JP Morgan Chase and Wells Fargo Tighten Mortgage Lending Criteria and My Predictions Post Covid-19

Before the Covid-19 crisis mortgage interest rates were close to historic lows. Refi’s were happening and while the housing market may have been in a seasonal slowdown it was and still is a seller’s market. However, Chase the country’s largest lender by asset and the nation’s 4th largest mortgage lender in 2019 is raising borrowing standards this week for most new home loans as the bank moves to mitigate lending risk stemming from the novel coronavirus disruption.

  • Beginning on April 14th, 2020 those applying for a mortgage through Chase will have to have a credit score of at least 700 AND provide a down payment of at least 20% of the home’s value. Of note the average down payment across the housing market is around 10%, according to the Mortgage Bankers Association.

While on the surface this may seem Draconian in fact it is a smart move on the part of Chase and I assume other lenders will follow. Consider the following:

  • Within the past few weeks 16M+ workers have become unemployed.
  • Economic uncertainty is an issue; while the equity markets have gained back some value lost over the last month, we are still enduring 20% losses across most major indexes.
  • Chase’ decision will reduce their exposure to borrowers who unexpectedly lose their job, suffer a decline in wages, or whose homes lose value.
  • Shifting staff to refi’s is profitable i.e. collection of fees and lower risk i.e. underlying asset usually has higher percentage of equity.
  • The residential mortgage market is already under strain after borrower requests to delay mortgage payments rose 1,900% in the second half of March.

While Chase let the way, according to Forbes, others are jumping on the wagon: Mortgage Loans Get Harder to Come By As Lenders Tighten Standards

As prospective buyers, sellers, real estate brokers and others associated with the industry should we be concerned?

As a broker who has been in the industry for almost three decades, I too have found the events of the last month unprecedented. However, history usually has lessons that can be applied to recent events.

Colorado Regional Recession (mid to late 1980’s): A downturn in oil prices and an exodus of oil related businesses from Denver consolidating to Calgary and Houston there was an outflow of population and employment throughout the state. In Metro Denver housing prices peaked in 1983/84 and bottomed between 1987/88. Of note the home I purchase in the Fall of 1987 for $140,000 previously sold as new construction three years earlier for $200,000. The drop-in value 30%.

Fall 2008 Financial Crisis: The collapse of Lehman Brothers would be the catalyst for the Great Recession. Coupled with housing considered a commodity and purchased with leverage the result a drastic downdraft in values beginning in 2009 and not showing positive activity until 2012.

Concerning the Denver Market while our economy has diversified and we may truly believe there is a housing shortage I believe we may be in for some challenging months ahead.

  • There will be job losses as some businesses will not re-open and others will experience contractions of their business.
  • The existing glut of deluxe and luxury rentals will be exacerbated due to employment relocations i.e. out-migration and job losses.
  • Demand will continue for starter homes; I believe we will see more requests for modifications and pre-foreclosures in the middle and upper-markets where some owners were already on the margins concerning debt-to-income ratios.
  • While not immediate, I do believe there will be job losses in our economy. While demand will be sustained concerning starter homes, I feel we already have a glut of high-end rentals which will lead to an increase in vacancy.
  • Home values will not necessarily drop immediately and even though the equity markets may stage a rally I believe the impact on small and medium sized businesses and loss of the wealth effect (doe to equity markets and loss of values of homes) will lead to a retrenchment in asking prices and may move the overall real estate market back to equilibrium.
  • Real Estates Taxes in Denver and surrounding counties have increased due to underlying home values. However, I believe there will be a short fall in sales tax collection and if home values decrease will lead to a contraction of real estate taxes collected which could result in budget shortfalls and/or increased borrowing.

Concerning Luxury Real Estate: The wealthy are still wealthy. However, in top-tier markets with a glut of luxury real estate i.e. $50M+ spec homes in West Los Angeles, Billionaires Row in Midtown Manhattan I do forecast price drops, concessions and opportunities for long-term appreciation reminiscent of 2010-2013.

Where do I see opportunities?

