Why Continued Positive Comments About the Housing Market Scare Me

As a broker I make my living assisting clients purchasing and divesting of their real estate holdings. In this market of ever seemingly positive news I should be thrilled. Yet as a 20+-year broker licensed in two states I have some serious concerns on the macro level, which truly reverberates beyond home sale statistics.

At present the Denver market as well as the US market looks very healthy. Demand is high, employment and wages are growing, and mortgage rates are low.

However based on reports out this past week, if one reads between the numbers and taking into account history and growth trends, the market is quite challenged. Not at present but longer term we may be setting ourselves up for a dramatic shift in the economy and wealth accumulation.

There is continued strength in the overall national housing market with prices 6% higher than the same period one year ago. Some local markets continue to show double-digit growth in prices. Metro Denver’s year over year was 7.9%. Such numbers are driven by the simple law of supply and demand and specifically the limited supply at the lower end of the market. Thus lower end homes are witnessing significant price appreciation due to more competition while higher end listings are languishing or having price reductions (see my last blog).

While I have mixed feelings on Zillow and similar sites, their insights and digesting of data is always an interesting read: “It sets up a situation in which the housing market looks largely healthy from a 50,000-foot view, but on the ground, the situation is much different, especially for younger, first-time buyers and/or buyers of more modest means,” wrote Svenja Gudell, chief economist at Zillow in a response to the latest home-price data. “Supply is low in general, but half of what is available to buy is priced in the top one-third of the market.”

So why is the inventory and supply on the lower end of the market so challenged? A few reasons and many can be seen in your local neighborhood:

Conversion of Inventory from Home Ownership to Rental: During the Great Recession which many of us brokers also call “a housing crash”, investors from large hedge funds to Ma and Pa purchased 100’s of thousands of foreclosed properties. While some were fix and flips, the vast majority became income-producing rentals. At present according to the U.S. Census there are 8 million more renter-occupied homes than there were in 2007.

Granted some renters may be scared off from purchasing and while the investors could cash out and after paying simple capital gains have a nice windfall, at present the cash-flow on rentals is one of the most attractive investments in the market coupled with the underlying equity appreciation of the real estate; thus the motivation to sell is limited. In turn lower end and moderate homes are not coming on the market in meaningful volume.

New Home Sales are Down: In August 2017 there was a 3.4% monthly drop concerning new home sales. If demand is so strong shouldn’t new home sales be booming? Well, it is again simple economics and in this case pricing.

In August just 2 percent of newly built homes sold were priced under $150,000, and just 14 percent priced under $200,000.

Builders advise they desire to build more affordable homes yet profit margins or the lack of is causing constraints. Builders blame the higher costs of land (exurbs with lower cost land is falling out of favor with 1st time home buyers who desire to be closer to urban centers), labor, materials and regulatory compliance i.e. building and zoning codes (and this is before the hurricanes decimated Houston, southern Florida, Puerto Rico and the US Virgin Islands which will demand laborers and materials to rebuild leading to eventual inflation in those industries and supply chains.

One could argue that market forces will eventually realign the housing market. Yet when this will happen is anyone’s guess. Considering we are still in a “Goldilocks economy for housing i.e. jobs and income continue to grow, interest rates remain at historically low levels, financing rules have become more flexible and inflation remains tame at below 2% annually. So what is the problem?

At present our inventory of new and existing homes is static with numbers similar to those found in the mid 1990’s a full 20+ years ago HOWEVER during those 20+ years the country’s population has expanded by 60M. Couple this with a mismatched market as home prices will not come down as long as there are buyers out there willing and able to spend more and more money for less and less house as we have witnessed in hot markets i.e. San Francisco Bay Area, The Northeast and other markets.

Longer term is my concern. We have witnessed locally in Denver our market moving from purchasers to renters. Good for investors not so good for individuals concerning personal wealth. Homeowners are known for making big-ticket purchases i.e. appliances and upkeep and maintenance sustains the construction sector i.e. additions, roofing and so forth.

