Retired or Not Working yet you desire to take advantage of mortgages with low interest rates

Many plan their retirement yet due to recent events some may be entering retirement not out of choice but by necessity i.e. job loss, furloughed and so forth. While mortgage look to income as a predictor of repayment retirees have options. Also the following is not just for retirees as I am one of those employed who receives a 1099 and not a W-2 thus I too have challenges as my income varies. In a nutshell:

  • If your tax returns don’t show enough income to qualify, you may be able to tap your retirement account temporarily to prove you can afford the mortgage.
  • Alternatively, you may be able to qualify based on assets in that account or explore “pledging assets” to make the purchase.
  • The average interest rate on a 30-year mortgage is just above 3%; for a 15-year fixed-rate mortgage, it’s about 2.7%.

More details:

For retirees and those who have erratic incomes may have capital however they show very little income and thus may be challenged securing a mortgage. Similar to securing a traditional mortgage it is important to have a good credit score, monthly expenses that are typical and available capital for the down-payment (of course higher percentage of down-payment the smaller the mortgage).

Retirement Qualifying Income: Lenders generally will look at your last two years’ worth of tax returns to see what that amount is. It may include, for instance, Social Security, pension income, dividends and interest. However one’s taxable income may not be enough to qualify for the loan on its own. That’s where a retirement account like a 401(k) plan or individual retirement account can come into play. The idea is that you take distributions to help you qualify for the mortgage, even if you don’t need the money. As long as you’re at least age 59½, you can tap your IRA or 401(k) plan without paying a 10% early-withdrawal penalty.

Concerning not necessarily needing the money except to qualify for a mortgage under rollover rules applying to retirement accounts, you can put the cash back within 60 days without the distributions being taxable. It is important to mark the 60 days on a calendar as beyond 60 days, the withdrawals would be locked in and you would owe income taxes on the distribution. Of note most lenders will still look at the retirement accounts to see if such distributions can be sustained for a minimum 3 years.

Now for those who may have a larger brokerage account and/or IRA you could potentially qualify for a mortgage based on your assets. The lender applies a formula to the money in your account — using 70% of the value of the account — to determine whether it could stretch long enough to cover mortgage payments for the life of the loan. Basically the lender is looking at what I called a “Statement of Assets”.

Concerning Statement of Assets another option is the “Pledge of Assets” essentially taking a loan against your brokerage account — up to a limit — and purchase the home that way. One advantage is technically you would not have a mortgage and would be considered a “cash-buyer”. Different brokerages have different requirements and best to have a long-standing relationship with your brokerage. Of note, one of my clients used this option to purchase a home and then within 6 months refinanced the home with a conventional mortgage as brokerages and pledged assets are usually available only shorter-term i.e. 3-5 years.

As mentioned I am in a similar position as both my wife and I are gainfully employed at present and could qualify for a loan easier now than in the future HOWEVER we are also conservative and not keen on purchasing just to secure a low interest-rate and worse purchasing based on a payment and not underlying equity and potential appreciation.

We too are frustrated as inventory is low, prices are high (highest in 2+years) and the market shows few signs of adjusting downward. On the flipside I do not believe “this time is different” and I am willing to wait as our last home which was supposed to be a 3-5-year hold extended to 27+ years.


Housing Prices In the United States Remained Stable in June 2020

The Case-Shiller Index for June 2020 was released earlier this morning, a few highlights as follows:

In general housing prices remained stable in June

Phoenix continues to be the leader concerning strength in the market. Phoenix retains the top spot concerning appreciation for the 13th consecutive month, with a gain of 9.0% over one year.

Other cities over the past one year:

  • Seattle 6.5%
  • Tampa 5.9%
  • Charlotte 5.7%
  • Denver 4%

The 10-City Composite annual increase came in at 2.8%, down from 3.0% in the previous month.

The 20-City Composite posted a 3.5% year-over-year gain, down from 3.6% in the previous month.

Denver continues to show resilience in the market as 4% growth concerning prices is considered stable and exceeds inflation which is projected to be 0.63% for 2020.

There seems to be a divergence in the marketplace as unemployment is trending in low double-digits yet equity markets are setting records and low mortgage interest rates are enticing buyers attracted to low payments propping up values in some markets.

