Do Not Over Improve or Over Indulge in a Stabilizing Market

May I take my readers on a journey back to 2005?

A friend asked me to opine on a potential purchase of a single-family home (at the time I was a commercial real estate broker). The house was a pop-top on a secondary block (one block south of a more desirable neighborhood); the only pop top on the block and across the alley a nefarious use for many prospective homebuyers, a playground.

The asking price at the time was $810,000 ($1,064,000 in 2019). I warned my friends not to purchase as I thought the residence was over-priced and over-improved for the block and neighborhood. Long story short the buyers purchased for $810,000 and I was advised by the buyer “In 10 years this will be the cheapest house on the block”. The buyers subsequently invested another $40,000 ($52,500 in 2019) into custom shelving and other, in retrospect over-improvements.

Fast-forward to 2012. The Great Recession is has decimated real estate around the country. Here in Denver we are finally seeing green-shoots as savvy buyers are taking advantage of rock-bottom prices. Long story short the same buyers who paid $810,000 + $40,000 in 2005 sell their residence $710,000 ($793,000 in 2019). Thus between 2005 (close to the height of the market during that cycle and 2012 as we began to climb out of The Great Recession the sellers lost in real dollars $140,000 or $20,000/year not including expenses related to their mortgage, property maintenance and upkeep, homeowners insurance, real estate taxes, utilities and so forth.

The reason I bring this up; I do not believe we are in a period of concern about another Great Recession HOWEVER the tea-leaves are advising a slow-down is imminent as I do not believe business cycles have ended i.e. the Goldilocks Economy is fleeting.

Yes we have buyers who may be swayed by historically low-interest rates yet these buyers do not seem to understand low-interest rates usually indicate the market economy that is not robust. The reason we are seeing zero to negative interest rates in Europe and Japan; their economies are stagnant or worse potential deflation.

Yet as I work in multiple affluent Denver neighborhoods I see the massive duplexes, row houses and single-family homes still being built on speculation in Cherry Creek North where I reside. I am seeing the Contemporary Farmhouse being built on speculation in Washington Park (where I have a listing) commanding seven (7) figures where the adjacent bungalows are valued at half or less or are on the market priced based on irrational exuberance for eventual razing and rebuilding.

Are there opportunities out there? Of course and to many buyers credit they are being more selective, taking their time and I believe being more rational. And while asking prices seem to be adjusting to a new reality concerning supply and demand I am still witnessing a combination of over-improvement and over-spending.

In real estate I still believe to this day purchasing the smallest or least expensive home on the block allows one to be insured so to speak for the future. Yet when I see buyers in the 7-figures purchasing assuming their investment will only continue to rise my gut is they seem to have forgotten the years between 2008 and 2013. Many brokers I know are advising internally their sellers believe it is still 2018 and their buyers believe it is 2020 or beyond.

I find it interesting that the stock market has spoken concerning the valuations or lack thereof of Lyft, Uber, WeWork, Peloton (of note, I experienced a Peloton while traveling, while not a fan of their bikes due to I feel dated technology and design; love the concept! I like Keiser Spin Bikes much better and full disclosure I own one and my club uses them for Spin/Cycle) and others i.e. floating stock yet not turning a profit and questionable if they ever will. Not to different from the Dotcom Bubble of the early 2000’s. Maybe the stock market is flashing that same warning signs for housing…..

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When the For Sale By Owner Does Not Work Out

As some of the readers of my blog know I live in Cherry Creek North since 1989 (wow that is a long-time). Thus I have been through and boom and bust cycles of the neighborhood. I still remember in the beginning days of The Great Recession when a Craftsman Style Mansion was constructed on the southwest corner of 4thAvenue and Garfield Street (373 Garfield St) as I knew the owner of the duplexes (on the 100’ x 125’ lot which were sold and razed for the 8,000+ SF residence to be completed in 2008.

Fast forward to 2016/17, the mansion makes the news twice.

