How did The Brady Bunch do in The Real Estate Market

Remember The Brady Bunch the iconic television series of the late 1960’s. Well the famous house (the façade shown in the opening and closing credits) is up for sale; the first time since 1973.

Now I always questioned why Mike, an architect would design the children’s bedrooms to be triple occupancy and share a Jack-and-Jill or a Greg-and-Marcia bathroom. Mike and Carol’s bedroom had an en-suite and Alice had her room (see floor-plan link below). Yet the children ensconced in their shared bedroom until Greg had the brilliant idea to convert Mike’s study and later the attic to his own pad including beads and mood lighting. And those kids having to play in the yard with fake grass. I assume Mr. Phillip’s; Mike’s boss was paying him well.

Floorplan of the fictional Brady Residence

The Listing as presented on Zillow: 11222 Dilling Street, North Hollywood, CA 91602

Do to the popularity a low fence had been installed: Brady House Then and Now

Back to the real estate. While the home’s façade was famous the actual filming of the series was on a lot and not in the house. Now the house has not changed much since 1973 as the interior shots show via Zillow.

I was curious on how the fictional Brady’s would have done if they actually owned the house. Now realistically the kids would have moved on by now, or so I hope. Or Jan stayed at home with the parents to take care of them. Greg and Carol would probably be challenged to install a stair-lift on the contemporary staircase. And Alice’s room would probably now be the room of their live-in aid or Jan’s abode.

  • In 1973 the house was purchased for $61,000
  • Adjusted for inflation, that $61,000 would be $346,200 today.
  • The asking price is $1,885,000.

Thus not a bad windfall. The sad news is most likely the next owner may consider razing the home due to its 12,500 SF lot in Studio City, which is a geographically most attractive area of West Los Angeles. If one were to renovate to today’s code and tastes, most likely $400K or higher. Of note being the most photographed house in the United States only 2ndto The White House (the house is surrounded by mature shrubs which has not dissuaded visitors) you are guaranteed all day voyeurs.

Thus The Brady’s at asking will net over $1.5M in 2018 dollars before commissions.

If you may be interested my firm affiliation  Engel and Volkers does have shops in the Los Angeles area.

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

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

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

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

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

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

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

*In 2018 Dollars: $1,050,500

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

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

*In 2018 Dollars: $879,526

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

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

*In 2018 Dollars: $875,540

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

After multiple iterations on the market and price adjustments:

2/24/14: The unit sells for $764,276

*In 2018 Dollars: $812,224

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

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

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

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

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

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

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

Is the Bond Market Forecasting a Recession Sooner than Later

On more than one occasion when discussing the Denver housing market I have heard “This time is different”. While we have experienced an unprecedented bull market concerning housing and equities since coming out of the Great Recession; it is never different. Unless I missed the memo, business cycles have not ended.

So why this blog today? Well a couple of reasons:

The Bond Market May Be Advising A Recession is Not Far Off:  While I am a real estate broker I do keep an eye on the bond markets as they influence mortgage interest rates. It is well-known interest rates on mortgages have been ticking upwards from historic lows and still, historically are quite attractive at sub 5%. To be honest mortgage interest rates are not what is worrying me, it is what is called The Yield Curve.

While I can probably explain The Yield Curve the following from The New York Times is an excellent simple description:

“The yield curve is basically the difference between interest rates on short-term United States government bonds, say, two-year Treasury notes, and long-term government bonds, like 10-year Treasury notes.

Typically, when an economy seems in good health, the rate on the longer-term bonds will be higher than short-term ones. The extra interest is to compensate, in part, for the risk that strong economic growth could set off a broad rise in prices, known as inflation. Lately, though, long-term bond yields have been stubbornly slow to rise — which suggests traders are concerned about long-term growth — even as the economy shows plenty of vitality.

At the same time, the Federal Reserve has been raising short-term rates, so the yield curve has been “flattening.” In other words, the gap between short-term interest rates and long-term rates is shrinking.”

What is worrisome, on the 21stof June (a few days ago) the gap between two-year and 10-year United States Treasury notes was roughly 0.34 percentage points. It was last at these levels in 2007 when the United States economy was heading into what was arguably the worst recession in almost 80 years. Of note the Yield Curve fell below zero in late 2007 and the Great Recession started soon after.

Ok, so there is a risk of a recession. A layperson may argue the Yield Curve is not accurate HOWEVER it has predicted recessions over the last 60 years as noted by research conducted by the San Francisco Federal Reserve which can be found via the following link https://www.frbsf.org/economic-research/files/el2018-07.pdf

However to be fair interest rates on long-term bonds have been somewhat manipulated downward due to worldwide central bank interventions i.e. long-term bond buying to shore up economies and keep interest rates low. Thus one could suggest and I partially buy into the idea that the flattening yield curve may be somewhat artificial and not truly representative of the economy’s future course.

Case-Shiller Housing Index: One of my favorite monthly reads and this month’s numbers are nothing new as the same cities continue to hold the top spots: Seattle, Las Vegas, and San Francisco continue to report the highest year-over-year gains among the 20 cities. In April, Seattle led the way with a 13.1% year-over-year price increase, followed by Las Vegas with a 12.7% increase and San Francisco with a 10.9% increase.

Yet what intrigues me (and I hope the readers of my blog) is the historical perspective coupled with factoring in inflation as noted from the most recent report in italics as follows:

Looking back to the peak of the boom in 2006, 10 of the 20 cities tracked by the indices are higher than their peaks; the other ten are below their high points. The National Index is also above its previous all-time high, the 20-city index slightly up versus its peak, and the 10-city is a bit below. However, if one adjusts the price movements for inflation since 2006, a very different picture emerges. Only three cities – Dallas, Denver and Seattle – are ahead in real, or inflation-adjusted, terms. The National Index is 14% below its boom-time peak and Las Vegas, the city with the longest road to a new high, is 47% below its peak when inflation is factored in.

