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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Ask me in the next 12-18 months.

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

 

 

 

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Where the Chinese are Buying Real Estate Beyond China

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

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

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

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

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

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

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

Additional interesting findings from the study:

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

Concerning Economics:

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

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

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

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

 

 

 

Denver’s Luxury Real Estate Market Continues to Break Records

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

 

 

 

 

You have the Porsche How About the Condo for It

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

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

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

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

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

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

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

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

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

Porsche Design Tower # 2803

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

 

 

 

Beige Book, Case-Shiller and Local Price Reductions. What’s Going On?

Nationally we still seem to be in a Goldilocks economy. The Beige Book evidenced positive economic indicators; The Federal Reserve indicated due to the continued momentum of the economy an increase in the Fed Funds rate is imminent. Interest rates on mortgages continue to bounce around yet continue to hover at historic lows.

So what is happening in Denver?

Well, a lot. The Case-Shiller Index advised the Denver area has fallen to #4 concerning price appreciation behind Seattle (12.3%), Portland (9.2%) and Dallas (8.6%). Of note Denver’s Year over Year appreciation was 8.4%. This is a positive as gains are still above national averages yet the cooling off concerning appreciation may indicate movement towards a market more oriented towards equilibrium.

For homeowners price appreciation may be a positive, yet when we have a continuing disparity between average income/wage growth coupled with higher prices; this is not sustainable and leads to potential corrections down the road including housing prices and employment attraction as many businesses will reconsider relocation if the cost of living is excessive.

And yes I have been told by some to look at New York (4.1% Year over Year) and San Francisco (5.1% Year over Year) as markets, which historically continue to increase in value. However both those cities have geographic constraints and higher demand leading to exorbitant pricing by Denver standards and strict rent-control programs, which impact the market, issues we do not have in locally.

While statistics can be interpreted any which way one desires; readers of my blog know I focus on the upscale neighborhoods of Denver. Specifically I believe the upscale neighborhoods are a leading indicator of the future of the overall market. Granted not scientific concerning methodology yet anecdotal evidence coupled with 20+ years as a broker makes me a bit concerned.

I have been keeping my eye on the Country Club Neighborhood of Denver, specifically are area bounded by Downing on the West, University on the East, 8th Avenue on the North and 1st Avenue on the South. While historically expensive the neighborhood has been the pinnacle concerning prestige and address within Central Denver for generations.

Suddenly there seems to be an increase in available inventory. Couple this with a section of listings that have endured price adjustments between 10%-25% to the downside, what is going on?

Granted some of the listings may have been overpriced to begin with. As brokers we advise our clients pricing options based on past sales, demand and other factors. Yet at the end of the day it is the seller who dictates the asking price. Thus some listing may have sellers believing their residence is valued higher than the market would dictate and thus the price reductions.

Yet there is another factor, which I call irrational exuberance of investment gains. A few listings I have watched include a selection that are asking 50%-100% return over their purchase price within the last 3-5 years. Granted some have been renovated/updated yet others are in similar condition when last sold and are asking for returns which are just not rational. Granted if the seller gets the asking price, all of a sudden it is rational.

However let me use the example of a home within the western section of Country Club south of 4th Avenue, a prime neighborhood that sold within the last 12 months and is NOT presently on the market.

The house sold in late 2001 for between $310,000 – $330,000

In early 2002 the home resold for $530,000 – $550,000*

Thus in real #’s gross #’s not taking into account commissions and closing cost the house appreciated $200,000+* or over 60%

*During that short period some improvements were made to the house yet far from a full gut renovation, mostly cosmetics and some mechanicals.

The next resale of the home was in early 2006 for between $640,000 – $660,000

Between 2002 and 2006 (4 years) the house appreciated $100,000 or approximately 19% still quite respectable for housing, on an annualized basis 5%, which was below gains in the stock market during the same period.

The new owners who purchased the home in 2006 bought at the pinnacle of the housing market during that period of expansion. Within 1.5 years we would witness the bubble burst with the shut down of Lehman Brothers and the subsequent Great Recession and Housing Crisis, which were soon to follow.

In late 2016 the house sold between $745,000 – $765,000, an approx. 16% gain yet took 10 years for this gain to happen.