If we move towards a renter oriented housing market fewer Americas will be able to save and grow their money associated with the ownership and upkeep of a personal owner-occupied residence. Due to demand rents may continue to rise (as less inventory on the market) and thus renters will have less disposable income to spend which will ripple through the economy beyond housing.

Yet Denver may be the litmus test for the national economy as follows:

Upper-End of the Market: is slowing dramatically as prices rose to fast and thus not sustainable. Upper-end buyers are usually market savvy and thus will be more cautious entering the market. Even in the Country Club neighborhood I have witnessed price-drops and re-listings at lower prices all in an effort to generate activity; would have been rare one year ago

Lower-End of the Market: Supply is outstripping demand with the average home in Metro Denver over $410K; yet incomes/wages have not kept up as the average worker is slowly being shut out of the market and thus will be a perpetual renter,

Rentals: The vast majority of new rental buildings are priced at luxury levels (just look at the cranes in Cherry Creek North). Yet that market is slowing and many of the existing buildings are struggling to attract tenants and now offering rental incentives. Yet additional buildings continue to come out of the ground.

Zoning and Entitlements: In Denver while zoning has allowed additional density and not without controversy i.e. slot homes in Cherry Creek, while beneficial to rental development, most rentals are oriented to single and couple households, with few exceptions most new multi-family buildings are not designed for families or larger households.

The above is just some food for thought. Add an existential crisis and this housing “House of Cards” may come to an ugly resolution. While I am not predicting another housing crash, the off-balance market is not sustainable and the overall repercussions to the overall economy have not been considered, quite dangerous.

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To Buy or Rent that is the Dilemma

As a practicing real estate broker you would assume I would be an evangelical advocate for purchase. In general I am HOWEVER as a seasoned real estate broker I am a bit concerned about the existing market conditions in the Denver Metro area. In some neighborhoods I have witnessed prices and sales volume up 50% in 3 years and some 100% gains since the depths of the Great Recession. Of note Denver was NOT as hard hit as Las Vegas and Phoenix where such gains after an over-sold condition may be warranted.

Thus the following are the 5 questions I usually ask of prospective buyers and not only 1st time buyers. Of note I personally am going through a similar exercise as I am under contract to sell my residence, which I have called home for 28+ years. Due to the inflated (in my humble opinion) market and lack of inventory; the 5 questions are hitting me personally. Here you go and I must advise please be honest as the questions are also a self-assessment of sorts:

How long are you planning to stay in the Home/Neighborhood/Area?

The reality; it is unlikely we will witness the gains we have had during the past three years. Simple economics would argue median incomes cannot match the gain in housing prices especially in the upper-tier of the market. Thus I advise clients unless they plan to stay in their residence a minimum 3-5 years (assuming this is not a fix and flip situation), may wish to reassess purchases.

The purchase and selling of a residence is not only time consuming, it is also capital intensive. Costs usually associated on both sides include brokers fees (usually paid by the seller in Denver), mortgage applications/origination, appraisals, title insurance (usually paid by seller) and so forth.

In general the longer you retain your residence the more time you have to recoup costs and based on dollar cost averaging (yes values can decrease), the more opportunity you have to enjoy an overall increase in value. Of note for those who retain a house for less than two years and if there is an increase in value, must factor in capital gains taxes (sometimes can be offset by expenses incurred concerning the divesting of the residence).

In the question I mention neighborhood and area. Do you have young children or planning on having children? School districts are a major motivator concerning one’s residential address. When childless; the gentrifying neighborhood may be the hip choice yet when the children come into the picture and Kindergarten is around the corner all of a sudden the school district and distance to school is of paramount concern.

My opinion, if planning to stay 3 years or less, consider renting.

House Prices Always Go Up, Right?

How we have short memories. While the market slide beginning in 2007 may be recent memory and quite severe, it was not an anomaly. When I purchased in 1989, the seller had purchased the home in 1984. Five years later he sold it for 30% less than the purchase price 60 months earlier (not accounting for inflation). The seller brought cash to the closing table to satisfy the mortgage and compensate the brokers. This was an era before the term short sale and “jingle-mail” entered the popular lexicon.