  • Commercial/Business Real Estate: If one has the three L’s coupled with a financially strong tenant and or owner/user, I believe opportunity is there for rental income and equity appreciation longer-term.
  • 2nd Homes: Usually one of the first markets to show signs of stress. Add to this so many properties that were placed on the transient rental market i.e. Airbnb. VRBO, Professional Management and so forth. With travel and tourism challenged for the foreseeable future coupled with a loss of rental income do not be surprised to see inventory increase and prices fall in resort/2nd home communities.
  • Overall Entrepreneurial Opportunities: While Recessions are painful one bright spot is invention and innovation. I believe we will see opportunities concerning small businesses including franchise sales. Personally, I see opportunity in aspirational businesses and those offering affordability. Thus, I am a fan of Dunkin, Wal-Mart, Family Dollar and other consumer staples that are necessities versus luxury.

I do hope fiscal stimulus works yet I believe it is a short-term bandage on a larger structural issue. The world economy has been expanding due to expansionist fiscal policies i.e. cheap to borrow money coupled with tax cuts. While I am not here to debate of austerity versus capital spending (OK, I am for the latter), the reality is Covid-19 may be an economic reset both short and long-term and the decisions we make today will impact our future.

Finally to answer the question in the visual posted; I believe it is a good thing as tightening of credit channels I believe in the long-term is a positive HOWEVER during times of fiscal crisis and uncertainty I do feel the spigots need to be opened up to spur and sustain economic activity. 











Case Shiller Index Nationally 2019 a Decent Year

In 2019 home price gains continued their upward trend rising 3.8% on a year over year basis as measured in December 2019. Regionally, Phoenix, Charlotte, and Tampa led the way with the highest gains at 6.5%, 5.3% and 5.2% percent, respectively. 12 out of 20 of the biggest cities in the U.S. saw bigger home prices gains in December compared to November. Of note, Metro Denver/Aurora is within the Composite 10 AKA 10-City Index.

Concerning Denver our year over year gain was 3.7%

While Metro Denver’s 3.7% is in line with the national average I believe we are actually entering a plateau phase concerning the real estate market. Anecdotally I am witnessing more active price reductions (possibly based on initial exuberant pricing), closing prices below asking (bidding wars seem to have dissipated) and listings coming on and off the market when activity does not generate interest or an acceptable offer.

Granted I work in the rarified neighborhoods of Central Denver which had witnessed exponential gains since the end of The Great Recession. A plateau not necessarily a negative. Markets that have exponential gains can also endure monumental corrections i.e. the housing bubble of the early 2000’s.

What will be interesting is how the housing market fares in the Spring of 2020.

  • As of this morning (2/26/2020) the Commerce Department announced new home sales jumped 7.9% to a seasonally adjusted annual rate of 764,000 units last month (January), the highest level since July 2007.


  • The strength of the housing market could help keep the economic expansion, now in its 11th year, on track. The housing sector accounts for about 3.1% of GDP, is being supported by cheaper mortgage rates after the Federal Reserve cut interest rates three times last year. What will be interesting is how the equity markets react to the continued coronavirus issues, an election year and mortgage rates at a 4-year low.



Another Example of The Denver Market Showing Potential Stability and I believe Zillow’s Zestimate is way off

The Country Club neighborhood of Denver is one of the most in-demand within the City and County of Denver. A mmix of stately mansions as well as more conventional housing opportunities, while never inexpensive is a neighborhood market which is considered recession resistant. Of course, what’s not to like; great location just west of Cherry Creek and within 10 minutes’ drive of downtown. Quiet streets designed to discourage cut-through traffic. Neighborhood serving retail can be accessed along 6th Avenue.

Thus, I have been watching with some interest 430 Franklin Street. I first was introduced to the house during the height of the seller’s market back in June of 2015. A cute house with street appeal within the historic Driving Park Subdivision. I noticed the house adjacent on the south was of similar style and popped i.e. added a 2nd level. Thus, I thought to myself; opportunity may be calling i.e. purchase, land-bank so to speak and eventually pop or expand the rear section.

The home came on the market for $869,000. I thought pricy at the time however comps in the area were selling for even more. I toured the home, nicely done with two bathrooms on the main level already in place and a mostly finished basement. However, for various reasons I did not pursue yet I continued to watch the listing.

  • On 7/3/15 the listing had a price reduction to $825,000.
  • On 7/30/15 another price reduction to $799,000.

The price reduction to below $800K must have been the psychological admission of entry as the house closed on 9/30/15 for $780,000 or $89,000 below the original asking price, a 10% reduction in what was a generally strong seller’s market.

In August of 2019 the home came back on the market. There were few if any improvements done to the home during its 4 years of ownership that I could ascertain by the naked eye. Of note the house was and I assume still is in excellent condition, state of repair and show ready. The asking in August 2019, $895,000.