What will be interesting is how the markets react to Federal Reserve Chairman Jerome Powell’ address from Jackson Hole later this month. It is predicted the Fed Reserve plans to reinflate the economy i.e. induce inflation. Of note I remember when the Federal Reserve manipulated the markets to induce a recession to tame at the time double-digit inflation which also included double-digit rates concerning conventional mortgages.

For additional insights the following is a good read: How does Inflation Affect Housing Prices



Gold and Denver Real Estate both at Record Highs. Am I Concerned?

Yes I am.

According to the Denver Metro Association of Realtors:

  • Buyers closed on an all-time high of 6,664 homes last month, up nearly 8% from June 2020 and more than 12% from July 2019.
  • The average price of a single-family home also set a record: $601,863. That’s nearly 8% higher than June 2020 and nearly 10% higher than July 2019.

Of course there was pent up demand following the Covid shutdown coupled with record low mortgage interest rates at below 3% for those with excellent credit. While I will not rehash my argument concerning purchasing equity and not a monthly payment as the message is interpreted as being pessimistic.

Now we have gold trading at over $2,000 a troy ounce. Impressive yes. My concern is gold is usually invested as a hedge for safety against a turbulent market and/or inflation. Yet equities are close to record highs. Is there a disconnect? Consider the following:

• October 1980: Gold was at $660/oz (30 yr Mortgage Int Rate 13.79%/ Great Inflation)
• August 2011: Gold was at $1,886/oz (30 yr Mortgage Int Rate 4.27%/Great Recession)
• August 2020: Gold trading over $2,000/oz (30 yr Mortgage Int Rate <3%/Goldilocks?)

However when factoring in inflation:
October 1980 Gold Price in 2020 $ is $2,064/Unemployment 7.2%
August 2011: Gold Price in 2020 $ is $2,161/Unemployment 8.5%

-Of note unemployment at present is 11%+-

Thus considering inflation gold has actually been stagnant concerning value. Also highs in the past were during economic cycles when inflation was rising and the purchasing power of cash was eroding i.e. 1980 and in 2011 the world was slowly showing tepid growth post The Great Recession.

While gold is tangible let us look at Bitcoin which as of last week was trading at $11,800.

Considering Bitcoin was trading at $3,400 back in December 2018, not a bad run up in less than two years.

Yet in December 2017 Bitcoin traded at high as $19,600. I feel for the buyer at $19,600 who one year later lost on paper $16,000+ and even today close to 3 years later would still be at a close to $8,000 loss per Bitcoin.

Housing like Gold is tangible. Housing is also shelter, can be leveraged and also has carrying costs i.e. mortgage, maintenance, insurance and taxes. Yet for many housing seems to now be a commodity i.e. values up 10% year over year and some homeowners are house rich and cash poor.

At dinner last week my wife and I were asked if we were still looking for a house? My stock answer is:

We are always looking but at the same time no concern about FOMO. With that said if and when the correct house comes about, we will purchase regardless of price. However to purchase just to purchase assuming appreciation; I may have been born at night yet it was not last night.”

We forget there are still real estate markets within the United States where purchases from 2005-2007 are technically above their past purchase price yet when factoring in inflation which has been low, more a break even or actual dollar loss. Coupled with many of those foreclosed homes now in the inventory of conglomerates renting them out, those homes may eventually come on the market. Add to all this record low interest rates which are usually an indicator of a weak economy and used to spur investment.

The stock market and gold are at or close to record highs. Mortgage rates are at record lows. The housing market has been hitting record prices. As I hear from many optimists “It’s different this time.”

Am I concerned? Oh yes, I am. 

Success in The Hunger Games does not Lead to Success in Real Estate

While Jennifer Lawrence is a fierce competitor in The Hunger Games in the real-life arena of Real Estate her acumen and strategies have not been so successful. Ms. Lawrence purchased a penthouse for $15.6M in 2016 at The Laurel at 400 East 67thStreet a newer high-rise on the Upper East Side of New York City.