Thus if you were a buyer in Denver even during the peak in 2006 and managed to hold onto your home through the Great Recession to today, you are actually ahead concerning real and inflation adjusted dollars.

However I have provided evidence of real estate purchased within the last few years when adjusted for inflation actually losing value.  Thus I decided to look at the annualized return on housing within Denver in a style similar to how mutual funds are profiled i.e. 3, 5 and 10 year annualized returns:

For Denver:

  • 3 Years: 8.17%
  • 5 Years: 9.06%
  • 10 Years: 5.20%

Based on the above-annualized return the last 3-5 years have been a great time to buy and sell. However 10 years ago when the recession started as you can see from the above the annualized return was 5.2%. Yes this beats inflation which we all desire, however when compared to the S&P 500:

S&P 500:

  • 3 Years: 7.30%
  • 5 Years: 7.07%
  • 10 Years: 6.76%

Over the longer term equities continue to beat the housing market.  My message is simple; I believe we may be in an inflated housing market in Denver. As I have provided evidence in past blogs the luxury market seems to be showing signs of resistance to upward prices as evidenced with price reductions coming on line sooner and days on market longer even in what should be peak selling season.

Even the middle and lower end of the market seems to be reacting to the interest rate environment with price increases not as dramatic as higher interest rates reduce affordability.

Between the whipsawing of economic news concerning tariffs/trade, the potential for an inverted yield curve, a slow down in the Denver housing market possibly due to interest rates or buyer fatigue due to lack of inventory based on anecdotal observations or just a bull market that is getting long in the tooth; maybe it is time to take profits and if in cash, maybe time to sit on the sidelines and chill.

 

 

 

 

Is the Market Slowdown Seasonal or an Indicator of Future Activity

As I have always advised clients one will rarely sell at the top of the market or purchase at the bottom. It happens as does winning Powerball i.e. right time, place and lot’s of luck.

Within the last month I have witnessed challenges to the market. At first I thought it was anecdotal based on eyeballing activity on the MLS, the proliferation of For Rent and For Sale signs and in discussions with peers. Yet it finally hit home on a listing I have.

Monaco Place is a popular condo complex located close to I-25 and Hampden Ave. The complex went through some rough times including the infamous shooting of a Denver Police Officer in 1997. During The Great Recession units were being foreclosed on a regular basis. The buildings also fell into disrepair related to the facades, roofs and common areas (most of the complex was built in the early to mid 1970’s). During the period from 2009-2014 one and two bedroom units were selling for under $65,000, this was not an anomaly.

Of course astute buyers saw the value in the complex including a great location, units with wood burning fireplaces (a rarity), low taxes and an HOA fee which includes heat and air-conditioning coupled with large open common areas, deeded covered parking and other positive attributes.

Earlier this year two two-bedroom units sold for new records for the complex:

In March of 2018 3307 S Monaco Parkway Unit C was asking $200K and sold for $215K after just 5 days on the market.

One month earlier in February 2018 3319 S Monaco Parkway Unit A was asking $200K and sold for $216K after just 4 days on the market. Of note, there was a $1,500 concession, thus the true sold price was $214,500.

In April of 2018 3311 S Monaco Parkway Unit C came on the market at $199,900 and closed at $209,500 after 4 days on the market.

The three sales were impressive and many brokers including myself thought those two sales would set a benchmark for the upcoming spring/summer sales season. All three were nicely updated and of similar quality. Based on averages, the three units sold for just over $213,000 with an average 4.3 days on the market before going under contract.

May 2018 saw little activity within Monaco Place, which was surprising with 2oo+/- units and a price point and location that is in high-demand including walking distance to shops, restaurants, supermarket, light-rail, two bus lines and easy access to I-25.

Fast forward to early June 2018. I am asked by a client to place his unit on the market 3351 S Monaco Parkway #F. A nice 2BD/2BA on the top floor of one of the south-central buildings adjacent to parking, steps from the indoor pool/workout facilities and the coin-op washers/dryers just steps from the entry.

The unit was renovated including new paint, flooring including wood and carpeting, replacement of the hollow core with solid doors, kitchen renovation including tile backsplash, granite counters and stainless steel appliances. The bathrooms also remodeled with granite and wood and all updated electrical. The unit, a top floor also offers vaulted ceilings and views onto the open-space surrounded by mature trees thus insuring privacy.

Based on the sales comps we wanted to be fair yet aggressive thus on June 6th we placed on the market for $209,900. The asking was based on the prior 3 sales as noted earlier in the blog.  Showings were limited and little interest. We were surprised again based on recent re-sales.

After 2 weeks we adjusted the price to $199,000 coming in just under $200 PSF. Showings have increased and multiple brokers have advised offers will be sent in the immediate future.

I am confident we will have the unit under contract before the end of the week.

My concern is as follows:

  • Were we overly aggressive pricing at $209,900? While the other three units came on at $199,900 and $200,000 they all sold for above $210,000 or more than 5% over asking. Even at $209,900 we were priced lower than at the price the past 3 re-sales closed.
  • Did the 5% price reduction open the floodgates? Again, based on past re-sales which are within the public domain one could argue instant equity even at the higher asking.
  • Did mortgage interest rates play a role? In Feb 2018 the average 30 yr. mortgage was at 4.32%. In May the rate was 4.61%. As of today (June 19th, 2018) Wells Fargo is quoting 4.75%.