More recently, the median home price in the United States dropped nearly 13% between 2007 and 2009, falling from $247,900 to $216,700. In some overheated markets, such as Las Vegas prices declined as much as 62% from their peak.

Before buying a home, consider how your personal finances would fare if your house’s value increased slowly or not at all. With 3% annual price appreciation, a $250,000 (considered a starter in Metro Denver) house would be worth more than $337,000 in 10 years. With a 1% annual price increase, the same house’s value would grow to just $276,000 over the same time period. Barring a recession, nominal inflation of 2% would keep up however due to the added expenses concerning home ownership; one could envision a scenario of flat and potential decrease of value. For my economic pundit peers, yes during inflationary times, houses in general increase in value HOWEVER with high interest rates associated with the taming of inflation, transactions become muted as affordability becomes more challenging).

I provide the above scenario as I have witnessed some buyers placing all their eggs in the housing basket assuming the gains will outpace other investments. Trust me I am the first to argue a home is a place to sleep at night; the brokerage firm holding your stocks or the bank holding your CD’s are not leaving the light on for your arrival to bed down for the night.

Shelter is needed I agree. However one should not look at their house as their sole investment or worse an ATM i.e. Home Equity Lines of Credit. I view a residence as shelter and if there is an increase in value an added bonus.

If I Rent I am 1) Throwing Away Money and 2) Making my Landlord Rich?

On the surface such an argument does have some merit. Also I will avoid getting into the issues concerning home ownership restricting mobility concerning employment opportunities. I understand the line of most brokers i.e. owners are building equity in a valuable asset that can boost their long-term net worth whereas renting is spending not saving.

Home ownership has additional costs beyond the Principal and Interest on a loan.

Taxes: While metro Denver has in general low property taxes, it is still a recurring monthly expense. In the upper-tier of the market i.e. $500K and above, one can easily allocate $500/month just on real estate taxes.

Insurance: Home Owners Insurance in Colorado can be costly due to our climate i.e. hail, wind, heavy snow and other perils. While we do not have to worry about earthquakes; insurance rates in Colorado continue to escalate due to weather, cost of labor, materials and related factors; such rates rarely go down over time.

Basic Maintenance: I tell my clients to consider budgeting at minimum 1%-2% of their homes value towards maintenance and upkeep. This does not necessarily factor in unforeseen costs i.e. new hot water heater, roof repairs, HVAC and so forth. Condo owners you are not exempt, this is what monthly HOA fees are for.

In a rental such costs are borne by the landlord. However I will advise if renting do consider “Renters Insurance”, usually inexpensive and offers piece of mind. While you may have budgeted for your Principal, Interest, Taxes and Insurance, there are always other costs that can be budgeted for as well as surprises.

If I rent am I missing out on the tax benefits?

To be honest many homeowners do not realize the mortgage interest deduction is oriented towards larger mortgages and financial outlays. First as a homeowner you must itemize your deductions when claiming the mortgage interest deduction.

With the existing low-interest rate environment (and yes rates are still at historic lows) your itemized deductions should exceed the $12,600 standard deduction for married couples? This is OK if you have an upper-tier house with a large mortgage. Yet the reality is each year that goes by your deduction decreases as a larger portion of your monthly payment is allocated towards principal. Thus the deduction over time will decrease. (Of note, there are interest only mortgage instruments, unless truly financially savvy or blessed by your CFP or similar, I suggest avoiding).

When Does Buying Truly Makes Sense?

I always look at a rent versus buy scenario and run numbers accordingly usually in conjunction with a client’s financial and/or tax advisor. Yet sometimes I take the simple approach, which is basically, is it cheaper to purchase than to rent?

Beyond the down-payment (and please note I am not trivializing this, however when loans are available with 5% or less down, saving for a down payment is not as onerous as when I purchased my primary residence in 1989 and had to come up with 20%+) I look at basic monthly outlay after answering the prior questions.

Let us assume in metro Denver you are interested in a home that after the down payment the monthly PITI/Mortgage is $3,200. Now what if you could rent a similar property, apples to apples for $2,850/month?

