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.

 

 

Is The Country Club Neighborhood Overheated

DSC_00791I honestly don’t know. However for a client request I decided to run some statistics. I pulled resales through the end of 2015 and compared on a per square foot price to the homes on the on the market at present.

I kept the comparison sample as close a possible as follows:

  • Houses priced/sold below $1,300,000.
  • Using only above grade measurements.
  • Avoid listings on busier streets i.e. Downing St., University Blvd., 1st and 6th Aves.
  • The Results:

The Closed Sales came in at: $446 PSF

Active on the Market at present: $481 PSF

Both on a percentage basis and actual sale price, I have some concerns. For example a 2,000 SF house based on the statistics during the 6 months from summer to today would have gone from $892,000 to $962,000. The difference in a mortgage payment is approximately $345.00/month or over $4,140/yr and .and extra $124,000 over the term of a 30-yr mortgage,

Granted, this is Closed  versus Asking, however sold prices have consistently been close to asking. My concern; will appraisals support the values beings presented during this 1st Quarter of 2016 (in general appraisals look backward not forward). Also, for those buyers purchasing at present will equity appreciation continue?

Of course we are in a low interest environment and while this morning’s unemployment rate was positive for the economy there are questions concerning slipping back into a recession based on world-wide economies.

Anyone who knows me knows I am always bullish on central Denver neighborhoods. I believe in location, location and location. However when I see 8% gains in 6 months and some justifying the gain, I become a bit more skeptical.