Thus interest rates may be one factor i.e. higher rates increase one’s payment and subsequently can impact housing prices downward over longer periods.  Yet historically interest rates continue to be at record lows.

While the economy continues to gain steam nationally is Denver still experiencing the influx of buyers? At a recent closing in conversation with the title company closer she mentioning having two deals close earlier in the day; both sellers native to Denver moving out of state to buyers moving to the state flush with cash from their out-of-state sale. It seems the blockbuster pace in in-migration may actually be slowing and out-migration increasing as noted in the Denver Post last year: More Coloradans Moving Out….

I have provided statistical evidence in previous blogs concerning the slowdown on the upper-tier of the market. While the sale of $1M+ homes may have set records on a pure transaction basis, the reality is prices on the upper-end are stagnating and adjusting downward as days on market are increasing. And while the overall market set records for average and median home prices during the beginning of the 2ndquarter was that the top?

Monaco Place by most measures is an affordable opportunity where one can purchase with a monthly payment that is less than comparable rent.  Yet to generate activity my seller had to reduce his asking by 5% now at 7.5% less than comparable sales in the 1stand beginning of the 2ndquarter.

Is this a seasonal shift i.e. summer vacations or a signal that the market is plotting a new course? Only time will tell. However while the spring season used to be known for sizzling activity so far this season like the weather has been cool and mild.

Will keep you posted when the listing closes and what the final sales price will be.

Wish me luck.

 

 

 

 

 

If At First You Do Not Succeed; Relist and Hope for the Best

While I do not necessarily believe the following quote is attributable to Einstein in the context of this blog I find it most appropriate:

 Insanity: doing the same thing over and over again and expecting different results.

I use the above quote to characterize some aspects of the real estate market in Metro Denver that I am witnessing as both a broker and observer. To distill the niche of the market for which this quote is appropriate are the select listings which enter the market, do not sell, are withdrawn or expired and come back on the market at the same or higher price.

Here are just a few select examples:

100 Lafayette Street: A sprawling 2-story post-war suburban style home in the desirable Country Club neighborhood on an expansive lot.

  • 4/2/16          Listed at $1,350,000 – subsequently withdrawn or expired
  • 3/9/17          Listed at $1,300,000 – subsequently withdrawn or expired
  • 5/18/17        Listed at $1,300,000
  • 6/6/17          Price Adjustment to $1,280,000
  • 7/18/17        Price Adjustment to $1,250,000 – subsequently withdrawn or expired
  • 3/18/18        Listed at $1,250,000
  • 4/18/18        Expired
  • 4/19/18        Listed at $1,199,000

This residence will have been on and off the market for 2 calendar years. During that time, while there has been at the most recent resisting a $150,000 price reduction or approx. 9% the residence continues to search for a buyer. Yet the pricing over the past year had remained static. Yes, one may argue inventory for the neighborhood continues to be challenged and just waiting for the correct buyer. I will continue to watch as while the residence has many positives i.e. finished square feet and larger lot; much of the interior could use a cosmetic update and the residence is adjacent to 1stAvenue at a partial motion intersection; while designed correctly i.e. south garage will continue to be a challenge.

600 High Street: A large sprawling large brick potential duplex configuration sitting on a coveted 100’ x 125’ lot. Personally I have had my eye on this one for potential redevelopment HOWEVER I too cannot make the numbers work yet its pricing history continues to baffle me:

  • 8/26/14:      Listed at $1,495,000
  • 8/26/15:      Price Adjustment to $1,445,000
  • 11/20/15:    Price Adjustment to $1,395,000
  • 1/9/16:        Price Adjustment to $1,345,000 – under contract and active again
  • 4/8/16:        Relisted at $1,150,000
  • 10/8/17:      Price Adjustment to $1,250,000 (yes adjusted upward)
  • 10/27/17:    Price Adjustment to $1,150,000  (1.5 years to get back to that price)
    •                         -Goes under contract multiple times and falls through
  • 12/11/17:    Price Adjustment to $999,000 (under contract and falls through)
  • 3/23/18:      Relisted at $999,000
  • 4/15/18:      Goes Under Contract
  • 4/26/18:      Back on market at $999,000

At of April 2018 this residence has been on and off market for 3.5 years. While there had been a substantial price reduction from the original $1,495,000 to a more realistic $999,000 the home has still not sold.  I will not get into the details of Time Value of Money and Inflation. Yet I will suggest the history of this house seems to repeat itself, look at the sales history:

  • 7/13/1995:   Sold for $670,000
  • 2/20/1997:   Sold for $670,000
  • 6/15/2002:   Sold for $625,000

Thus between 1995 and 2002 the home actually lost $45,000 (more if factoring in inflation) and now with 3.5 years on the market continues to look for a buyer. While there may be a buyer willing to pay $999,000, when factoring in inflation and rising interest rates is it worth the wait not even considering maintenance and carrying costs.

140 S Claremont Street: This is a home I have watched as I walk by weekly when looking at options in Hilltop. With its coveted location within 2 blocks of Graland as well as Cranmer Park coupled with great curb appeal I have literally watched this home bounce around concerning pricing as follows:

  • 6/15/16:       Listed at $2,375,000
  • 8/30/17:       Price Adjustment to $2,275,000 – Subsequently withdrawn
  • 1/12/17:       Listed at $2,275,000
  • 4/10/17:       Price Adjustment to $2,175,000
  • 6/14/17:       Price Adjustment to $2,075,000 – Subsequently withdrawn
  • 8/7/17:         Price Adjustment to $1,999,000
  • 10/4/17:       Price Adjustment to $1,900,000 – Subsequently withdrawn
  • 4/1/18:         Relisted at $1,950,000
  • 4/27/18:       Goes Under Contract

During its almost 2 years on the market there were multiple price adjustments coming down to $1,900,000 in October 2017 only to be placed back on the market in April 2018 at $50,000 more. Again, I understand spring selling season yet I guarantee you any good broker representing a buyer will review the history of the listing and share with their client. As of last week, went under contract; I assume the broker representing the buyer has shared the pricing history.