Overall the home in the above example has done well yet also provides insights concerning timing and overall market conditions. In pure #’s between 2002 and 2016 the home went from between $530,000 – $550,000 to $745,000 to $765,000 or approx. $225K or 40%, quite respectable and beating inflation yet also took 14 years to achieve the 40% gain or under 3% annualized which matches inflation which housing (beyond select coastal markets) usually mirrors. 

Are we to assume Denver is now suddenly an outlier like New York, San Francisco and Los Angeles OR are we in a period of concern as our housing appreciation historically matched those of other inland regional cities.

To be honest I do not know but as many clients are sitting on the sidelines waiting to see what the market does. My view is business cycles have not ended and while not in a bubble, if I were looking to buy and resell within 12-36 months, I would be a bit hesitant to sign the mortgage.

April 2017 Statistics Are in the Books

While the news on the housing front continues to paint a rosy picture as we continue to be in a sellers market; statistically we may be entering a phase of normalicy concerning market conditions. While prices remain elevated and there is continued concern that average metro Denver incomes cannot keep up with the inflated housing market we are seeing signs of slowdowns concerning price appreciation and possibly an uptick in inventory coming to market.

Personally I enjoy looking at statistics. When combined with historical personal perspective i.e. lived through it there are insights and trends one may be able to extrapolate.

I was reviewing April 2017 market conditions:

In April 2017, there were 5,361 Active Listings in the metro area.

(Of note, the historical average # of listings in April is 15,710 based on statistics gathered between 1985 and 2016 also related usually the start of the Spring sales season).

Thus our average # of listings continues to be constrained especially when considering the increase of housing stock which has come on-line since the end of the great recession coupled with our population increase

Concerning sales prices:

The year-to-date average sales prices in April 2016 increased 6.05%.

In April 2015 that same statistic was 9.53%.

In April 2014 that same statistic was 12.9% (of note coming out of the recession).

Thus we are witnessing a slowdown in price appreciation (a good thing), slight increase in inventory (a good thing) and overall a potential plateau in the market.

Yes sales prices are stabilizing and getting closer to matching inflation and inventory is beginning to loosen HOWEVER couple this with the stock market at record highs, unemployment at record lows and no appreciable inflation or major interest rate hikes; we may be seeing signs of a housing slowdown in the metro area.

On the luxury side of the market while there have been some blockbuster sales of late, homes priced at $1M and over seem to be languishing on the market for longer periods coupled with price reductions. Granted some inventory came on market overpriced to start however price reductions are happening sooner and price cuts is more severe.

In my local Cherry Creek neighborhood which I admit is far from a barometer for the metro area the inventory of listings seems to be increasing and sales transactions are taking longer to close and usually after a price correction. Granted there has been a uptick in inventory south of 1st Avenue and much of the for sale inventory north of 1st Ave is east of Steele St. which some buyers consider less desirable yet the number of active listings continues to increase. As of this writing there were 41 active listings ranging from $215,000 to over $10M (of note both the lowest and highest price listings are condominiums).

Having been in the real estate brokerage business for a few decades now I am used to witnessing Metro Denver go through 5-7 year cycles concerning increased demand and then stability. While I do not believe we are in for a major correction, I do believe we will continue to see additional inventory come on-line and price appreciation slow to the inflation rate or a few ticks above which is the historic norm.

In the luxury market, which I track, I would be a little more concerned regarding price stability.

In the starter and move-up market baring a serious interest rate hike I am not concerned as demand will continue to outstrip supply. I would be hesitant concerning starter inventory in the exurbs as those markets are dependent on low fuel prices.

As I am advising clients at present:

Sellers: Consider putting on the market now as its low inventory and attractive interest rates.

Buyers: While rates are low, a good opportunity to lock in a fixed mortgage HOWEVER should consider waiting a few months to a year or two as inventory will continue to increase and while interest rates may tick up prices usually do the inverse.

Renters: Rents seem to be stabilizing and with the introduction of additional luxury inventory do not be surprised to see landlord concessions. Thus if in a rental consider resigning for another 6 months with an escape clause and if looking to rent, shop around and look for incentives to bring your net effective rent down.

