francisco; still a bold palette more oriented to the Denver market.

The front porch has been enclosed yet can easily be opened up if desired. Once inside the home; a Victorian that has been preserved in-situ. The original wood staircase is a visitor’s first introduction to this jewel. The formal living room with its wood-burning fireplace and wood floors represent the formality of Victorian homes of the era.

Adjacent is the Parlor Room, which provides the living room with a true double room orientation. Through a set of pocket doors the formal dining room and ½ guest bath reminds us of an era when formal dining was the norm not the exception.

Beyond the dining room is the kitchen, which has been though multiple updates, the most recent being during the 1990’s including granite, dual wall ovens, a breakfast bar and other design features that beyond the materials used are timeless.

On the upper level are three bedrooms. The master is a two-room suite with a wood burning fireplace and access to a deck built above the enclosed porch. The perfect perch for morning coffee coupled with the warmth of the eastern orientation no matter the season.

There are two additional bedrooms, a full bathroom and a conventional staircase providing easy access to the attic with a peaked ceiling providing potential for the addition of dormers and thus additional functional rooms.

Being trained in design I envision an additional en suite bathroom for the master as plumbing is adjacent. Dormers in the attic could provide as mentioned above additional living space. There is also a rear service staircase from the rear bedroom to the 1stlevel most likely used by service staff well into the 20thcentury.

The basement is unfinished; at present just a washer/dryer (included with the home) and mechanicals. One can excavate to add additional square footage if desired.  The furnace is newer as is the on-demand hot water connected to updated plumbing. There are remnants of a solar power system and CAC can easily be added. Of note the basement as both in-residence and an exterior entry.

The rear yard is private and provides access to a one-car garage and additional off-street parking adjacent. Personally as a trained design professional and as the zoning allows for an accessory dwelling unit I would suggest rebuilding the garage into a 3-bay unit with a studio or one bedroom, ¾ bathroom and kitchenette above the garage. Of course any prospective buyer should review options and opportunities with a licensed design professional and insure entitlements per zoning including an ACU, tandem and duplex is allowed by checking with the Denver Zoning office.

This is truly a diamond in the rough. While the diamond’s value is intact, some additional cutting and polishing will only enhance an already strong value. The residence is priced at $694,900, which is 15-20% below comparable sales taking into account the present condition.  For the purchaser with a vision of what could be coupled with the preservation of the Victorian details inside and out a truly rare opportunity.

Please note the residence is listed by Joseph Sobin, Engel & Volkers Vail.

MLS Link: 1353 Clayton St. Denver, CO. 80206

There will be an Open House on Saturday February 23, 2019 from 12P-3P

 

The Denver Housing Market – Price Appreciation Slowing Inventory Rising So Why is Purchasing Still a Challenge

The news of a slowing housing market is not new. In most markets including Denver inventory is rising, price appreciation is slowing or depreciating and mortgage interest rates remain static and at close to historic lows.

Thus why is it still challenging to purchase a residence in Denver and other popular cities? The folks at LendingTree has provided some guidance based on crunching numbers. “Of the top 10 most competitive cities, only two, St. Louis and Boston, were not in a western U.S. state. High-paying tech jobs, common in places like Oregon, San Francisco and Seattle, likely help fuel market competitiveness in some western cities,” the site reports.

In the most competitive areas, potential homeowners are vying against other buyers who:

  • Are often pre-approved for mortgages.
    • I advised buyers to get pre-approved before even starting to look at properties.
  • Have excellent credit scores.
    • Before we start looking we revise credit reports and if needed work with a vendor I know who can assist with report clean up and offer strategies to increase scores.
  • Are able to offer hefty down payments.
    • This can be a challenge as funds should be seasoned regardless of source. Parents and relatives providing down-payment assistance is quite common.