Back to the definition of insanity. While I am not suggesting the above examples are insane. I believe it is more a function of the market or the perception of the market i.e. unabated demand, low supply and continued low interest rates. Yet the markets are a changing i.e. interest rates are ticking up, inflation is on the horizon and the equity markets are buoyant yet the charts are showing a slow downward trend from their peak on 1/28/18 of 26,616 (while composing this blog the DJI is trading at 24,288 or 9% off the high of 3 months ago.

I do not fault the brokers or their clients i.e. the sellers…..this has happened to me as a broker! This was back in 2012 when the market has just endured the Great Recession and was just beginning to show signs of a activity. I will not disclose the address as the home has since been sold and closed however the neighborhood was Cory-Merrill.

The house a pop-top first sold after renovation in October 2005 for $810,000. 2005 we were 1.5 years before the peak of the market; the buyers in retrospect over-paid for the residence. In addition to being in the house for $810,000, they added an additional $40K in cosmetic upgrades to the interior, thus their in the house for $850,000.

I am contacted in early 2012 concerning listing the residence. The sellers are retiring and moving and desire to leave Denver. I go over to the residence with a peer broker armed with comparable’s and camera. My co-broker and I confer and suggest an asking of $715,000. And now the saga begins as follows:

Per the seller the house is listed in April 2012 for $819,000! Yes, $819K

  • 4/25/12:       Listed at $819,000
    •   -3 weeks, one showing off an open-house.
  • 5/15/12:       Price Adjustment to $739,000
    • -Seller still believes this is the selling price regardless of our $715,000 suggestion a month earlier.
  • 10/4/12:       Relisted with another broker for $739,000
  • 11/2/12:       Price Adjustment to $725,000
  • 12/14/12:     Sold for $710,000

In addition to the loss between the $810,000 paid in 10/2005 to the $710,000 paid in 12/12 or $100,000 over the 7 years during my 10 months as broker the seller’s paid in excess of $40,000 in mortgage and carrying costs only to sell the residence for what my peer and I suggested 10 months earlier.

While I did not share the following with the seller; based on inflation the $810,000 paid in 2005 equaled $952,250 in 2012; thus their loss was even more severe.

 

The lessons are simple:

For sellers, even in a hot “sellers market” be realistic.

For brokers, while a listing may look attractive, if it does not sell, it is a challenge both financially and psychologically for all parties.

Finally from Wall Street we say “Do not fight the tape”…..the DJI is off 9% from its high, interest rates are going up, inflation is an actual concern and wages while ticking up are still considered stagnant for now.  My humble suggestion, price correctly and sell immediately, the Goldilocks market conditions can change to a Papa Bear in a moment’s notice. Sell like its 2016 not 2005.

 

 

 

 

 

 

 

 

 

 

 

 

Does the New York City Luxury Market Foretell the Denver Luxury Market and Beyond

Yes I am well aware Denver is not New York City even if we do have Rosenberg’s Bagels and The New York Deli News; literally a slice of the Big Apple on Hampden Avenue. However the old adage goes when New York sneezes the rest of the country catches a cold. The reference is to the stock market; I am more concerned about the real estate market.

As some of my readers know I hold real estate licenses in both Colorado and New York and I work in both markets. Most recently the statistics concerning New York City real estate is concerning:

  • Real estate sales in the first quarter of 2018 posted their largest drop in nearly a decade and reached their lowest level in more than six years.
  • The high end of the market is getting hit the hardest, partly because of asking prices.
  • Many sellers have yet to lower their prices in keeping with tax law changes and a general slowdown since 2014.

The big headline in Manhattan was the 25% reduction is sales in the first quarter of 2018 when compared with the prior year. While the number in itself raised a few eyebrows more shocking was the drop, the largest in a decade meaning since the day when Lehman Brothers and Bear Sterns basically imploded and some argue the catalyst of The Great Recession.

The high end of the market is getting hit the hardest, since it’s the most discretionary segment. Prices for luxury apartments in Manhattan fell 15 percent and sales were down 24 percent in the quarter from 2017.

In Denver the luxury market seems to be on fire with sales including the highest number of over $1M homes selling in 2017 and a few blockbuster listings already in 2018. New York City went through the same cycle a few years back including the record setting $100M condo sale at 157 W 57thStreet.

For now Denver seems immune as the luxury sales have been associated with truly unique and rare properties in Denver’s toniest neighborhoods including Country Club, Cherry Creek North, Polo Club and in the suburbs including Cherry Hills Village. My question is anyone concerned about the number of condos coming online and developed in Cherry Creek North, many asking over $1M. Or the potential glut of luxury rentals on the market and those in the pipeline in Cherry Creek and along the Speer Corridor.

The luxury housing market I have suggested is similar to the stock market; it in general looks forward and sets the trends for the overall market. Well let’s look at the overall Manhattan market…..

The average sales price in Manhattan dropped 8 percent when compared to one-year prior. 8% may not sound like much however let’s assume you purchased a home in Metro Denver in 2017 for the average price of $480,140. How would you feel if suddenly $38,000 of your value suddenly disappeared and your home was now worth $442,140?