Subsequent price reductions happened as follows:

  • 8/26/2019: $885,000
  • 9/13/2019: $870,000
  • 10/15/2019: $855,000

The residence did go under contract on 10/28, yet was active again on 11/7 still asking $855,000. The listing expired on 11/22/19 sans a sale.

As of this morning 2/3/2020 the home is relisted with an asking price of $850,000. There is also a new broker and brokerage firm listing the residence. One major difference I believe the seller has moved out as seems from the marketing materials to be staged.

Now the math. When the seller purchased the home in 2015 she purchased at an approx. 10% discount off of original list.

At present concerning the existing selling period, the house came on at $895,000 and is now asking $850,000 an approx.. 6% revision from asking.

If the seller does receive and close at full asking of $850,000, she will incur a profit of $70,000. Let’s deduct commissions (6%) and closing costs (1.5%) totaling $59,500 thus her net profit would be $11,000. This is all assuming the home sells for the asking. If the home sells for anything below $839,000 there would be an actual real dollar loss and already a break-even at asking based on inflation and closing costs.

My gut feeling is the house will close in the $800+/- range based on two-factors, lack of inventory and price-point. Personally, I feel at $800K a bit aggressive as a nice block yet not blockbuster, one-level i.e. a pop-top would bring the house to over $1M.

Yet at $800K with 20% down the monthly PITI (Principal, Interest, Taxes and Insurance) would run approximately $3,600 thus with utilities and upkeep assume $4,000/month. For some buyers this is an attractive number and while not affordable to the average buyer in Metro Denver, not unattainable.

For me is the house an option? I never say never however the lot is on the small-side i.e. 4,690 SF, I would prefer a 6,250 or similar. The garage is one car. The kitchen while functional is small with mid-grade appliances, taxes are in excess of $5,000/yr  and the improvements I would consider over time would bring my investment to over $1M.

Thus while the PITI is attractive; I am conservative as I look at equity value and appreciation versus purchasing a payment. What is my # you ask? $675,000 but I am again conservative, I don’t need to purchase and so forth. However, that is my personal # and I would be a cash buyer at that price.

BTW: Zillow as of 02/03/20 has the house valued at $1,125,000! Of note the house has 2 bedrooms and a 3rd in the basement, not 4 bedrooms as Zillow advises. If Zillow is correct  truly the beat deal in the market at present or why you use an actual broker for market analysis. See screenshot below:

Screen Shot 2020-02-03 at 1.17.48 PM

Next week New York City, the real estate market seems to be the lost decade beyond the headlines concerning Billionaire’s Row.

Can a Busy Street Frontage Provide Opportunity to Enter a Desirable Neighborhood on a Cost-Effective Basis

In real estate, Location, Location, Location has been a mantra concerning values since the dawn of time. Granted the type of real estate and its location are variables that are unique and will dominate valuation. For example, in the commercial world it is well-known 7-11’s desire to be on major arterials, gas stations at intersections and even Starbucks with drive-thru’s desire a location on an inbound arterial.

In residential real estate the vast majority of homeowners I believe wish to be located on a quiet, residential oriented street. Of course, there are anomalies i.e. multi-unit, mixed use, density and so forth. However even in the recent boom market location determined market value and depend.

As I am preparing to possibly list a residence located on an arterial, I decided to review actual price and valuation differences; looking at two established neighborhoods.

Washington Park: I reviewed smaller homes in the Washington Park neighborhood concerning resales versus their peers on University Boulevard (of note I used both sides of University Blvd to attain an accurate sample set: Here are the findings concerning resales under 2,300 SF total:

Univ (10 Sales)                     Washington Park (16 Sales)

3BD/2BA                                  3BD/2BA
1,181 SF Above ($459.85)     1,132 SF Above ($697.83)

2,254 SF Total ($268.87)        2,250 SF Total ($359.87)
Year of Construction: 1933   Year of Construction: 1921
List Price: $562,450              List Price: $834,000
Sale Price: $548,000             Sale Price: $812,000

In the above situation being on a busier street/arterial offered a substantial discount. Technically the same neighborhood and school choice/district yet on both a Per Square Foot (PSF) and total sales price difference is dramatic.

Congress Park: While a little more challenging as only 2 blocks on the east border of the neighborhood fronting Colorado Blvd. have single family homes i.e. 600-799 Colorado Blvd.) I added one sale from the eastside of Harrison Street (shares the alley with Colorado Blvd) and only looked at resales between 6th Avenue and 8th Ave.