The following is a list of the 15 most challenging markets to purchase in and spoiler alert, Denver is #1 or the most challenging market at present:

#15 New York, NY: Percent of buyers with good or excellent credit: 58
Average down payment: 17 percent
Median home price: $829,000

#14 San Antonio, TX: Percent of buyers with good or excellent credit: 55
Average down payment: 14 percent
Median home price: $239,990

#13 Milwaukee, WI: Percent of buyers with good or excellent credit: 52
Average down payment: 14 percent
Median home price: $124,900

#12 Phoenix, AZ: Percent of buyers with good or excellent credit: 48
Average down payment: 15 percent
Median home price: $275,000

#11 Minneapolis, MN: Percent of buyers with good or excellent credit: 58
Average down payment: 14 percent
Median home price: $300,000

#10 Boston, MA: Percent of buyers with good or excellent credit: 57
Average down payment: 16 percent
Median home price: $699,900

#9 Sacramento, CA: Percent of buyers with good or excellent credit: 50
Average down payment: 15 percent
Median home price: $312,650

#8 Seattle, WA: Percent of buyers with good or excellent credit: 65
Average down payment: 19 percent
Median home price: $689,950

#7 Las Vegas, NV: Percent of buyers with good or excellent credit: 52
Average down payment: 14 percent
Median home price: $299,900

#6 St. Louis, MO: Percent of buyers with good or excellent credit: 54
Average down payment: 15 percent
Median home price: $145,000

#5 San Jose, CA: Percent of buyers with good or excellent credit: 65
Average down payment: 19 percent
Median home price: $939,000

#4 San Francisco, CA: Percent of buyers with good or excellent credit: 59
Average down payment: 17 percent
Median home price: $1.3 million

#3 Portland, OR:  Percent of buyers with good or excellent credit: 57
Average down payment: 15 percent
Median home price: $449,900

#2 Los Angeles, CA: Percent of buyers with good or excellent credit: 55
Average down payment: 17 percent
Median home price: $799,250

#1 Denver, CO: Percent of buyers with good or excellent credit: 56
Average down payment: 16 percent
Median home price: $459,900

Unconventional Mortgages My Thoughts

Even though housing sales seem to be slowing throughout the country there is still an affordability crisis as asking prices have yet to adjust downward and while interest rates have stabilized (over the past 48 years, interest rates on the 30-year fixed-rate mortgage have ranged from as high as 18.63% in 1981 to as low as 3.31% in 2012) they are higher than the historical lows a few years back. The following bullet points were presented at a conference concerning the increase in unconventional mortgages; as a 2+decade broker having been through multiple market cycles, my thoughts in italics:

Unconventional mortgages–once blamed for contributing to the housing meltdown 10 years ago–are making a comeback as lenders look for new borrowers to drive growth, the Wall Street Journal reports. The reality is when interest rates rise there must be products available to allow for home ownership. These unconventional mortgages generally bring down the monthly payment and thus presented as a gateway to home ownership. Yet historically such mortgages prior to The Great Recession were oriented to more experienced and sophisticated purchasers. Many of these unconventional mortgages can impact the borrower if home prices stagnate or fall i.e. loss of equity, monthly payments can increase i.e. adjustable rate, interest-only can lead to negative equity in a down market and so forth.

The borrowers are typically people who can’t get a conventional mortgage because they have a harder time proving income through the usual documentation such as pay stubs or tax forms. This is the new reality of the gig economy as the generation of long-term stable employment ending with retirement and a pension is long gone. The reality is mortgage lenders and regulators must understand the reality and present options and opportunities for such applicants. Personally I am old school i.e. the higher the risk or less documentation should require a higher down-payment to insure equity as a hedge against default, a simple risk analysis calculation.

Though still a tiny part of the overall mortgage market, these unconventional mortgages offerings are increasing while conventional home loans are decreasing. Not unexpected as by human nature we are chasing the least painful mortgage, the lowest monthly payment. However are we sacrificing prudent financial management i.e. a 30-yr fixed rate conventional loan in which the payments remain static for more exotic products which may look attractive for the immediate term yet detrimental long-term i.e. adjustable rate mortgages in a climbing interest rate environment? 

Lenders originated $34B of unconventional mortgages in the first three quarters of 2018, up 24% Y/Y, according to Inside Mortgage Finance. Overall mortgage originations during that time were $1.3T, down 1.2% Y/Y. Multiple factors at play from the higher-cost of housing to the wealth-effect of the equities market to the basic desires for the lowest monthly payment possible. 