One could argue for $350/month extra or $4,200/year you can have the security (and expenses) associated with home ownership.

Yet one could also argue that $4,200/yr. can be invested after taxes into a Roth IRA or similar instrument. For the uber conservative that person could buy bonds and secure a safe 2% return. For the more aggressive; there is the potential to be investing with returns of 5% or higher annually over a longer period; not unheard of (coupled with dollar cost averaging) and with a Roth monies going in post tax, comes out tax free. There are also options to use the monies for a down payment, however there are some tax implications, which are best, discussed with a tax advisor.

I also advise clients at the beginning of their home search consider using a price-to-rent ratio calculation. Price-to-rent ratio is calculated by dividing the home value by the annual rent amount. Generally speaking, if the price-to- rent ratio is less than 20, buying might be a better option. However, if the ratio is greater than 20, renting might be better. Needless to say, any ratio or comparison is meaningful only if you are comparing similar properties.

In closing I am just throwing our scenarios and “food for thought”. I am in a similar situation. As mentioned I am in the process of selling the residence I have been in for 28+ years and have enjoyed immensely. However due to the physical design and other factors it is time to move on. Assuming I close, I will be, guess what living in a rental! Yes I will be paying rent.

My personal view at present; I am more comfortable having the proceeds from the sale liquid and when the correct residence comes available for purchase at a price I feel is appropriate, I can proceed sans the restraints of trying to sell my residence and/or using a contingency clause which is never popular. In the interim, the money from the sale of my residence post taxes will be invested in short-term bonds throwing off income while retaining a margin of safety of the underlying principal.

Millennials Understand Opportunity Truly Knocks Beyond Central Denver

We seem to be in a unique environment concerning the national housing market as both buyers and sellers are excited. For sellers, record high prices are becoming the norm even in the rising interest rate environment. Buyers even though confronted with the challenging lack of inventory are strengthening the market due to confidence and the desire to lock in still historically attractive interest rates.

The above is based on the monthly Fannie Mae Home Purchase Sentiment Index® (HPSI)increased by 2 percentage points in January to 82.7, ending a five-month decline. Some of the highlights from the report include:

  • The net share of Americans who say it is a good time to buy a house fell by 3 percentage points to 29%, matching the survey low from May and September 2016.
  • The net percentage of those who say it is a good time to sell rose by 2 percentage points to 15%.
  • The net share of Americans who say that home prices will go up increased by 7 percentage points in January to 42%.
  • The net share of those who say mortgage rates will go down over the next 12 months remained constant this month at -55%.
  • The net share of Americans who say they are not concerned about losing their job rose 1 percentage point to 69%.
  • The net share of Americans who say their household income is significantly higher than it was 12 months ago rose 5 percentage points to 15% in January, reversing the drop in December.

Now concerning millennials, according to Fannie Mae research, more are purchasing and starting new households. While the Great Recession may have delayed purchases; millennials are now more confident concerning job security translating to an increased in marriages and parenthood (common during stronger economic cycles, nothing new there).

Yet of interest due to the expensive reality of city-centric residences some millennials are exploring and purchasing in the suburbs where values are generally more affordable. I have witnessed this myself concerning millennial clients looking beyond central Denver. Neighborhoods of interest include:

Southmoor Park: Lots of home and land for the spend. Also close enough to Light Rail Station at Hampden and I-25 allowing easy access to downtown and easy drive to DTC. With Whole Foods and new restaurants options on the Hampden Corridor, becoming popular.

North Englewood: Just south of the Denver border clients are looking at Englewood (north of Hampden Avenue) as a substitute for Platte Park especially adjacent to S. Broadway which continues to diversity businesses now catering to clients within their immediate neighborhood versus the traditional commuter traffic. Also a few good options for fans of Mid Century Modern who may not wish to pay the prices associated with Krisana Park.

Arvada: With neighborhoods close to the light rail line and with a new urbanism orientation, millennials are finding Olde Town Arvada has urban qualities found in areas such as Old SouthPearl, Old South Gaylord and other urban enclaves. With the easy commute to Denver via rail or car and lower prices, demand will soon outstrip supply.