Colorado Blvd (3 Sales)     Congress Park Interior (11 Sales)

3BD/2BA                                  3BD/3BA
1,152 SF Above ($481.77)     1,224 SF Above ($571.20)

2,304 SF Total ($240.89)       2,062 SF Total ($327.20)
List Price: $569,900           List Price: $699,950
Sale Price: $555,000          Sale Price: $686,250

While the price differential is not as dramatic as Washington Park of note the 600 block of the west-side of Colorado Boulevard actually offers on-street parking and an exaggerated setback from Colorado Boulevard.  

From a broker’s perspective representing sellers and buyers concerning homes on busier and/or arterial streets may offer opportunities to penetrate a neighborhood that may otherwise be off-limits concerning budget. While the changes of the roadway being decommissioned or buried are minimal there are landscape and design options to minimize the road impact including but not limited to:

  • Landscape Screening i.e. mature, tall dense landscaping including bamboo
  • Physical Screening: including masonry walls
  • Sound Frequency: Water-feature

As inventory remains limited and prices while stabilizing are still showing a gain of almost 100% gain in a decade the residence you pass while driving daily that has been for sale for a while may actually be an opportunity not to be missed.

Wishing all a Happy, Healthy and Prosperous 2020.



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…..

Size Does Matter in Real Estate Part II

Seller and buyer have come to a resolution.

As advised last week I had a unique situation. While representing a buyer for a condo in Denver I was perplexed concerning the actual size of the unit as follows:

  • The MLS/Listing Broker advised the unit was 1,080 SF*
  • The Assessors Office advised the unit was 994 SF
  • An appraiser I use for measuring advised 975 SF

*The 1,080 SF measurement was off a valuation appraisal completed a few months prior.

The difference between my appraisers measurements and the marketing materials was 106 SF. While the number does not sound large at $515 PSF the value of the difference exceeded $50,000! In addition 100 SF equals a 10’ x 10’ room or potentially a 2nd bedroom.

Some background, seller and buyer agreed to transact at a PSF of $508.78 based on the 1,080 SF per the listing.

The resolution: an independent appraiser was hired, his measurement 1,026 SF.

After some back and forth between seller and buyer (my client) the final amount concerning the sale will be $520 PSF. The negotiation and final sales price was a fair compromise between seller and buyer.

Yes my buyer is paying slightly more on a PSF basis however the price is based on the revised downward size. The seller is divesting of a unit that is actually smaller than they believed however on a PSF basis; securing a price that is in-line with their original ask. Thus I believe will be a win-win for all at the closing table.

The message here is this, the Square Footage Disclosure in Colorado actually advises one to consider getting their own independent measurements. From experience builders plans and actual measurements can vary. Assessors while generally connect can be off by 10% in either direction. Independent appraisers can come up with different numbers even though technically using the same standards for measurement. The following is a screen shot of the text from the Square Footage Disclosure used in Colorado:

Screen Shot 2019-09-30 at 1.42.27 PM

Thus if in doubt laser measuring devices are inexpensive and I would strongly suggest hiring an independent appraiser that both parties can agree on. In a marketplace where $500 PSF can be the norm the reality is every square foot counts. While the phenomenon is new to Denver, in major cities like New York, Los Angeles, San Francisco and others were PSF exceeds four figures on average appraiser measurements are nothing new and are sometimes added as a contingency in the sales contract.

At the end of the day both parties are satisfied. My buyers looked at many properties and this unit met all their checkboxes. The seller while selling a slightly smaller condo is actually receiving more on a PSF basis than his original asking price. Thus a win-win for all.

Next week why negative interest rates are detrimental to real estate.



Bidding Wars Seem to Have Given Way to Détente

While I have been suggesting the real estate market has been softening over the past year, maybe longer I have had peers advise I am off base and to be honest anecdotal information has been challenging to come by. Yes we have more inventory on the market (check). Prices have stabilized and in some markets have come down from peak levels (check) with the caveat more inventory naturally leads to price stability (true). Interest rates at 3-yr lows do not seem to be impacting the buying market (check) yet refinancing is strong.