First in 2016 the owner of 373 Garfield Street filed a lawsuit against his neighbor across the alley concerning impeded access to his garage. Here is the story from CBS Channel 4: Feuding Neighbors Head to Court Over Alley Parking Spot. 

Then in June 2017 the owner of the house enjoyed an extensive article in the respected online BusinessDen periodical in which the owner was planning to place his house on the market as a For Sale By Owner or FSBO. The article titled: Cherry Creek Mansion FSBO: ‘I’m not going to pay 6 percent on a $5 million home’

My favorite quote from the article is as follows: “I’m not going to pay 6 percent on a $5 million home. I’m just not going to do it. I don’t need to,” Neubeiser said. “The home is going to sell itself … If you dangle $156,000 (the 3 percent commission) in front of me, believe me, I’ll jump.”

Well, fast forward two years to July 2019, the home is for sale and guess what it is listed by a real estate broker; here is the listing: 373 Garfield Street listed by Camber Realty.

Of note the co-op commission offered by Camber Realty is 2.8%, thus even if the brokerage listing the home is paid zero ($0.00) at asking of $4,995,000 the seller will still be on the hook for the commission to the co-op broker also known as the Selling Broker, the broker/berkerage who brought the buyer to the table. The amount assuming receives the full asking price: $140,000

Trust me as a homeowner and a real estate broker I understand the desire of FSBO’s; i.e. sellers assuming they will sell their own homes, ascertain a value, facilitate all the negotiations including contesting a potential appraisal shortfall, execute all the paperwork and so forth to save anywhere from 2.5%-6%. Of note many FSBO’s are now paying co-op commissions of between 2.5% and 3% thus savings are even less.

I get it; within hot/in-demand markets why pay a commission when you can sell it yourself. From experience I have witnessed FSBO’s languish on the market and after losing months of time to save a listing commission the house is them listed with a full-service or discount brokerage. Yet in the interim the seller has been paying on the mortgage, lost valuable time in marketing and prospective showings being a FSBO.

Now as the overall real estate market begins to cool and inventory increases I predict FSBO’s will be less common. Yes I know many marketing channels exist for FSBO’s and there is the false belief that brokers are taking commissions just to place a listing on the MLS and sit back. If that were the situation I would be composing this blog from The Maldives and not my office.

 

 

The Avenues of Valuation Demarcation Concerning Cherry Creek Residential

For many of us experienced real estate brokers there was a time when Cherry Creek residential was literally split into two distinct neighborhoods, Cherry Creek North (north of 1stAvenue) and Cherry Creek East (south of 1stAvenue).

At present brokers and prospective buyers seem to use the term Cherry Creek to represent the area generally bounded by 6thAvenue on the North, Alameda Avenue on the South (from east of the Mall), University Boulevard on the West and Colorado Boulevard in the East.

While the housing styles are similar throughout the greater Cherry Creek neighborhood including duplexes, row houses and more recently condos and a few very pricy single family homes I have been curious from a broker’s perspective concerning demarcations within the neighborhood.

I decided to analyze the Cherry Creek Neighborhood from Steele Street on the West to Colorado Boulevard on the East, an area that is all residential. I decided to use various avenues as demarcations as based on experience residences north of 3rdAvenue (which has become a bypass for 1stAvenue) seems to always be more expensive and inventory south of 1stAvenue due to size and design is the lowest cost in the area. Thus I wished to validate my experience with statistics of what is on the market at present.