Today’s “nonqualified” mortgages, though, have changed from their pre-crisis predecessors. These new loans comply with “ability-to-repay” rules and underwriting and due diligence are stronger than the pre-crisis era. This is a positive including review of bank statements and related documents. I believe the era of No-Doc Loans are long behind us however I am already witnessing low to no down-payment options, When we have the return of the 125% loan that’s when I start placing short bets on the mortgage marketplace. 

Some regulators, consumer advocates and others still worry that the growth for this type of mortgage and increasing competition to make such loans could lead to higher risks for the housing market. This is a given; history does in-fact repeat itself as if anyone says This Time is Different keep that look of skepticism discreet.

On a personal note when I am working with buyers and if requested I provide a list of at minimum three (3) lenders I know professionally and socially and suggest they contact all three to discuss options and opportunities coupled with additional guidance concerning their future i.e. how long do they plan to be in the home, lifestyle changes on the horizon, employment security and so forth. The reality is a mortgage and one’s home is the largest debt as well as potential wealth accumulation we will have in our life cycles; we need to be more diligent concerning mortgage products and candid about the advantages and disadvantages associated with the options presented. 

Amsterdam NL Housing Market

I just returned from a brief visit to Amsterdam, The Netherlands and yes I am well aware marijuana is legal in Colorado as well; thus not why I was visiting. While visiting this lovely city I noticed the similarities with Denver, a city with a strong economy, younger workforce, movement towards technology, design and service jobs and a housing market which like Denver is challenging and pushing buyers further from the city center.

A few interesting statistics I came across:

Office Supply: Amsterdam is likely to suffer negative consequences from the limited supply of available office space. In recent years, many vacant office buildings have been successfully transformed into homes and hotels. As a result, the supply has dropped from 1.2 million square meters to 470,000 square meters in three years. This limited supply is not enough to meet the growing demand for office space from the services sector. In Denver we still have the luxury of land availability in our office markets including downtown, Cherry Creek and DTC.

Housing Supply: Since the end of 2015, the Amsterdam housing market is one of extremes. The unprecedented demand is leading to record prices of 5,000 euros per square meter. Despite the construction of more houses, the shortage continues. In 2017, 3,500 building permits were issued and this is much less than the expected growth in the number of households this year by 6,300. Only in 2019 will there be more balance between supply and demand. We have witnessed the same trend in Denver and many of my peers also agree 2019 will be a more balanced market between supply and demand.

Of interest, the municipality of Amsterdam has opted to convert business locations into residential locations. These developments lead to a shortage of at least 350 hectares of business parks in the city. Local business leaders suggest this emphasis on housing is challenging the commercial office market i.e. reallocating resources in a marketplace where land for both is at a premium.

AirB&B: The Netherlands is popular with tourists from the Netherlands and abroad. The number of hotel bookings in the Netherlands grew significantly faster than the average in the rest of Europe: 9% versus 5%. In Amsterdam the plus was higher with 12% (15.6 million overnight stays). The growth of Airbnb in Amsterdam, however, was even higher at 25% last year. As a result, the market share increased further to almost 12%. We witnessed the same growth in the Denver home rental market leading to the City Council to each various rules and regulations concerning transient rentals.

Thus the issues we are confronting in Denver are far from unique and seems to be experienced around the world. We are in an up-cycle from a devastating world-wide recession, In addition with the eventual outcome of Brexit still unknown and Amsterdam’s geographic position in Europe i.e. coastal, large airport, conduit to the Scandinavian countries and so forth the continued prosperity of Amsterdam looks assured.

Finally concerning marijuana unlike Denver Amsterdam does allow smoking and vaping in their CoffeeShops inclusive of retail sales in those establishments with personal possession allowed up to 5 grams.  In addition smoke shops do sell a wide variety of edibles in a less-restrictive, laissez-fare environment. Amsterdam’s tolerated use of cannabis started in 1972 when the drug was considered less dangerous and under 30 grams possession was considered a misdemeanor. 1976 was the year when Coffee Shops became legal. Thus Amsterdam has a few years more of experience than Denver and the United States.

If interested in real estate in Amsterdam my real estate affilliation Engel & Volkers does have three offices in Amsterdam handling both residential and commercial opportunities for rental and purchase.