Westminster: As with Arvada, the new rail line is opening up opportunities for those who desire more affordable housing, an ongoing renovation/development of a town center and easy access to the Broomfield office parks.

Edgewater: For those who have been priced out of Sloans Lake, Edgewater offers a respite within a stone’s throw geographically. With a charming commercial street, small town feel yet within easy viewing distance of the downtown skyline and a nice diverse housing stock, do not be surprised if this hidden enclaves demographics see a dramatic shift in years to come skewing towards younger buyers and families.

With this millennial flight to the suburbs what is going to happen to the inner-city? In essence the millennials are basically skipping a step i.e. usually starting in the inner-city and then moving to the suburbs for access to additional square footage, suburban schools and so forth. While these areas were once car-dependent, the expansion of RTD’s rail lines are making these suburbs once considered commuter oriented into their own attractive and thriving towns.

Yet I am far from concerned about the City of Denver. While I have some personal issues with the desire to increase density in some neighborhoods; Denver will always remain in demand due to geography, diversity of housing stock and varied amenities from cultural to financial i.e. lower water bills, low-taxes, municipal services and so forth.

My one concern for Denver is this rush to increase density. Full disclosure I am a native New Yorker thus I understand density having been raised in within an apartment building on the 20th floor and taking the subway to and from school. I am also educated as an urban planner. I view the cranes on the skyline of Cherry Creek, west of the Denver Country Club and other areas and I have three questions:

1) Is there truly longer-term demand for all the new multi-family buildings?

2) If in fact there is demand and zoning is keeping up with this demand, will our infrastructure follow suit i.e. roads, mass-transit, pedestrian corridors, dedicated bike lanes?

3) Are we remaking the inner-city of Denver unaffordable akin to San Francisco, New York, Paris, London and other cities in which the income gap is severely pronounced. These were cities which used to have a true diversity of cultures, incomes and employment and now have become playgrounds of the wealthy or long-time owners.

 

 

Bubble Probably Not. Am I Still Concerned Yes

Between reading The Denver Post article concerning record low inventories, visiting listings and chatter at open houses we seem to be in a Goldilocks period for home sellers and a Draconian period for buyers.

I will be the first to admit there is a severe lack of inventory at all price levels which based on the laws of supply and demand will raise prices. Thus why should I be concerned? As a broker I should be thrilled! Let me preface the following with the disclosure that my market niche is deluxe and luxury.

Irrational Pricing and Exuberance: Last week I went to look at a listing in a very in-demand neighborhood in Denver where average prices are triple of the average of the Metro area.The house I felt was priced on the upper-end of the Per Square Foot for the neighborhood. Granted great location, well-kept yet some design issues and so forth (yes no house is perfect). Within 2 days of my visit I received a note from the listing broker advising the sellers recieved a strong offer and if my client were interested, they needed to get an offer in ASAP. My client and I both felt the house was not for them and it was in our humble opinion overpriced. 5 days later I receive a notification from our MLS service that the house which received a strong offer suddenly had a price reduction.

Even earlier today I went to a public open house. The house was not correct for my client i.e. larger lot than they desired; however there was the appeal of some unique features including a carriage house and the perfect 1st level of entertaining. As assumed the house was not for my client. The 2nd level was two bedrooms with a shared jack and jill bathroom. Thus realistically a two bedroom house. Basement was OK, nothing out of the ordinary. The carriage house, while a rare amenity was basically a dated studio sized apartment and advertised as the 3rd legal bedroom (I saw income rental potential both long-term and transient) .

The Open House was packed. I heard one of the brokers mention the listing already had 15+ scheduled showings before the open-house . Yet across the street were two houses which sold last summer, comparable size, more conventional bedroom layouts, slightly smaller lots and more traditional design. Both sold for almost half of what the listing price on this listing. Now I am not suggesting the larger lot and carriage house would not increase the value, yet by double? Coupled with limited bedrooms, unconventional design and double the price in one year, sustainable? Probably not.