 

 

Does the Seller Really Want to Sell

While the metro Denver market continues to hum along and there are a few “blockbuster” sales on the upper-end, anecdotally I am seeing signs of stress especially on the upper-end of the market. Some listings are coming on at inflated/fantasy prices and within 1-2 weeks a price reduction. Granted some reductions are more symbolic i.e. still priced above market and I never fault anyone for holding out hope of that blockbuster sale. However as an experienced broker I look for various signs showing that a seller is serious and motivated.

Yet first some signs advising the seller may not be so serious:

Will Not Close until Replacement Property Secured: In such a situation the seller is driving the transaction. You as buyer are in a holding pattern literally beholden to the seller and their timing and wish-list concerning finding a replacement property which in a hot market may not be so easy. In commercial transactions this can be a common occurrence and is a tactic used in 1031 Exchanges. Concerning traditional residential I would be more cautious. Not to dissimilar from a reverse contingency i.e. usually buyer will purchase contingent on the sale of their existing property. Instead here the seller will sell and close once their replacement residence is secured.

Holdover or Leaseback in Excess of 30 days: Holdover i.e. occupancy once the house is sold and closed is not so uncommon. I usually suggest 30 days or less; there is even a pre-printed Colorado Real Estate Commission Form known as the Post Closing Occupancy Agreement for such an event. For longer periods (and again if you are an investor the criteria may be different) I would be more cautious. Basically the seller is looking to cash out and lease their house back. I have been involved with situations concerning relocation when this is quite accepted. However barring a relocation situation my immediate concern is for the buyer. The seller is desiring to cash out and lease back. Again in commercial real-estate not uncommon, in residential may indicate seller may believe market is adjusting downward and desires to cash out at prevailing market conditions and assumes paying rent is safer than a mortgage associated with a downward trending asset. Yes the seller may need the cash out of the house; there are additional options from HELOC’s to Reserve Mortgages, thus a sale is more drastic.

Again the above are basic guidelines, not the gospel and each situation is truly unique.

The signs seller is truly serious:

Buy Me: Even in a hot market a property may go through multiple price reductions. Granted this could be an indicator the listing was over-priced to begin with. However when coupled with other indicators i.e. priced well-below market value, being offered “as-is” or desiring a cash transaction can possibly construe the seller is very serious.

Of note, be forewarned as some brokers will purposely list a property at below-market to instill excitement of prospective buyers and more importantly bids and offers. In a hot market such a tactic can be a benefit to the seller. However in a market trending downward such a strategy may place the seller in a losing situation i.e. full price offer at the below-market price and by not accepting barring contingencies the broker may demand a commission if seller does not sell.

Curb Appeal or Lack Thereof: Anyone who has owned a home knows landscaping takes time and money (even DIY’s i.e. materials, water, maintenance). While brokers usually advise an investment in curb appeal, a seller who may not have the time or capital to attend to the landscaping may be showing signs of motivation by their inaction and lack of investment. Such signs I look for include:

  • Overgrown or dead lawn/shrubs/flower beds.
  • Weeds and other decay i.e. trash, dead leaves, and overgrowth.
  • Newspapers that have not been picked up and/or fliers in the door.

Such signs could also point to an absentee owner, landlord or similar situation. I have used such visual cues to procure listings by researching public records and other databases.

Interior is Half Lived In: Hey I am all for staging and a staged house usually suggests a motivated seller i.e. the investment in staging. However dig deeper especially if you believe the house continues to be owner/seller occupied. Are the closets ½ empty? Is the furniture mismatched or haphazardly placed? Are walls showing signs of art having been removed and not replaced? Such indicators may indicate divorce, destitution, already moved out or similar. Usually when a home is in such condition, the seller is motivated. Please note there is a difference between purging and having moved on.

Of note, in Japan in the 1980’s some listings were not only staged but also included a live multi-generational family pursuing their daily routine during open-houses to show how the home functions and meets the needs of a multigenerational family as buyer. Trust me somewhat disturbing seeing children doing their homework during an open house yet also true early adopters of the precursor to virtual reality.