From 3rdAvenue to 6th Avenue -On market: 53 residences

-Avg Layout: 3BD/5BA

-Above Grade SF: 2,812 SF

Avg. Asking: $1,839,000 or $527.86 PSF

-Days on Market: 53

-Average Year of Construction: 2005

From 1stAvenue to 3rd Ave -On market: 47 residences

-Avg Layout: 3BD/4BA

-Above Grade SF: 2,404 SF

-Avg. Asking: $1,049,500 or $500.34 PSF

-Days on Market: 47

-Average Year of Construction: 2004

From 1stAvenue to Alameda Avenue -On market: 26 residences

-Avg Layout: 2BD/3BA

-Above Grade SF: 2,047 SF

-Avg. Asking: $877,450 or $459.10 PSF

-Days on Market: 76

-Average Year of Construction: 2006

Some will suggest the new construction north of 3rdAvenue is skewing the numbers upward and the condos south of 1stAvenue bring down prices. Thus I have also included the asking based on above grade Per Square Foot to provide a more accurate representation.

As one traverses north from Cherry Creek (the waterway) towards 6thAvenue there is a continual uptick in asking prices (and sales data).  North of 6thAvenue the urban fabric changes drastically to majority single-family houses of the Congress Park neighborhood, thus not included in the analysis.

Thus if considering buying or selling, the sweet spot east of Steele Street seems to be between 3rdand 6thAvenues.  Even more impressive purchase or sell just north of the Cherry Creek North Business Improvement District i.e. University to Steele, 3rdto 6thAvenues, just be aware older housing stock and longer days on market yet an impressive $600+ PSF:

From 3rdAvenue to 6thAvenue University Blvd to Steele St. -On market: 11 residences

-Avg Layout: 3BD/4BA

-Above Grade SF: 3,043 SF

Avg. Asking: $1,650,000 or $603.02 PSF

-Days on Market: 89

-Average Year of Construction: 1997

Happy House Hunting

 

 

 

 

 

Denver Real Estate Market seems to be slowing yet irrational exuberance has not been tempered just yet

Preparing for the Next Cycle

Earlier this week REColorado AKA our Multilist service advised of a “Summer Cooldown” in Metro Denver. Anecdotally we are witnessing an increase in available inventory, longer periods between on market to under contract and pricing that seems to be adjusting to the new reality of lessening demand coupled with higher interest rates.

Thus I was amused to see a new listing in my neighborhood of Cherry Creek, which seems to defy conventional logic. I am not the broker, I am not the owner/seller and I have no idea what the motivation or rationale concerning pricing is HOWEVER I will keep an eye on this one just for my own edification.

While I will not disclose the exact address, the residence is within the 300 block just north of the Business Improvement District aka Cherry Creek North. Many could consider this block prime (I am mixed as it has a concentration of condominiums, curb-cuts and cut-through traffic but I am also trained as an urban planner thus I see what many prospective buyers do not).  Thus owners are literally a few hundred yards away from a wine bar, artisanal coffee, restaurants and so forth. Thus true urban lifestyle with a suburban design and space.

Concerning pricing, here is the history of the residence:

  • February 1999:         Sold for $620,000/$146 PSF ($937,837 in 2018)
  • May 2006:                 Sold for $950,000/$223  ($1,187,527 in 2018)
  • -Of note top of the market, yet good for the seller, 53% gain in 7 years.

 

  • October 2015:           On market for $1,595,000/$376PSF ($1,695,868 in 2018)
  • Did Not Sell: if sold would be a 68% increase over the last sale at the top of the market during the last up-cycle.

 

  • November 2015:       Price reduced to $1,495,000/$352PSF ($1,589,544 in 2018)
  • -Did Not Sell
  • July 2018:                  Place on market for $1,650,000/$388PSF

At $1,650,000 I wish the sellers the best of success. If they are indeed successful selling at asking they will have matched inflation, which is commendable considering, they purchased at the top of the market. Of course when factoring in upkeep, taxes, interest on the mortgage and so forth the calculus changes however they have also had a roof over their heads.

Just for fun I compared the returns above against the S&P 500 with dividend reinvest and not considering inflation, just in real dollars:

Between February 1999 and May 2006

  • The residence appreciated 223%
  • The S&P 500 appreciated 15.5%

Thus residential real estate was the way to invest over those years.