The money you invested in the conventional down-payment has basically disappeared yet your mortgage is the same, your PITI will probably increase due to property taxes and thinking about refinancing, interest rates are trending up not down.

While many believe the Federal Tax Law changes concerning deductibility of real estate taxes being capped at $10,000 mostly affects the Northeast and California, guess again….many of the luxury homes selling in the Denver metro area have tax bills in excess of $10,000 annually. The next assessment coupled with the gains over the past few years will increase valuations even further.

Let’s assume tax law changes are inconsequential; let’s consider other factors, which are challenging the Manhattan market:

Glut of Luxury Properties: In Manhattan due to land and construction costs luxury is what has to be constructed to justify investment costs. The same is being said in Cherry Creek North and in areas of gentrification i.e. LoHi and RiNo. Yet the luxury market is not infinite i.e. the higher the price point the less demand, as the potential pool of buyers is smaller and honestly more fickle.

Out-migration: While I continually hear about the continued in-migration leading to challenges concerning livability the reality is according to the state demographer, we are experiencing increased out-migration.

Cost Of Living: Denver is and has been for a few years the most expensive city not located on a coastline. While we believe we can rest on our laurels concerning the Colorado Lifestyle and the hipness of Denver, Salt Lake City is nipping at our spurs. We also forget such cities as Minneapolis, Dallas and others are actively courting tech businesses and capturing new residents due to their reasonable cost of living.

Do I see the market changing radically in the next few months? Not necessarily however the headwinds are there i.e. interest rate hikes, a bull market that seems to be losing steam, housing costs that are increasing faster than average wages and over-priced listings sitting on the market the light of rationality.

While we may wish to emulate Seattle, Portland and San Francisco we should be careful what we wish for.

 

 

If at First You do not Succeed Re-list

While I do not necessarily believe the following quote is attributable to Einstein in the context of this blog I find it most appropriate:

Insanity: doing the same thing over and over again and expecting different results.

I use the above quote concerning the some aspects of the real estate market in Metro Denver that I am witnessing. To distill the niche of the market for which this quote is appropriate are the select listings which come on the market, do not sell, are withdrawn or expired and come back on the market at the same or higher price.

Here are just a few select examples:

100 Lafayette Street: A sprawling 2-story post-war suburban style home in the desirable Country Club neighborhood on an expansive lot.

  • 4/2/16           Listed at $1,350,000 – subsequently withdrawn or expired
  • 3/9/17           Listed at $1,300,000 – subsequently withdrawn or expired
  • 5/18/17        Listed at $1,300,000
  • 6/6/17           Price Adjustment to $1,280,000
  • 7/18/17        Price Adjustment to $1,250,000 – subsequently withdrawn or expired
  • 3/18./18        Listed at $1,250,000

As of today this residence will have been on and off the market for two calendar years. During that time, while there has been a $100,000 price reduction or approx. 8% the residence continues to search for a buyer. Yet the pricing over the past year has remained static. Yes, one may argue inventory for the neighborhood continues to be challenged and just waiting for the correct purchaser i.e. one who desires a larger home at a below comparable PSF pricing. I will continue to watch as while the residence has many positives i.e. finished square feet and larger lot. However being adjacent to 1st Avenue, even with a sound/privacy wall will be a challenge for many prospective buyers (I know the challenges;  I have transacted residences along the 200 Block of Colorado Boulevard).

600 High Street: A sprawling large brick potential duplex configuration situated on a coveted 100’ x 125’ lot. Personally I have had my eye on this one for potential redevelopment HOWEVER I too cannot make the numbers work (due to pricing, location adjacent to 6th Avenue and Historic District inclusion) yet its pricing history continues to baffle me:

  • 8/26/14:       Listed at $1,495,000
  • 8/26/15:       Price Adjustment to $1,445,000
  • 11/20/15:     Price Adjustment to $1,395,000
  • 1/9/16:          Price Adjustment to $1,345,000 – under contract and active again
  • 4/8/16:          Relisted at $1,150,000
  • 10/8/17:       Price Adjustment to $1,250,000 (yes adjusted upward)
  • 10/27/17:     Price Adjustment to $1,150,000 (1.5 years to get back to that price)
  •                       -Status to under contract multiple times and falls through
  • 12/11/17:     Price Adjustment to $999,000 (under contract and falls through)
  • 3/23/18:       Relisted at $999,000

At present this residence has been on and off market for 3.5 years. While there had been a substantial price reduction from the original $1,495,000 to a more realistic $999,000 the home has still not sold. I will not get into the details of Time Value of Money and Inflation. Yet I will suggest the history of this house seems to repeat itself, look at the sales history:

  • 7/13/1995:   Sold for $670,000
  • 2/20/1997:   Sold for $670,000
  • 6/15/2002:   Sold for $625,000

Thus between 1995 and 2002 the home actually lost $45,000 (more if factoring in inflation) and now with 3.5 years on the market continues to look for a buyer. While there may be a buyer willing to pay $999,000, when considering in inflation and rising interest rates is it worth the wait coupled with maintenance and carrying costs including real estate taxes.