Family Dynamics have Changed: I see this quite often; the signs may include a child’s crib in one of the social rooms i.e. living, dining, home office or similar. Or on other side of the spectrum oxygen tank or other medically oriented items. Such indicators may suggest a new addition(s) to the family from a child to an aging parent or illness. This may be a situation where the owners desire to move for more space to accommodate and thus at present a not optimum living situation.

Estate Sale: Usually estate sales are when the owner passes and/or the present sellers are by descent. Such sellers may be more motivated to unload the property for various motivations from estate tax liability to not desiring the upkeep and maintenance. In the Denver Multilist there is a check box for type of seller and one option is Estate. If your locale does not indicate such type of seller and it is a deed of trust state, investigate what type of deed is being offered. Is it a Personal Representative Deed or similar? May be an estate. Of course some experienced brokers review obituaries and similar to look for listings; an old pastime in New York City which is practiced to this day (not to mention treating estate lawyers to lunch).

Providing Too Much Unrequested Information: In Colorado we have what is known as the Seller Property Disclosure, a 7+ pages form executed by sellers to provide information to the best of their knowledge concerning the residences condition and state of repair. Of note I advise seller clients to be truthful and honest as its both a legal and ethical course of action not to mention most buyers will engage the services of a home inspector prior to closing.

However some clients can be more forthcoming and mention issues and potential remedies before being prompted. In general I usually caution sellers to be circumspect in what they mention i.e. “We were going to install an on-demand hot water heater but went with the conventional as it was cheaper and we did not want to invest any additional money into the house”. This tells a buyer the seller while preparing for sale went for near-term economics versus cost-savings over the long-term. I am guilty of this myself. In the sale of my house I advised the sellers concerning a secondary bathroom; if they ever plan to renovate to consider changing the dual knobs to a single-lever. Was I disclosing too much? Maybe; however I advised since we did not use that particular bathroom we never did the upgrade; something to consider for their larger household and lifestyle.

The House Is Empty: Rarely do homes show better when vacant (that is why we have staging as an image is worth 1,000 words). In reality an empty property may indicate the seller has moved on. Yet continuing to retain ownership the empty home does incur carrying costs even if there is no mortgage i.e. real estate taxes, upkeep, insurance and so forth. Thus the seller may be willing to be more flexible knowing their for-sale asset is depleting capital while on the market.

Granted some homes are staged and again this may be a sign the seller is serious as staging is not inexpensive. In some markets we are now witnessing virtual staging i.e. computer generated staging to the benefit of on-line marketing, again a picture is worth 1,000 words. One company has brought the cost of staging down with inflatable furniture; just don’t sit on the props. Of note, a broker trick to show the scale of a bedroom, set up four to six boxes for support, add a camping air mattress, cover with a bedspread and pillows. The result an instantly staged and scaled bedroom.

Happy House Hunting

The Holiday Chalet a Fixture on East Colfax Ave Changes Hands

The well-known landmark in operation for 65 years sold for $165,000 per key

Denver, CO— April, 2017 — Antonoff & Co. Brokerage Inc. in partnership with Engel & Volkers Vail is pleased to announce the successful sale of The Holiday Chalet Victorian Bed & Breakfast located at 1820 E. Colfax Avenue, Denver CO. A fixture on East Colfax Ave, The Holiday Chalet, a former single-family mansion has operated as a hospitality use for 58+ years. The new owners plan to continue the hospitality use with a 21st Century orientation.

According to Broker Associate Jeffrey Hirschfeld of Antonoff & Co. Brokerage Inc. “The Holiday Chalet is a unique opportunity as the building housed 10 units, all with en-suite bathrooms and 9 with kitchenettes. We had interest from varied prospects interested in hospitality, redevelopment into micro units and potential live/work space. The continued evolution of East Colfax coupled with demand secured a strong sales price.”

The Holiday Chalet structure dates to 1896 originally built as a 3-story single-family residence aka The Henry Bohn Mansion. In the mid-1920’s the building was renovated to an apartment use and converted to a hotel operation in 1952.

What makes the building so special is the design details” Said Joseph Sobin, CNE Broker Associate with Engel & Volkers Vail adding “Much of the original woodwork and stained glass has been retained and resorted including a wood framed original Tiffany designed window illuminating the northern exposure lobby and reception areas. Throughout the Holiday Chalet there are details and materials which indicate the original mansion was on par with the opulence and design of the mansions built along Denver’s Gold Coast at the turn of the 20th Century”.