I believe the most compelling data to support my views concerns Bidding Wars of lack thereof. In the not too distant past bidding wars were commonplace. Listed properties would literally receive multiple competing offers. Brokers would advise in their comments “Please submit highest and best offer with cash or pre-approval letter ”. Some prospective buyers would actually waive contingencies including but not limited to inspections and appraisals, foolhardy in my professional opinion. I even heard of situations of offers placed site-unseen; the rationale, if it does not work out I can always place back of market and sell for a higher price.

Of note I always advised clients both seller and buyers to avoid bidding wars as in the end no one is happy. The buyers who were outbid feel rejected. The seller has to review multiple offers, many similar to each other and make a decision based on tangible and intangible data. I am not even going to mention the Love Letters; as a broker I will not read them and I advise my sellers not to either and buyers not to compose and send. Here is a link concerning The Colorado Real Estate Commission Advisory concerning Love Letters sent to the Brokerage Community:

According to the real estate brokerage Redfin, of note the following concerns their brokers; they advised only 11% of the properties for which their agents submitted offers in July 2019 had multiple bids, down from 46% in July 2018. Of note Redfin the 11% number is the lowest share since 2011 (and for those with short memories in 2011 nationally we started to climb out of The Great Recession).

Concerning Denver we went from 49% to 14% (see chat below). I can attest as I have multiple listings that are sitting on the market, all priced mark to market, yet still awaiting a buyer.

The following chart from Redfin (based on their activity concerning offers for their clients shows that change in percentage of offers involving multiple bids or more commonly known as a bidding war:

Location:                 July 2018       July 2019

National:                    46%               11%

San Francisco            72%                35%

San Diego                   62%                21%

Boston                        64%                16%

Los Angeles                65%                16%

Philadelphia              37%                14%

Denver                       49%               14%

Phoenix                      48%                14%

San Jose (CA)             80%                13%

Sacramento               39%                9%

Washington               40%                9%

Raleigh NC                 29%                9%

Portland OR               37%                9%

Chicago                       31%                8%

Seattle                         41%                8%

Atlanta                       35%                8%

Austin TX                   39%                8%

Las Vegas                   31%                7%

Dallas                         43%                7%

New York                   41%                6%

Houston                      38%                5%

Miami                         30%                1%

Will bidding wars more commonly known as multiple offers continue? Of course. If a property is listed below market and/or has demand i.e. design, neighborhood and so forth a multiple offer situation can happen. I know brokers who purposely list properties below market as a strategy (with their clients permission) to generate interest and buzz. The downside, offers may not come in and it is always more challenging to adjust a price upward versus downward.

As a broker my suggestion to clients is to price mark to market as noted above with my listings. If priced correctly based on comparable sales, condition and so forth the laws of supply and demand shall prevail. Let us hope the chart above advises the return to a more rationale less speculative marketplace. Coupled with historically low mortgage interest rates some excellent opportunities may arise.

What Usurps Low Mortgage Rates Concerning Housing Activity? Confidence

While I truly understand as a broker the continued optimistic view of housing espoused by my peers; hey its our bread and butter. Yet even with last week’s downdraft concerning mortgage interest rates the housing market did not suddenly spring back to the activity levels of last year and asking prices did not all of sudden increase. There is a fundamental reason why activity did not spike; it’s called confidence or lack thereof.  Let me explain:

  • First: Mortgage rates have been falling sharply over the last three months, which should be incredibly positive for the housing market, but so far reaction has been muted in both home sales and new home construction. Granted part of the drop was due to the inverted yield curve and discussion concerning a Recession on the horizon but the point is…..The average rate on the 30-year fixed is now well below 4%; it was above 5% in November 2018. The drop in rates has not produced a home-buying spree for either new or existing homes.


  • Second: The drop in interest rates did have impacts specifically concerning refinancing activity.  This is a mixed message as refinancing may suggest prospective sellers may actually be staying in a home versus selling and moving up or down from their existing residence HOWEVER most who refinance will conduct a cost-benefit analysis i.e. months to recoup the investment and then subsequent savings. Thus due to refinancing one would assume housing availability would be further constrained. However……


  • Third: The further drop in mortgage rates did nothing to encourage people to buy, as there was no change in intentions to buy a home, and instead there was a 9 point jump in those that said it’s a good time to sell a house—the most since 1992 when this question was first asked. Of note I am in the same boat as I have literally stopped looking for now and am not enticed by the attractive interest rates.