140 S Claremont Street: This is a home I have watched as I walk by weekly when looking at opportunities in Hilltop. With its coveted location within 2 blocks of Graland as well as Cranmer Park coupled with great curb appeal I have literally watched this home bounce around concerning pricing as follows:

  • 6/15/16:       Listed at $2,375,000
  • 8/30/17:       Price Adjustment to $2,275,000 – Subsequently withdrawn
  • 1/12/17:       Listed at $2,275,000
  • 4/10/17:       Price Adjustment to $2,175,000
  • 6/14/17:       Price Adjustment to $2,075,000 – Subsequently withdrawn
  • 8/7/17:          Price Adjustment to $1,999,000
  • 10/4/17:       Price Adjustment to $1,900,000 – Subsequently withdrawn
  • 4/1/18:          Relisted at $1,950,000

During its almost two years on the market there were multiple price adjustments coming down to $1,900,000 in October 2017 only to be placed back on the market in April 2018 at $50,000 more. Again, I understand spring selling season yet I guarantee you any good broker representing a buyer will review the history of the listing and share with their client before making an offer.

Back to the definition of insanity. While I am not suggesting the above examples are insane. I believe it is more a function of the market or the PERCEPTION of the market i.e. unabated demand, low supply and continued low interest rates. Yet the markets are a changing i.e. interest rates are ticking up, inflation is on the horizon and the equity markets are buoyant yet the charts are showing a downward trend from their peak i.e. 10% off the high of 3 months ago.

I do not fault the brokers or their clients i.e. the sellers…..this has happened to yours truly!

My awakening began in 2012; the market has just experienced the Great Recession and was beginning to show signs of activity. I will not disclose the address of the residence as it has since been sold and closed, however the neighborhood is the NW quadrant of Cory-Merrill.

The house a pop-top (first and to this day the largest on the block) sold after renovation in October 2005 for $810,000. While 1-2 years before the peak of the market the buyers in retrospect over-paid for the residence based on the opinion of myself and other brokers. In addition to purchasing the house for $810,000 the buyers added an additional $40K in interior cosmetic upgrades while neglecting the rear-yard (usually a strong selling feature for most buyers), thus in their house for $850,000 in 2005 Dollars.

I was contacted in early 2012 about listing the residence. The sellers planned on retiring and relocating beyond Denver. I visit the residence with a peer broker armed with comparable sales data. My co-broker and I confer and suggested based on empirical data i.e. sales comps an asking of $715,000. Now the saga begins; per the seller’s request the house is listed in April 2012 for $819,000! Yes, $819K or $100K+ over what we suggested.

  • 4/25/12:       Listed at $819,000
  •                      -3 weeks, one showing off an open-house.
  • 5/15/12:       Price Adjustment to $739,000
    • -Seller still believes this is the eventual selling price dismissing our $715 suggestion based on verifiable comparable’s one month earlier.
  • 9/30/12:      A mutual termination concerning the listing and I am thankful as endured  50+ showings and not one single offer.
  • 10/4/12:       Relisted with another broker for $739,000
  • 11/2/12:       Price Adjustment to $725,000
  • 12/14/12:     Sold for $710,000

In addition to the $100K loss i.e. $810,000 paid in 10/2005 to the $710 paid in December 2012 over the 7 years, during my 10 months as broker the seller’s paid in excess of $40,000 in mortgage and carrying costs only to sell the residence for what my peer and I suggested 10 months earlier.

On a more technical basis, here are the inflation adjusted #’s: The $710,000 in 2005 was actually $834,673 in 2012 Dollars, thus their real dollar loss was closer to $225,000.

The lessons are simple:

  • For sellers, even in a hot sellers market be realistic.
  • For brokers, while a listing may look attractive, if it does not sell, it is a challenge both financially and psychologically for all parties.
  • For buyers, trees do not grow in the sky, they need soil and moisture.

Finally from Wall Street: “Do not fight the tape”…..the DJI is off 10% from its high of 26,616, trading at 24,037 as of this posting, interest rates are going up per the Federal Reserve Minutes, inflation is an actual concern on the horizon and wages while ticking up are still considered stagnant.

My humble suggestion, price correctly and sell immediately, the market conditions known as Goldilocks can change to Papa Bear in a moment’s notice.

Sell like its 2016 not 2005.

Is Your For Sale Residence Instagram Influencer and Hashtag Ready

I just finished an article in The New York Times titled Hashtag Open House concerning brokers hiring influencers to promote their listings. While the trend seems to at present be relegated to Los Angeles and New York City is this a marketing program a seller of a residence or their broker consider?

With a marketing and public relations background; honestly I rolled my eyes while reading the article. While I understand the concept and the desire to secure eyeballs onto a listing; will such a program and the costs associated truly sell one’s residence?

Thus I decided for fun to distill my thoughts and I welcome comments:

  • Influencers: My first question is the influencer presenting and/or penetrating the audience for the listing? Honestly when I see a multi-million dollar listing being splashed across Instagram and other channels, promoted by an Influencer I question the Return on Investment (ROI). Granted if someone can present me with an influencer that is truly targeting the prospective buyers of one of my listings I would entertain the idea. However when marketing a larger, top 2% of the market price point I have to question if the influencer is capturing the demographic I wish to target including high-net-worth, liquidity, professional educational attainment and employment and so on. My personal view is if I am not attracting qualified prospective buyers all I am attracting is voyeurs.

 

  • Voyeurs: Hey I have nothing against voyeurs. Actually I like them as A) I hope I have captured their interest, B) at some time in the future they may be a client either on the buy or sell side and C) more eyeballs mean potential sharing and potentially attracting a buyer. Now for my concern: more eyeballs may also invite nefarious activity. Granted this is nothing new; as brokers we post pictures distributed among various channels i.e. Multilist, the Internet, Social Media and  open houses have been used by those up to no-good to preview a potential opportunity for future theft, squatting, vandalism and so forth.