Are Stock Market Paper Gains Sustainable? It is no secret the stock market has been hitting new records and the market usually looks to the future; thus we may believe the overall economy will continue to expand. The Federal Reserve believes so i.e. advising a rise in interest rates is forthcoming. However is a sell-off in the immediate future?  Most real estate brokers know a downturn in the market also challenges confidence concerning real estate purchases as the wealth effect is psychologically proven.

Interest Rates Will Continue to Rise: Interest rates can only go up assuming no major shock to the overall economy i.e. war, terrorist-attack. Granted we have been within a historically low interest-rate environment for way too long. The low-interest rates naturally raised housing prices as many buyers were purchasing a payment and not necessarily underlying equity. Yet this is a dangerous precedent. Except in markets with rampant inflation; in general higher interest rates translate to lower housing prices as the cost to borrow money increases.

This is worrisome; as interest rate hikes usually impact the first-time home buyers, yet the ripple effects can impact all facets of the market as move-up and move-down buyers are also impacted concerning the distribution/inventory within the overall system.

A healthy housing market is usually considered fluid corresponding with life and circumstance changes. When supply and demand is disrupted and housing becomes challenging to either acquire or sell, the ripple effects are felt within all aspects of the local economy. Few may remember the late 1980’s in Denver when the HUD Foreclosures insert in the Rocky Mountain News was literally as thick as the newspaper it was included in. More recently between 2007 and 2009 For-Sale signs dominated the landscape during the “Great Recession”. Those buyers will eventually be sellers, sooner than later?

Investors Having Realized Gains Begin Selling: One of the reasons we have such low inventory is from past investor activity plowing cash into the housing market during the tail-end of the Great Recession. However with recent gains in the stock market, higher interest rate yields in fixed-income markets and weakness in some rental markets do not be surprised if those investors having enjoyed equity appreciation and now having owned long enough to just pay ordinary capital gains on appreciation we may see investors begin to relinquish their inventory sooner that later.

Reduced Equity Can Happen: For buyers who purchase at the top or pinnacle of the market cycle the ramifications can be challenging. One of the hallmarks of the Great Recession was the Negative Equity associated with many purchases made at the top of the market assuming housing prices do not go down. Granted I am advising clients if they plan to stay in residence for 5 years or more they usually can ride out a cycle. However if one is purchasing investment property at present, my more experienced clients are literally selling or sitting on the sidelines and looking at alternative investments.

Fix and Flips Less Common: With the boost in prices, fix and flippers are having challenges fining acceptable inventory and foreclosures. While this may be a sign of a healthier market the ripple/multiplier effect can be worrisome i.e. general/sub contractors, building material suppliers, retailers such as Home Depot and Lowe’s and so forth may be challenges ahead. While the service economy may continue to hum along, blue-collar trades and related industry may be challenged.

The Next 12-18 Months: While I do not have a crystal ball and I have been told I am a pessimist I do have the luxury of the knowledge of history having been in the real estate trade since the late 1980’s in Metro Denver. I do not believe business cycles have ended and while at present demand outstrips supply, I do not believe this market is sustainable. What I feel we need to look out for is as follows:

Challenges to the Luxury Market i.e. $600K and Above: The luxury market is usually the first markets to show weakness. Due to the uniqueness of the market i.e. cash buyers, not necessarily dependent on income ratios, experienced buyers and sellers, this is where I would watch for issues pending. If we suddenly see an influx of luxury listings hitting the market and absorption slows, this to see is a signal that astute and more experienced buyers are sitting on the sidelines waiting for prices to correct somewhat.

Glut of Deluxe and Luxury Condominiums: Based on underlying ground prices new condominium construction is usually oriented to the deluxe and luxury buyer.  However what are the depths of this market? Seeing the skyline of Cherry Creek and Downtown leads me to be a bit concerned. Denver for the most part has been a home market. Yes the aging population may desire condos for the ease of maintenance and younger buyers may desire condos for the same reason. However younger buyers may begin having families; will they remain in the condos or eventually sell or place on the rental market. With the majority of new construction in the one and two bedroom range, these condos are not oriented towards emerging families or longer-term retention.