The sale, which closed in less than 90 days on the market provides evidence of the continued resurgence of the E. Colfax corridor. The prime location within close proximity of the Denver CBD generated strong interest from a wide range of prospective buyers. The new owners plan to continue as a hospitality use with renovations and service oriented to the 21st century traveler. Yesteryear design coupled with tomorrow’s conveniences.

Full disclosure, Joseph Sobin, author of this blog and broker participated in the sale as co-listing broker.

 

Real Estate, Stocks and Geography

I recently came across the most interesting commentary concerning housing and investments via The Denver Post and NerdWallet site titled Are You Buying a House or a Lottery Ticket.

The author mentions Warren Buffet placing his Laguna Beach residence up for sale. The following is directly from the column:

Buffett bought his Laguna Beach place in 1971 for $150,000 and is asking $11 million. My friend’s parents bought their home for $24,500 in 1965 and just sold it for $104,000. Put another way: If Buffett gets his asking price, his house will have appreciated at an annual rate of 9.79 percent. The Cleveland house eked out a 2.82 percent annual return. Neither buyer could have predicted what their homes would be worth now. One could score a healthy return, while the other didn’t even keep up with inflation. (If she had, her home would have been worth about $190,000.)”

While the author mentions inflation (and how the house in Cleveland did not keep up). Let me take a step back. The $150,000 Mr. Buffet paid in 1971 has the buying power of $902,000+ in 2017 dollars. The $24,500 paid in 1965 would have the buying power of $189,000+ on 2017 dollars. Thus the Cleveland residence was and continues to be a starter home based on price. The Laguna Beach residence in real dollars was expensive in 1971 and in the top 0.01% of prices today for real estate.

The author goes on to suggest if that same $150,000 Buffet paid for the house was invested in the S&P 500, it would be worth $14,5M today (and if invested in Berkshire Hathaway Class A that same investment would be worth $800M).

This brings up one of my sayings of “Could Have, Should Have and Didn’t”.

Granted I am the first to advise never to consider a house as a capital investment. First and foremost it is shelter. Yes there are financial advantages i.e. tax write-offs and related yet maintenance and upkeep probably cancel out the benefits over time. Also, the vast majority of homeowners are buying and selling in 5-7 year cycles based on lifestyle changes.

It is true certain markets i.e. New York, San Francisco, Los Angeles and similar if your real estate was held long enough it may feel like hitting the lottery. In other markets keeping up with inflation is the norm and this accounts for the vast majority of the United States.

This brings up the debate about Denver. Yes I have been considered a pessimist as I have been through 3+ business cycles since Denver became my primary residence in 1989. Looking at the sale of my house which I purchased in 1989 for $140,000 ($275,000 in 2017 Dollars) did beat inflation, however if I factor in maintenance, upkeep and so forth, the returns are far less impressive.

Even more enlightening, when I purchased the house in 1989, the seller had to come to the table with cash as he had paid $200,000 ($469,000 in 2017 Dollars) for the residence in 1984 and sold it in 1989 for $140,000 yet with a mortgage balance of $160,000 plus real estate broker commissions. Not the worry, the seller had a nice loss and I believe is presently a physician in the Bay Area thus most likely financially whole.

If the seller had held onto the residence and sold today i.e. in 2017 he too would have basically kept up with inflation.

The point is we have seen spectacular run-ups in the Denver market since the Great Recession. Even today due to lack of inventory prices continue to rise while incomes are not keeping up with prices. This is not sustainable in the long run. While I have had peers newer to the business advise Denver is the next LA, San Francisco, New York and so forth, I tend to disagree.

First we are inland. We are not geographically challenged i.e by bodies of water lapping at our borders. Thus the Denver metro area can easily expand into the hinterlands where prices are generally lower (and yes I know Boulder has growth controls, however when I first moved to Colorado in the early 80’s the land between I-25 and Superior/Louisville was farm land. Second, in Denver proper revised zoning has allowed for increases in density in many central neighborhoods. I have mixed opinions on this, however in general increased density provides additional affordability in the market i.e. multi-family, slot housing and related as the dirt can accommodate more than a single-family home. Of note, one of the reasons San Francisco is so expensive is the limitation on density and height in the city proper.