 

  • Is One Selling a Residence or Selling their Broker: Yes I may be old-school (it happens with 25+ years in the business) yet do such activities sell a residence or sell the broker? In general from discussions with experienced peers it seems very few open houses actually sell the home to a visitor to the open house. Please do not misunderstand; I believe open houses can be a valuable tool for both sellers and brokers including assessment of comments/responses concerning presentation, pricing, interest and so forth. Of course for brokers hosting an open house an opportunity to meet prospective clients, both sellers and buyers.

The whole concept of being Instagram ready is not new. I always suggest a prospective seller consider professionally photographed images as a picture is truly worth 1000 words. In addition for certain listings, staging and related activity may enhance the marketing program. Personally I view staging, as a 3-D advertisement coupled with presenting a fantasy that can becomes one’s reality.

And while the article mentions events and immersive marketing this is nothing new in California! A Builder Hires Model Family to Sell Homes. However even California builders were late to the party as live mannequins have been used in retail (Selfridges c. 1920’s) as well as entertainment i.e. Area in NYC in the 1990’s.

BTW if you wish to see truly challenged listings: http://terriblerealestateagentphotos.com

I will be curious how the Instagram and Influencer marketed listings work out. I comprehend the opportunity concerning new developments, a multi-unit building, rentals, a market with competition within the price-point and so forth. However for exclusive listings, the one’s that are truly unique, bespoke, rarified well……sometimes discretion can be most attractive.

Why I believe the Housing Market is Overheated An Example with Statistics

This morning a listing alert came on my MLS advising 549 Lafayette St is on the market asking $800K. This is the exact type of home my wife and I have been looking for. Well actually a renovated version; let me explain.

In the 400 block there are three similar homes 434, 440 and 446 Lafayette all Victorian design on smaller lots i.e. 37.5’ frontage. All have been renovated with similar design criteria including enlarging the rear on the ground and upper levels including master suites with en sure bathroom and an additional 2nd bathroom. 440 Lafayette Street sold in 2015 for $825,000 and was truly turnkey condition. 446 Lafayette Street was last asking $1,150,000 (adjusted downward from $1,200,000) and is now under contract, also truly turnkey.

Thus I was intrigued with the 549 Lafayette Street listing. In my professional broker opinion; not as strong a block as the 400 Block of Lafayette Street as it is denser and is impacted by 6th Avenue traffic noise. Also the house has been a rental thus has not been updated or expanded recently. From the pictures a total renovation is needed and assuming an expansion would run $250,000 to $300,000 to replicate the design of the homes in the 400 block mentioned above.

Now let me compare sizes and condition:

549 Lafayette: 1,587 SF Above Grade / 846 SF Basement – Condition – Good (Asking $504.10 PSF Above Grade)

440 Lafayette: 2,084 SF Above Grade/ 329 SF Basement – Condition – Excellent (Sold for $395.87 PSF Above Grade)

446 Lafayette: 2,306 SF Above Grade/ 380 SF Basement – Condition Excellent (Asking $498.70 PSF Above Grade)

Thus as per my usual research I decided to look at the sales history of 549 Lafayette Street as follows:

In January 2011 the home seems to have been inherited, as the conveyance was a Personal Representative Deed, usually associated with an estate.

In February 2015 the home sells I believe through an arms length transaction for $225,000

Two months later in April 2015 the home sells again to an LLC for $456,000. Almost double in two months, which usually suggests either, not an arms length transaction OR someone just hit the market just at the right time.

Now 3 years later almost to the date, the home is asking $800,000 or a gain of $344,000 or basically a $10,000/month increase in valuation since the last sale.

Now back to 440 and 446 Lafayette St. Both of these homes are on a stronger block, have been gut renovated, expanded, offer 25% – 40% additional above grade square footage when compared to 549 Lafayette and are in excellent condition.

The following is their sales history:

440 Lafayette, which I believe mirrors market conditions:

  • 11/98:           Sold for $425,000
  • 5/04:              Sold for $665,000 (close to the pinnacle of the market cycle)
  • 12/11:            Sold for $675,000 (just coming out of the Great Recession)
  • 9/15:              Sold for $825,000 (Just as the market started to its ascent)
  • -Of note, between 2004 and 2011 the house gained just $10,000 in value or based on inflation the house actually lost $130,000 in value.

446 Lafayette:

  • 9/98:              Sold for $287,500
  • 10/05:            Sold for $530,000 (a few months shy of the pinnacle of the cycle)
  • 7/13:              Sold for $875,000 (market starting to begin to overheat)
  • 2/18:              Asking $1,150,000 under contract

Now granted someone may purchase 549 Lafayette for the asking at $800K. And in this market such a price may look attractive (yet on the 400 Block of Lafayette St a superior home and renovation asking $5 PSF less) .

However while I am not suggestion history repeats itself I would be remiss if they were my client not to mention one block south, larger homes in excellent renovated/upgraded condition sold for similar pricing just a few years back yet offering more above grade square feet and overall condition. Even in the present when comparing 446 Lafayette Street and 549 Lafayette Street within $5 PSF above grade, serious differences.

Personally I would take a pass. At $600K I am a cautious buyer, maybe even $625K knowing I am in it for another $200K and 6 months of construction to convert from its existing condition to my primary home. However at $800K I will pass and I hope the purchaser at that price does not see this blog posting.

Happy House Hunting.

Another Luxury Listing Shows Stress on the Upper End of Market

OK, I am the first to admit on occasion I drive down 7th Avenue from Cherry Creek to Corona Street so I can access the Safeway at 6th Avenue and Corona Street easily (yes I am still mourning the loss of my neighborhood Safeway). I drive at a leisurely pace taking in the majesty and prestige of one of Denver’s finest parkways. West of Williams Street when the Avenue becomes a standard width roadway the houses still continue to impress.