Rent Prices Coming Down Incentives Increase: Part of the downturn in rental rates is due to the glut of luxury rentals. Cherry Creek is a perfect example (just look at the east-side of the Steele Street and 1st Avenue intersection); the same trend is happening in Downtown. Is our influx of millennial and others with disposable incomes sustainable?  Are these renters now suddenly purchasing? Yet with low inventory it’s a challenge.

We shall see what the traditional Spring Selling Season brings to market. Will there be a controlled flow of inventory hitting the market or will we witness a glut or continued tightness i.e. lack of inventory.

If I were considering selling, I would be placing on the market immediately to take advantage of the low supply and high demand. With interest rates on the rise future prices will be challenged. While interested rates on borrowing money continues to be attractive, lower rates will not last forever (when I purchased my residence in 1989, I paid 12% interest on a 15 yr. mortgage with 20%+ down-payment!).

If I am a buyer and I had the option I would probably sit on the sidelines and consider renting for the immediate future. Granted if one’s dream home hits the market, go ahead and purchase it. However if settling or to purchase just to purchase, I would suggest take a step back and reassess and take the emotion out of the process.

 

Changes to Zillow/Trulia: Brokers and Lay Persons Need to be Aware

Since I am licensed in Colorado and New York I follow both markets. StreetEasy while not known in CO. is one of the de-facto multilist services in NYC used by brokers and clients alike. StreetEasy is similar to how the consumer site of  www.REColorado.com works here in Metropolitan Denver presenting listings to the general public and providing contact information for the Listing Broker.

While the following may be more oriented to brokers, the information is truly relevant to all concerning the presentation of properties and how the listing broker or those looking to build a relationship with a buyer is changing. In Colorado we have quite strict criteria developed by the Colorado Real Estate Commission concerning representation and disclosures.

StreetEasy is planning a significant, industry-wide change to their lead generation process. They are switching their focus from lead generation for exclusive selling agents (those brokers who have a contract to list the property with the seller) to a more buyer agent focused site. Since StreetEasy falls under the Zillow/Trulia umbrella, this will apply to all three sites.

Some brokerages pay the Zillow/Trulia group to keep other agents off the listing detail pages of exclusives (of note, the vast majority of listings in Colorado are exclusives i.e. represented by one agent/brokerage) on Zillow, Trulia and StreetEasy, so that all leads go directly to the listing exclusive agents. As of March 1st, 2017 this option will not be available. Instead, the sites will allow buyer agents to receive leads from all listings. Potential customers on these sites can select the exclusive agent, however, leads will default to buyer agents who pay to appear on listings within specific zip codes.

Will this muddle the information put out to the market? Depends on the level of disclosure. I understand why Zillow/Trulia is taking this action i.e. additional revenue generation. However for buyers and sellers who may be doing research on listings and/or are considering engaging in a brokerage relationship, it will become more confusing. Is the broker who contacted you the listing agent whose fiduciary duty is to the seller, or are they looking to represent you as a buyer and thus owe their fiduciary duty to you, or will they be a transaction-broker?

When I represent a buyer I desire to talk to the actual listing broker; I have access to this information from our Multilist service. For the general public brokerage relationships may become more confusing with the potential for buyer brokers to insinuate representation or insights on a listing which is not actually their exclusive. While it will be the responsibility of clients to insure their brokerage relationship is correct for their needs and their broker, regardless of the relationship is treating them in a professional and ethical manner my concern; the listing of brokers and lead generation will add to confusion on behalf of the general public.

I believe in Colorado we have multiple layers of protection and disclosure forms to insure proper representation and fiduciary duties associated with specific brokerage relationships. However in this day and age of Internet marketing and information  sound-bites there is a good chance there will be confusion. Stay tuned as if we see an uptick of complaints filed with the Real Estate Commission concerning representation, more clarity and disclosure requirements may come down the pipeline to catch up with technology.