Consumer confidence fell sharply in August, according to a just-released report from the University of Michigan. The report said consumers felt they needed to be cautious about spending in anticipation of a potential recession. That bled into housing. Again coupled with the gyrations in the equities market, continued volatility concerning tariffs and asking prices that has remained at 2018 levels the Fall season may be worth watching (I suggest from the sidelines) as recession fears and become a self-fulfilling prophecy.

A quote I have used this week with clients both looking to purchase and those looking to sell has been the same: “Sellers believe it is 2018, Buyers believe it is 2020 and at some point the two shall meet in the middle”.

The Numbers May be Large Reality is kept up with Inflation

Recently I read about a house in The Denver Country Club neighborhood which has changed ownership in less than 2 years. As it was an off-market i.e. not marketed in the MLS little is known about the circumstances of the sellers and so forth. What intrigued me was not the ownership history but instead the sales history.

Collectively we hear how Denver’s housing market is one of the most expensive in the country. How home sellers have experienced exponential gains since The Great Recession, and so on. Thus I decided to track the history of 363 High Street which can now be rented for $10,000/month.

The 300 block of High Street is a beautiful street, probably one of the finest in the city representing the opulence of early 20thcentury Denver mansions as the Gold Coast shifted from Capitol Hill south and east closer to The Denver Country Club.

The home at 363 High has gone through 5 owners in 22 years as follows:

9/12/96:       Sold for $660,000 ($1,077,465 in 2019$)

10/9/01:       Sold for $1,701,000 ($2,461,577 in 2019$)    -Gain of 157%

9/28/16:       Sold for $2,400,000 ($2,561,355 in 2019$)    -Gain of 60%

10/12/18:     Sold for $2,950,000 ($3,009,162 in 2019$)     -Gain of 18%

07/19             Selling for $3,050,000  -Gain of 3.2%

Thus while the numbers are impressive the gains have mirrored inflation almost to the dollar over the years.  Concerning the most recent sale from 2018 to 2019 while the 3.2% gain may seem respectable; after commissions, closing costs and fees there is probably a loss.

For comparison during the most recent ownership of 363 High St:

  • The S&P 500 closed on 10/12/18 at 2,728.37.
  • On 7/12/19 the S&P 500 closed at 3,013.00.
  • The gain approx. 10% not including dividends.



Has the Denver Housing Market Reached its Peak and now on the Descent?

Let me begin by advising I am not a pessimist. However headlines from other cities around the world has indicated the housing market which has seems to have been in auto-drive since crawling out of The Great Recession has witnessed its peak and is beginning to retreat.

According to REColorado aka as our MLS and best source of activity data concerning the housing market in the metro area during June 2019 there were 9,520 active listings for the Denver metro market, up 7.07 percent from May and up 28 percent from one year earlier. Ok, I am first to admit our prior months/years inventory of for sale homes was truly constrained.

Concerning pricing the news is a little more positive. As inventory increased, sale prices dipped on a month-over-month basis. The average sales price for a single-family home was $547,461, down 0.82 percent from May but up 1.26 percent year-over year, while the average sales price on a condo was $370,442, down 2.16 percent from May but up 2.5 percent from one year earlier. While these gains are far from the numbers we were witnessing this shows the market is matching inflation and is moving towards a more normal orientation.

I have continually advised the luxury market is a predictor of the overall market. Upper-tier listings seem to be having more price adjustments and longer days on the market.

According to Brigette Modglin, Denver Metro Association of Realtors (DMAR) Market Trends Committee member “While things seem to be pointing in the right direction with more inventory in the luxury segment of the market, sales of single-family luxury homes were slightly down from 1,067 sales year to date in 2018 compared to 1,038 year to date in 2019, a 2.72 percent decrease. She goes on to advise “Diving into the numbers, they still look good as we are in a more balanced market and all signs show this is good for both buyers and sellers in the Denver Metro Luxury Market.”

I will be curious when the books are closed for 2019 how the overall market does. Concerning the luxury market  and to some extend the overall housing market I believe there is additional room for adjustment downward. Just too much inventory (luxury and conventional) and too few buyers. Of note the equities market is again towards record highs coupled with low interest-rates. Housing should be selling at a brisk pace yet we are witnessing increased inventory, prices barely matching inflation and a downdraft concerning the sale of luxury homes.

I am suggestion caution ahead. While I do not see a significant downdraft in values I believe the increased inventory, stagnant price growth coupled with low-interest rates may spook some more homeowners to be sellers thus increasing supply which will in turn lead to I believe year-over-year price declines.