That is why I have been intrigued with 1433 East 7th Avenue. A home, which exudes gravitas. A nice corner lot, raised from the sidewalk coupled with mature landscaping can easily be at home in a many pre-war cities in the Northeast of for those who have relocated from the Bay Area, think Pacific Heights lite or if from Los Angeles, Beverly Grove.

With just shy of 6,000 SF finished including the basement and a manageable 7,250 SF lot (honestly I have mixed opinions concerning corners) larger than what I was and continue to search for but as mentioned from the exterior, gravitas. The stately yet manageable interior is perfect for many prospective buyers in this broker’s opinion from the center-hall plan to the upscale kitchen to the preservation of design details including wood beams and so forth. Updated yet respectful of its history.

I have kept my eye on this house since I first watched it come on the market in April 2011 as the Denver market was finally awakening from the reckoning of the Great Recession. At the time up-market listings continued to struggle to find a buyer however if priced correctly, they sold and some very astute buyers have probably done quite well on paper to date.

  • In April 2011 the home sold for $1,655,450 off an asking of $1,750,000.
  • In 2018 Dollars: $1,824,189

 

  • In August 2015 the home sold for $2,195,000, its asking price after being on the market for approximately two weeks and no seller concession! Many would argue that summer was the beginning of the major ascent of the market from realistic pricing to exuberant listing prices.
  • In 2018 Dollars: $2,295,481

Thus in a span of 4 years the sellers pre-commission made $539,550 not accounting for inflation. Even considering broker commissions (assume $130,000 at 6%), the sellers most likely netted approximately $400,000 of $100,000/yr concerning their residence.

I do not know if the sellers renovated or did other improvements, as I have not toured the home in years. However based on images and broker comments I am assuming any updates made were minimal.

Let’s fast forward to May 2017, just shy of 2 years later the home reappears on the market asking $2,500,000. Of note the home was purchased for $2,195,000 two years prior or asking for a $300,000 gain in 2 years of $150,000/year. In August the home is re-priced at $2,395,000 and the listing eventually expired.

As of January 2018 the house is back on the market with a revised asking price of $2,299,000, $96,000 less than the previous ask.

Let’s assume the seller does indeed get $2,299,000 for the sale price. When factoring a 6% commission ($137,940), their net is approximately $2,161,060.

 In my analysis a few issues arise as follows:

Seller paid $2,195,000 in August 2015. Assuming it sells for asking (doubtful as already 52 days on market), after commission their net is below their purchase price 2.5 years prior; a recap:

  • August 2015: Paid $2,195,000
  • January 2018: Asking $2,299,000
  • Commission 6% ($137,940)
  • Net at Asking: $2,161,060
  • Thus seller would walk away with a $34,000 Gain!

 Yet the gain of $34,000 assumes an at asking closing price. Again after almost two months on the market, doubtful but it could happen.

Now two additional issues:

Inflation: When purchased on 2015 for $2,195,000 based on 2018 Dollars that would translate to $2,295,481, thus based on inflation, already a real-dollar value loss even if sold at asking.

Real Estate Taxes: When the home first came on the market in 2011 the taxes on the house were listed at $8,127 or $677/month. At present the taxes in the house are listed at $13,779 or $1,148.25/month, a difference of $471.25/month. Granted at this price-point should not be an issue for the buyer (except the issue concerning tax deductibility of real estate taxes but will not go there in this blog post).

One of my friends from the East Coast is a stock trader and refuses to purchase a home in his suburban New York City community. His rationale; he can earn more money in the market versus his primary residence which he views as a money-losing proposition or at best matching inflation over the long-term and coupled with exorbant real estates taxes,he prefers to rent. So I asked him the following:

If one bought $2,195,000 of the Dow Jones ETF (basically a vehicle that tracks the DOW which I understand is not the best gauge of the stock market but is one of the most recognized) in August 2015 what would it be worth today?

  • In August 2015 the DJ ETF was trading at $166.35 / 13,195 Shares
  • On February 27th, 2018 the DJ ETF was trading at $255.33
  • The 13,195 Shares today would be worth $3,369,097
  • Total Gain: $1,174,097 or close to $42,000/average per month increase. Yes we are all aware of the gains over the past 12 months skewing the valuations.

My analysis tells me the follows:

  • The upper-end of the market is showing weakness and fatigue and thus slowing.
  • The belief that housing values can only increase is a fallacy as the upper-end is usually the first market segment to show signs of impending weakness.
  • The pinnacle of housing market values is behind us.

Now for my peer brokers who will advise but one needs a residence to live in; I cannot agree more both as a broker and one who is actively looking for a residence to purchase HOWEVER, let’s do the math:

The gain of $42,000 month is commendable yet most likely an anomaly as many argue the market is overheated and a respected wealth manager I know advises: “Trees do not grow in the sky” thus such oversized gains should be viewed within context.

However, that $42,000/monthly gain if generating 4.5% would equate to approximately $1,900 month. While one could not rent 1433 East 7th Avenue for $1,900/month. Yet when generating $42,000/month in gains, I assume one could dip into the monthly for a similar home in the $5,000-$7,500/month range and still have a nice return on investment.

Please know I am NOT a pessimist. However I have personally been through three (3) business cycles during my time in Denver and have watched real estate values rise and fall. While I do not except an across the board dramatic downtown of valuations; with the potential for rising interest rates for both mortgages and bonds, realignment of equity valuations to more traditional patterns, potential inflation and out-migration of population from Colorado, a 10%-20% downward valuation concerning housing valuations may not be out of the norm, it has happened before and history can repeat itself. Again, just one humble brokers opinion.