While the neighborhood is the Upper East Side the location on East 67th Street and 1st Avenue while convenient to the Hospital District and an overall strong neighborhood this is not the tony areas one considers the true Upper East Side i.e. west of Lexington Avenue.

Granted The Laurel is popular as again close to the hospital district, newer construction, large windows and condominium ownership, thus no pesky co-op boards conducting a financial colonoscopy prior to being personally interviewed by the co-op board assuming your financials and references are up to snuff.

Back to the sale, as mentioned Ms. Lawrence purchased in 2016 when the luxury market was still strong yet beginning to show signs of fatigue. However who would not be interested in Penthouse 31, a three-bedroom, 4½-bathroom duplex i.e. two-floors spreading out over 4,073 square feet. Did I mention the multiple setback terraces providing Hollywood Hills outdoor lifestyle with Manhattan views. HOA and taxes exceed $11,000/month and will increase in 2021 when the 421A Tax Abatement expires.

The last asking price was in the $12M range and subsequently sold. When the actual sales price is recorded, I will update. Concerning Ms. Lawrence she can always reside at her other Manhattan property downtown. also being the highest paid actress mid-decade  I assume the loss is not going to break the bank so to speak.

Beware of This Time is Different

Every morning I review my local MLS concerning new listings, closings, price reductions and other statistics, and every morning I am amazed at the asking prices on new listings and at the same time humbled when I see the price adjustments of other listings.

Granted I believe understand basic economics. With historically low interest rates housing purchases becomes more affordable i.e. purchasing a payment versus the true value or equity appreciation (or depreciation yet it seems 2008-2011 is missing from our collective memories).

Why today? I came across an editorial on CNBC’s website authored by Ron Insana. I have followed Mr. Insana since they days as a tele-prompter jockey when CNBC was known as Financial New Network (FNN). Mr. Insana is the author of 4 books concerning the stock market and is considered an authority with history and experience on his side. Concerning the editorial, some highlights which is based on “day-traders” but can be attributed to real estate as well:

  • Many pundits say a new wave of low-to-zero-cost trading and high-quality market information has “democratized” investing, but the pros always have an edge.
  • Some question this line of reasoning as a more nuanced way of using the dreaded phrase “this time is different” when it comes to describing a bubble-like environment in financial assets.
  • Take heed from the many market historians who’ve written important books about financial market bubbles.
  • It’s a phrase we often hear before the inevitable, and broad-based, price decline asserts itself.
  • The Wall Street Journal reported over the weekend that day-trading among individual investors is now more popular than it was during the internet frenzy of the 1990s, and that more and more inexperienced individuals are rolling the dice on Wall Street expecting day-trading to turn into a day job.

And while some have argued that I am a pessimist, I believe the following paragraph from the editorial sums it all up:

It’s also a quite common feature of a bubble that those who question the euphoria of the moment to be criticized, excoriated publicly, and sometimes even threatened, for pointing out that bubbles are routine, repetitive and eventually damaging events that separate many from their money.

My concern related to the housing market is as follows:

  • Housing price growth is vastly exceeding the growth of personal income.
  • The housing market is seemingly being sustained with cheap money i.e. low mortage interest rates.
  • Low mortgage interest rates are NOT an indicator of a healthy economy, instead based on historic economic theory advises the economy needs a boost.
  • The Federal Reserve due to their loose monetary policies is in fact propping up the economy including equities to bonds to mortgages.
  • The unemployment rate is in double-digits.
  • Housing for some is a commodity to be traded similar to the early 2000’s
  • Fix and Flippers, once a niche is now the domain of anyone who watches HGTV and has a line of credit.

An example of the above: Last week my wife and I looked at a house just south of Chessman Park. The house last sold in 2015 for $725,000 after being on the market for one full day. My opinion in 2015 the residence was probably over-priced as it needed (and still does) a full gut renovation. Add to this the residence’s location, the 2nd house south of 8th Avenue thus traffic noise in an otherwise inviting and private rear yard.

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Fast forward to 2020. The house comes back on the market for $1,000,000+! Did I mention the house is in the exact condition as purchased in 2015! For $1M plus I would at minimum assume Central Air. No however there is one window air conditioning unit in the master bedroom. A newer boiler for heat? No. Instead in partially finished basement a circa 1930’s gravity fed boiler that may possibly be encased in asbestos. Updated kitchen? Kind of, some minor cosmetic upgrades but the stove with the coil burners? I assume no gas line to the kitchen and while a drop-in at least splurge for the sealed burner cooktop.