Between May 2006 and June 2018 (most recent S&P Calculator month)

  • The residence (assuming a sale at asking) appreciated 75%
  • The S&P 500 appreciated 172%

During the post Great Recession period we have witnessed the values of real estate and equities rise in tandem. Based in the period from 1999 to 2006 real estate was the better investment. Yet from the Great Recession to today we have witnessed equities and real estate both escalate in tandem. While I am not an economist some would argue bubbles are forming or have formed.

In a Continuing Education class this past week we were collectively discussing the return of non-conforming loans; the ones that brought on the last recession i.e. non-income verification, low or no money down mortgages and other exotic mortgage vehicles. Granted most mortgages are repackaged and sold to investors through various channels.

With interest rates going up and inflation a distinct possibility not to mention trade wars, currency issues (see the Turkish Lira) and investors chasing more aggressive returns…..my advice, sit on the sidelines or better hedge and buckle your seat belts as the old adage goes History Repeats Itself and we all have short memories.

 

 

 

 

The Whipsawing of the Real Estate Market, an example in Cherry Creek North

The 200 block of Harrison Street in Cherry Creek North is an interesting block and one I have some familiarity with as I resided on it for 27.5 years. The east side abuts Colorado Blvd, the west side somewhat sheltered from the traffic. Yet old-time brokers know Jackson St and Harrison St. were always more challenging due to their proximity to Colorado Blvd. Yet in recent years developers have found opportunities on these blocks for redevelopment and advantages with the higher natural topography allowing for unobstructed mountain views.

With interest I have been watching 235 Harrison St, the south side of a duplex. Constructed during the tail end of the boom in the mid 2000’s I always appreciated the contemporary design. While most of the block is of traditional design including a bungalow, the expansive glass and landscaping truly set this duplex apart.

The unit is presently on the market and seems to have been struggling to find a buyer thus I decided to look at the history (please see inflation adjusted to 2018 dollars as noted by the *):

  • The unit came on the market on 4/26/18 for $1,100,000
  • The most recent price adjustment happened on 6/8/18 down to $950,000

Thus I decided to look back at the history a little further:

4/30/08:Comes on the market as new construction for $899,000.

*In 2018 Dollars: $1,050,500

-Of note the beginning of The Great Recession is happening.

1/13/09:Sells for $750,000

*In 2018 Dollars: $879,526

-Basically 6 months later and a $149,000 price reduction from initial asking.

2/09/12: Comes onto market at $799,900

*In 2018 Dollars: $875,540

-$49,000 above last resale 3 years earlier does not sell!

After multiple iterations on the market and price adjustments:

2/24/14: The unit sells for $764,276

*In 2018 Dollars: $812,224

Thus from January 2009 to February 2014 the unit in real dollars increased $14,000 and based on inflation has lost $60,000+.

  • 4/28/18: The unit comes on the market at $1,100,000
  • 5/16/18: Asking reduced to $1,050,000
  • 5/23/18: Asking reduced to $1,000,000
  • 6/08/18: Asking reduced to $950,000

As mentioned this is a lovely residence perfect for the buyer who wishes to own a contemporary residence with mountain views and a roof deck. However as astute buyers, sellers and investors we usually desire our real estate holdings at minimum keep up with inflation and even better exceed inflation coupled with various tax advantages (which are usually negated by maintenance and upkeep).

Thus for 235 Harrison Street the past decade has not been a wise investment. Historically buyers and sellers have come close to breaking even yet when factoring in inflation, which has been historically low over the past decade the ownership, has in fact lost money.

Most economists believe inflation will be making a comeback as we witness low unemployment, increased pricing for basic goods and services from gasoline to commodities coupled with potential trade disputes all coupled with rising mortgage interest rates and a possible recession.

What is interesting I have been watching similar designed row houses going up on Harrison Street south of First Avenue; units with a more pronounced impact from Colorado Boulevard and south of 1st Avenue. Will be interesting to see how the market reacts to those units. Granted new construction does have a premium.