I suggest we should look at Denver in similarity to Chicago, Salt Lake, Dallas and similar inland cities. Yes we have a diversity economy, a young and well-educated population and of course lifestyle which cannot be replicated including 300 days of sunshine/year, more days than parts of Hawaii. Yet we are not on a coast, we do not have a port and we have ample land on which to expand even beyond the E/C-470 ring road.

I do believe Denver metro will generally outpace inflation. However my personal residence is the perfect example our its lifespan i.e. if when purchased new in 1984 and sold today, the residence would have mirrored inflation. However due to timing and some good luck, the residence was purchased during a severe downturn in the market and is being sold during an upturn coupled with being within an “in-demand” neighborhood.

Thus, when purchasing a home in Denver, look at what you can afford keeping in mind maintenance and upkeep and understanding your home is shelter foremost and gains beyond inflation will be the icing on the cake. With that said, I plan to buy a MegaMillions ticket later today.

Of note, there seems to be some ambiguities concerning the Buffet house as it seems the house was sold in 2005 for $5.45M. Was then listed in 2011 for $6.495M before a price reduction to $4,995M. Thus did Mr. Buffet repurchase, hold paper or what? Unfortunately I am not an investigative journalist yet I assume the same house? Just goes to show, timing and market conditions can be most influential concerning house values i.e. double the asking in 6 years, now that is hitting the lottery not to mention water views!

Is a certain residence in Denver indicative of the market we are experiencing

On my daily commute downtown I pass a large single-family home that has been for sale for the past year (been through two brokers during that time). This home is gorgeous offering over 6,500 SF of finished space, renovated interior including a chef’s kitchen, well water for the expansive yard, a carriage house all designed by a storied design firm and located within a designated Historic District. Taxes are reasonable considering the neighborhood the residence is located in. It is a corner lot, not to everyone’s liking and does have some traffic impact mitigated by a 6′ masonry sound/privacy wall. Throughout central Denver traffic impacts are not to be unexpected.

At my club last week a fellow member asked me about this particular listing advising she passes it daily, as do I and how it seems to have been on the market for a long time. I knew the residence and while I do not believe it is over-priced at present asking $317psf finished/ $434psf above grade (on a PSF basis actually on the low-end for its neighborhood). This member asked me why it has not sold; I advised in my opinion multiple factors including size as 6,000+ SF is not for most buyers a starter home, the corner lot on a thoroughfare and the design; historic  which for some prospective buyers signals increased upkeep and maintenance.

Thus I decided to review the pricing and sales history; what an awakening as it seems this particular residence has mirrored the Denver market and may forecast what is to come:

  • March 2004: Sold for $1,030,000
  • March 2006: Sold for $1,650,000 (+$620,000) 61% Gain
  • June 2013: Sold for $1,275,000 (-$375,000) 23% Loss
  • March 2016: Placed on Market for $2,995,000 Potential 230% Gain Unrealized
  • March 2017: Price Adjustment now $2,095,000 Potential 160% Gain Unrealized

Please note between March 2004 and March 2006, there may have been a renovation, I have no idea; however a 61% gain is just not a sustainable increase in a rational market. The loss between June 2006 which was close to the pinnacle of the boom and the sale in June 2013 when the market started to again accelerate out of the great recession to the upside shows the house had some resiliency i.e. a 23% loss, far from the losses seen in other markets.

The most recent asking price would still generate a very healthy 160% gain in 4 years. Granted I am not including carrying costs, commissions and so forth. Yet in my opinion a 160% gain in 48 months is a bit optimistic yet not unheard of.

The house continues to sit on the market. A buyer will eventually purchase as the size and neighborhood will eventually negate the issue of the location adjacent to a thoroughfare which I believe is the biggest factor impacting the property. I just thought the activity over the past 13 years was indicative of the Denver market and now being on the market for one year with price reductions, granted from lofty unrealistic heights may be a precursor of what the foreseeable future may be for the luxury market in Denver.