The house had endured price reductions and is presently priced just shy of $900K or down 10% from the original ask. My wife asked if we were to place an offer what would it be?

My response; I would consider $725K based on that they paid. The house at minimum needs $100K in infrastructure and cosmetic improvements. At present asking that places the house back in the $1M range. Even in Denver’s most in-demand neighborhood $1M plus is not inexpensive even with a mortgage interest rate below 3%.

Could we purchase it and renovate? Of course. However post renovation at asking I believe would not necessarily appraise. Granted we would be residing in the home and enjoying the fruits of our labor and monetary investment. However over 5-7 years will we have equity appreciation? An unknown.

The point is “This time may be different for many, not for me!



Mortgage Interest Rates Continue to Tumble

While the equity markets are taking a breather this week due to Covid-19 induced uncertainty mortgage rates continue to drop. The average rate on the popular 30-year fixed just fell to another record low — 2.87%, according to Mortgage News Daily. That is about a full percentage point lower than a year ago.

And that’s just the average. Some borrowers are getting even lower rates.

For those not in the industry in general mortgage rates loosely follow the yield on the 10-year U.S. Treasury, which yesterday (Thursday) fell to the lowest level since March 2020. However is there a downside?

  • Lenders and investors in mortgages seem nervous.
  • If the pandemic continues and coupled with potential regional and/or national lockdowns could jobs be lost leading to missed mortgage payments?
  • Forbearance relief will eventually catch up with the market.
  • Investors in mortgage-backed bonds demand returns, if rates continue to fall will there be a market for those bonds and thus liquidity in the marketplace i.e. available mortgages?
  • While low rates are attractive for those looking to purchase and refinance some larger banks are requiring higher credit scores and other assets to protect themselves.

If presently in the market for a home or looking to refinance go for it. Can rates drop further? Of course, yet at historically low rates as I usually advise concerning overall investments few will ever truly acquire at the bottom of the market and sell at the peak. It happens on occiasion but not the norm.

My one word of caution I still believe in many markets housing prices are inflated and due to low mortgage rates purchases are based on a monthly payment and not the actual true value and may impact future equity appreciation.

Old economic theory advises when mortgage rates go up housing prices adjust downward on the inverse. We have been in a historically low interest rate environment for 5+years now. My concern if/when the Federal Reserve pulls the plug on economic stimulus; all bets are off concerning not only the housing markets but also bonds and equities. Implosion of Lehman Broswas not that long ago….


If You Saw a Forecast Advising Housing Values Would Drop 6%+ on a Year Over year Basis Would You Believe It

Some of my peers mainly those newer to the real estate business call me a pessimist (I prefer the term realist) as they continually advise the headlines are proving me wrong. Granted we all experienced (and I was shocked) at the relatively steady home price appreciation in May. Nationally home prices in May 2020 grew 4.8% from the same month in 2019 and 0.7% from April 2019.

However finally some others are taking a more pessimistic view of the the U.S. housing market. According to a report published by CoreLogic the U.S. housing market is on the precipice of an extended price slump. The housing data provider’s May Home Price Index and HPI Forecast report predicts a year-over-year home price decrease of 6.6% by May 2021.

“Pent-up buyer demand was delayed from spring to summer and is reflected in the latest price data,” Frank Martell, president and CEO of CoreLogic, said in a press release. “But with elevated unemployment, purchase activity and home prices could fall off after summer.”

 If prices actually decline 6.6% between May 2020 and May 2021, it would be the greatest year-over-year price drop since September 2009, when home prices declined 7.6% from the year prior. For those who may have mid-term memory-loss the year prior witnessed the implosion of Lehman Brothers and in retrospect the start of The Great Recession.