Is the Spring Selling Season a Bygone Memory

Historically the selling season for residential real estate in the United States was the start of Spring usually mid to late March. The timing was traditionally due to various factors including:

  • Post Spring Vacations (usually associated with families with school aged children).
  • Gardens awakening from the winter doldrums.
  • The opportunity to move and be settled prior to the school term starting in August and September.

The traditional selling season started to erode a few years ago with some markets moving to a year-round staggered school calendar, the desire of buyers to view inventory before others pounce and of course economics i.e. the most recent and severe recession forced sales regardless of season.

However it appears The Internet has upended another tradition (as it has with bricks and mortar department stores, travel agencies and others). Offering marketing and exposure 24/7 from the comfort of one’s own home; seasonal factors have suddenly become moot. Even the New York Times opined on the trend: The Right Time to Sell is Anytime.

In Denver I too have noticed this trend. One of my listings had been withdrawn from the market (and REColorado) due to the December holidays and the historical pattern of home buyers not wanting to tread through the cold and snow to look at homes.

During the holiday season and into early January I have received multiple inquiries to view the listing (of note, some sites never adjusted the asking price which was reduced). One was from a broker; their client had viewed previously. The other inquiries were what we term “buyer-direct”; prospective buyers who viewed the listing on one of various channels dedicated to real estate sales i.e. Zillow, Redfin, Movoto and others which link distribution to the REColorado service. Of interest, while the listing was technically withdrawn the distribution channels continued to promote (of note the listing is coming back on the market officially in a few days).

For buyers there may be an advantage including less competition concerning viewings and easier showing schedules. For sellers, the advantage is simply less inventory on the market. Granted the properties that will sell are those that are priced correctly for the market, show well and so forth. Thus some traditions do not change.

However if you are considering buying or selling, sooner than later may be prudent; as the saying goes “The early bird gets the worm” and avoids additional interest rate hikes.

 

 

Millennials and the Housing Market

As an experienced real estate broker I have always been intrigued by the those entering the marketplace. The Millennials (those born between the early 1980′ and the early 2000’s) are now in the marketplace for their first home as well as step-up.

At the same time, the Baby Boomers i.e. those born between 1946 and 1964 are in the process of transitioning to smaller, less maintenance dependent options as some are becoming or are empty-nesters and similar. Just look at the explosive growth of the Cherry Creek neighborhood.

Upon reviewing some industry news I came across the following statistics:

  • At present, almost 60% of the population is under the age of 55.
  • 66%+ of Primary Home Equity is owned by those over the age of 55.
  • Of the 66% noted above, 52% of them have no mortgage i.e. their homes are free and clear.
  • For those under age 55 who own a home, only 19% own their homes free and clear.

While the above should not be striking  as older folks have been in their homes longer and have experienced record equity appreciation (even when factoring in the recent recession), yet there is concern on the horizon.

Will the next generation be able to afford the homes of their parents i.e. the Baby Boomers? 

Will there be a dramatic shift in housing styles towards multifamily and other more affordable options?

While development will continue in exurban areas providing affordability will our next generation of buyers remain in the city and close-in suburbs trading affordability for convenience?

What I have noticed since the great recession is an appreciation for Denver’s inner-city neighborhoods. While the old adage will always be true it’s is all about Location, Location, Location we are witnessing Millennials change the housing landscape by gentrifying close-in neighborhoods, rejecting the notion one must be in a single-family detached home and more recently the willingness to rent in lieu of purchase even with interest rates at historic lows.

Concerning Denver I am not overly concerned as we continue to be in a healthy growth cycle, demand continues to outpace supply and in reality while not inexpensive, when compared to the coasts coupled with the lifestyle, Denver is still quite affordable with the average single-family home in the metro-area running about $300,000.

While I am not reading the tea-leaves the next decade may bring changes to the housing market. As real estate brokers, developers and investors we need to keep an eye on the millennials and their tastes and desires. As the Baby Boomers consider selling and downsizing they will have excess equity to spend i.e. vacation home, travel, investments yet will the Millennials be in line to purchase their homes and prevailing prices? And if interest rates continue to rise, the inverse may happen to housing prices, what then?

Just some commentary for conversation by the water cooler.