Concerning 235 Harrison as a broker, unless one can get a better price on the purchase consider renting or if making an offer present the information from this blog. Good luck out there.

As Real Estate Transactions Slow Take A Seasonal Breather Bring in Some Hygge

With the Fall Season chill in the air a perfect opportunity to add some levity to my blog and discuss the somewhat abstract concept of Hygge. I was actually introduced to the term while visiting Copenhagen during late November. It was quite chilly; the humidity literally penetrated multiple layers of clothing (of note I stopped in H&M for a scarf, hat and gloves set) and mid-day twilight led to early darkness due to the city’s northern latitude.

Yet the hotels, restaurants, shops and private residences (of note, if visiting must experience Dine with the Danes) had a warmth that is described as Hygge. Even the streets had a coziness as the street lamps were secondary (bulb hanging in the middle of the right-of-way) to the illumination emitted by the large candles in the windows of shops and restaurants literally bathing the narrow pedestrian oriented streets in candle light.

Thus as our days here in the northern hemisphere get shorter I wanted to share te following insights as you prepare for the autumn and winter to come (and if planning on placing your residence on the market during the Fall/Winter when inventory is limited, great options below concerning staging beyond the cookies in the oven..

You know that cozy contentment that comes with spending a Sunday morning reading a good book and drinking a cup of hot tea? There’s actually a Danish word for it. Hygge (pronounced hue-guh) is a feeling described as charming, comfortable, familiar and simple. Sound nice? Keep reading to learn how you can incorporate this hug-like feeling into your home.

Bring the Outdoors In — Embracing the calm that comes with nature is one aspect of hygge. You can do this by revamping your color scheme with earth tones, adding various natural elements and textures or simply burning a forest-scented candle. Personally I enjoy the scent of the mountain towns in winter, a mix of wood-burning and pine.

Maximize Your Light — The more natural light you can bring into your home, the better. Pick window treatments that will allow as much light as possible or go with no treatments at all. Instead, add a film to your window to reduce solar heat and maintain privacy. In Colorado we are blessed with 300+ days of sunshine a year coupled with mild winters.

Find Your Center — Even if you don’t have a fireplace i.e. living in a condo or apartment, moving your furniture around a primary focal point, like a coffee table or book shelf, will add a sense of comfort to your space. Arrange your furniture in a semicircle and watch how naturally conversation flows when you have guests over. If you wish to splurge consider building a mantle and a faux fireplace and of those who have a closed up flue, consider a candle arrangement in the fireplace.

Create a Relaxation Station — Designate a specific nook in your home where you can go to decompress and recharge. String up some lights, arrange some candles and have a soft blanket and quality chocolate nearby. Trust me one can park and visit Godiva and make it out within one hour at The Cherry Creek Shopping Center or consider Endstrom on University Blvd in Cherry Creek North.

With this notion of coziness built into their way of life, it’s no wonder the Danish are considered among the happiest people in the world (even though their tax rates is by our standards are quite high). Try implementing a few of these hygge tips to create a sense of well-being and contentment in your home.

 

 

 

Is Irrational Exuberance Giving Way to Rational Behavior

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

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

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

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

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

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

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

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

On the Market at Present:

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

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

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

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

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

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

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

On the Market at Present:

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

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

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

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

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

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

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

 

 

 

 

 

Opportunity Knocks in Cherry Creek North

Even in an overheated market opportunity knocks.

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

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

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

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

I pulled some statistics as follows:

Sold over the last 6 months:

Average Sales Price: $941,000

Per Sq. Ft. Above Grade: $447.73

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

On Market at Present:

Average Asking Price: $1,085.000

Per Sq. Ft. Above Grade: $484.83

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

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

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

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

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

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

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

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

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

Happy Hunting

Is A Real Estate Bubble in Colorado’s Immediate Future

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

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

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

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

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

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

The following is excerpted from the AOL Finance article:

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

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

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

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

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

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

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

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.