According to Frank Nothaft, chief economist at CoreLogic. “By the end of summer, buying will slacken and we expect home prices will show declines in metro areas that have been especially hard hit by the recession,”

 In New York City which is considered the most expensive urban region in the United States has witnessed real estate values plateau over the last 4+ years. Add to this Covid-19 leading to the 2nd Quarter of 2020 in which NYC real estate experienced the median sales price falling 17.7% percent, compared to the same time quarter in 2019 (the median value dropping to $1M was the biggest drop in a decade). Of note, Spring 2017 was the highest median sales prices in Manhattan when the median was at $1.35M and average sale price was $2.3M.

I have continually suggested the peak in Metro Denver was 2017/2018. While Metro area sales remain strong, price appreciation seems to have stagnated and the upper-end of the market has been stressed since mid-2018. I truly believe from now through at least the 1st Quarter of 2022 the Denver market may actually turn negative. If values begin to slip I believe we will witness an influx of listings leading to additional pricing pressures.

Just one person’s point of view and forecast.

When the Hottest Real Estate Commodity Turns Cold

Go back 5 years give or take and Billionaire’s Row in New York City was the place to park your Dollars, Rubles, Yuan, Reals, Euros…….. This once non-descript thoroughfare of 57th Street from Park Avenue to 8th Avenue (5-crosstown blocks) suddenly changed its image from a mixed-use retail/gallery strip to one where mega-tall residential towers catering to the uber-wealthy could purchase condominiums with helicopter views and no invasive questioning by persnickety co-op boards.

While some suggest 425 Park started the trend, 157 West 57th Street was considered the pinnacle of the multiple opportunities. The mega-tall designed by French architect Christian de Portzamparc included a luxury Park Hyatt Hotel on the lower floors and opulent residences delivered in vanilla shell condition on the upper floors. Of note, the towers being built on the former Steinway site as well as Central Park Tower above Nordstrom’s have yet to receive their Certificate of Occupancy.

It was in January 2015 when the news broke; a duplex penthouse at 157 West 57th closed for a record price in excess of $100M (of note the record has been broken by Ken Griffin’s purchase at 220 Central Park South). The duplex penthouse is 10,923 square feet and spread across the 89th and 90th floors officially closed on December 23, 2014. Of note the buyer, Michael Dell of Dell Computers fame.

Fast forward to 2020. While multiple buildings on Billionaire’s Row wait for their Certificate of Occupancy the real estate market decided to take a breather. Last month, June 2020 the most expensive sale of the month was at 157 West 57thStreet. Unit # 88, a full floor condominium located just below Michael Dell’s holdings sold for $28M! The 6,231-square-foot apartment features four bedrooms, four bathrooms and a powder room, along with floor-to-ceiling windows that provide panoramic park, water and cityscape vistas. Impressive?

Of course, until one does a look back i.e. the same apartment sold in 2015 for $47.4M. Simple math a 41% loss! Did I mention the HOA not including taxes were at the time of purchase $12,600/month or in excess of $150,000/yr.

There are countless other examples filtering out of New York City of similar purchases within the last decade taking substantial losses upon resale. While some may suggest New York City is an anomaly especially considering all the headlines advising real estate’s resiliency I would be more cautious.

In real estate downturns and corrections the deluxe and luxury market shows the first sign of fatigue (and notably is the first market to recover). Losses experienced at 157 West 57th may be notable due to the amounts yet should send a message of caution into the larger marketplace.


What a Difference a Month Makes

Like many other real estate brokers when Covid-19 shut down the economy I too was wondering when the industry would reopen (btw in CO. it was late April). As brokers we have been resilient concerning adapting to new protocols concerning how we conduct showings and in-turn embraced technologies concerning virtual tours and related. Then a funny thing happened, the economy opened up, abet slowly.

The numbers for May 2020 are in. After a dismal March and April 2020:

  • Pending home sales spiked a stunning 44.3% in May compared with April, according to the National Assoc. of Realtors.
  • The 44.3% figure is largest one-month jump in the history of the survey, which dates to 2001.
  • The forecast was for a 15% rise however sales were still 5.1% lower compared with May 2019.

Concerning our local Denver Metro market, supply is still constrained however active listings increased by 10% I assume partially due to sellers who were shut out by Covid closures from placing their homes on the market. Anecdotally a few listings were withdrawn during the initial Covid closures and have subsequently been placed back on the market when in-person showings were able to commence. Of note in the greater West sales jumped 56.2% monthly yet were 2.5% lower on an annual basis.

The mortgage market has also been of assistance concerning home sales as the average rate on the 30-year fixed mortgage started May around 3.20%, according to Mortgage News Daily. By the start of June, it was falling below 3%.

On the new home front sales of newly built homes jumped nearly 17% in May, compared with April, and were 13% higher than May 2019, according to the U.S. Census. Builders are enjoying strong demand from buyers looking to leave densely populated urban areas.

While Central Denver and city-centric neighborhoods have enjoyed a resurgence of demand since the end of The Great Recession we will all be watching if the trend reserves as historically suburban residences offer more bang for the buck from size of house and condition to lot size and so forth. Add to this the Work From Home (WFH) phenomenon and the suburbs may be the beneficiaries.

Going cut this short as I need to prepare for a closing later this week. This will be my first closing since Covid thus reviewing protocols concerning signatures, document hand-off and so forth.


When Going Vertical in Cherry Creek Offers Affordability

In general, concerning high-rise buildings the higher the floor, the steeper the price. With height comes views and for many prestige. In New York City the most expensive condo sale (as well as most expensive home to sell in the United States) to date was the penthouse at 220 Central Park South which in NYC broker diction includes “Helicopter Views”.

In Cherry Creek where $1M plus seems the norm for a standard townhouse there are actually pockets of value. On the market is a collection of vertical residences that both on a per square foot basis and design offer value in a neighborhood that is in demand and also one of Denver’s most expensive.

For those who desire new construction where a 4-plex once was situated on the northwest corner of 4th Avenue and Harrison Street has been replaced by 3875 E 4th Avenue, 12 vertical residences starting in the upper $600’s. The lowest price of the new residences, Unit #3 offers 4 bedrooms, 3.5 bathrooms within just shy of 1,800 SF spread across multiple levels including a basement. Total SF is 1,791 SF with 1,316 above grade and 475 in the basement. The Above Grade PSF is $513.00. One car detached garage. Asking $675,000.

An architectural gem is on the market at 268 Harrison Street. Designed by influential Miami based Arquitectoncia and constructed in 1984 the 4-plex to this day is considered one of the most contemporary and timeless rowhouses in the neighborhood. Adjacent to Colorado Blvd the design incorporates expansive views and ceiling heights as there is no alley. The structure offers 2 bedrooms and 2 bathrooms spread across 3 levels. What is unique is the residence is wider than the average duplex (is 20′ width) clocking in at 22 feet. In addition, vaulted ceilings on the 2nd and 3rd level provide design drama rarely found today. Total SF is 1,665 SF all above grade (no basement). The Above Grade PSF is $390.00. Two car attached garage. Asking $650,000. No HOA dues. Disclosure: I am the listing agent and a past resident of the neighboring rowhouse.

South of 1st Avenue 14 Jackson Street has come on the market after a refresh. Constructed in the 1970’s the units exteriors seem dated yet in its time were contemporary.  The unit on the market, part of a 4-plex offers 3 bedrooms, 2.5 bathrooms spread across multiple levels including a basement. Total SF is 2,260 SF with 1,578 above grade and 473 in the basement of which 209 SF is finished. The Above Grade PSF is $443.00. Two car attached garage. Asking $699,000. No HOA dues.

36 Harrison Street is new construction which recently sold. Located adjacent to Colorado Boulevard, this unit, one of three semi-detached took advantage of its site designed for its lot to encompass unobstructed. views east and west. The sold unit has 3 bedrooms, 2.5 bathrooms spread across multiple levels including a basement. Total SF is 2,352 SF with 1,690 above grade and 662 in the basement. The Above Grade PSF is $470.00. Sold for $795,000. HOA TBD.

As both a real estate advisor and trained urban planner/designer the laws of economics dictate the more expensive the land, one must go vertical. However due to local desires and zoning vertical row houses in Cherry Creek provide affordability that more conventional duplexes do not. Granted density is higher and vertical design in a neighborhood which historically catered to a more mature buyer can be challenging however for the astute buyer, opportunities are available.