I was interviewed recently for a segment on ABC's Nightline about the ever-entertaining housing market. View it here.
Wednesday, September 30, 2009
Monday, September 28, 2009
The First Time Buyer Tax Credit Has Impacted Our Market!
The number of active listings is down 23% in the last year and down 35% in the last two years (source: Metrolist). There is a lot less inventory on the market to sell. As a result, the number of sales for the entire market is down. January through August of 2008 compared to the same period in 2009 saw a 18% drop in sales volume for the Denver market.
What’s happened with first time buyers (FTB)? Generally, they are buying homes under $200K. I’d also generalize and say that most of them focus on move-in ready homes. They generally are not as active in the distress sales (foreclosure and short sale) market. There are several reasons for this:
- Preference. Many FTB want a move-in ready property. They are moving from an apartment and are used to having everything in nice condition and working order.
- Cash. They may just barely have enough money for a 3% FHA down-payment, and won’t have cash left over for paint, carpet and appliances. Move-in ready condition is a requirement for many.
- Lending. Many FTB use FHA lending. Many of the distress properties on the market are in such rough condition they would not qualify for FHA.
- Competition. Even if the FTB wanted a distress property (many need work), they might not be able to compete. Listing agents for REO property tell us they are frequently getting multiple bids in the first few days for their listings. As a bank selling a property, if you get several all-cash offers from investors that can close in a week, and an offer from a FTB that is using an FHA loan that will take 45 days to close… which offer would you take? Many FTB have been forced out of this segment of the market.
Thus, if you want to get a sense of how FTB are impacting the market, I’d look at the trend of sold homes under $200K that are NOT distress sales.
Interestingly, while the overall market has had a 18% drop in sales volume, this segment (under $200K, non-distress sales) is up 7% in sales volume (Jan-Aug 2008 vs. Jan-Aug 2009). The competition is making homes in this segment sell faster than the overall market. The average days on market (DOM – time to get an offer) declined from 107 days (Jan-Aug 2008) to 86 (Jan-Aug 2009). In that same time, the overall Denver market DOM declined from 101 to 100.
Another way to see the impact of the first time buyer tax credit in this market is the average discount. For the homes under $200K, the average discount declined from 2.6% (Jan-Aug 2008 vs. Jan-Aug 2009) to 2.2%. For the homes over $200K, the average discount increased from 2.7% to 3.0%.
What’s happened with first time buyers (FTB)? Generally, they are buying homes under $200K. I’d also generalize and say that most of them focus on move-in ready homes. They generally are not as active in the distress sales (foreclosure and short sale) market. There are several reasons for this:
- Preference. Many FTB want a move-in ready property. They are moving from an apartment and are used to having everything in nice condition and working order.
- Cash. They may just barely have enough money for a 3% FHA down-payment, and won’t have cash left over for paint, carpet and appliances. Move-in ready condition is a requirement for many.
- Lending. Many FTB use FHA lending. Many of the distress properties on the market are in such rough condition they would not qualify for FHA.
- Competition. Even if the FTB wanted a distress property (many need work), they might not be able to compete. Listing agents for REO property tell us they are frequently getting multiple bids in the first few days for their listings. As a bank selling a property, if you get several all-cash offers from investors that can close in a week, and an offer from a FTB that is using an FHA loan that will take 45 days to close… which offer would you take? Many FTB have been forced out of this segment of the market.
Thus, if you want to get a sense of how FTB are impacting the market, I’d look at the trend of sold homes under $200K that are NOT distress sales.
Interestingly, while the overall market has had a 18% drop in sales volume, this segment (under $200K, non-distress sales) is up 7% in sales volume (Jan-Aug 2008 vs. Jan-Aug 2009). The competition is making homes in this segment sell faster than the overall market. The average days on market (DOM – time to get an offer) declined from 107 days (Jan-Aug 2008) to 86 (Jan-Aug 2009). In that same time, the overall Denver market DOM declined from 101 to 100.
Another way to see the impact of the first time buyer tax credit in this market is the average discount. For the homes under $200K, the average discount declined from 2.6% (Jan-Aug 2008 vs. Jan-Aug 2009) to 2.2%. For the homes over $200K, the average discount increased from 2.7% to 3.0%.
Tuesday, September 8, 2009
Are Buyers Still Getting Discounts When They Buy a House?
It depends on what sort of house they are purchasing. Non-distress sales are those being sold by traditional sellers. In the last few months, the average discount in the Denver metro area was 2.5% off the last asking price. In many cases, the seller had to have a number of price reductions before they finally attracted an offer. This discount has been relatively stable for about two years.
On the other hand, the distress sellers have had a really different experience. “Distress” includes short sales and bank sales. You can see that the average discount for these properties was about the same as non-distress properties for much of 2005, 2006, and 2007. Starting in the middle of 2008, the banks got a little more realistic on their pricing AND demand for these properties greatly increased. Some of this was due to first time buyers but we think most of the demand increase came from investors competing for small rental homes. You can see that the average discount on the distress properties has steadily declined ever since.
Interestingly, in July of 2009, the distress properties sold at a modest PREMIUM to asking price, not a discount. This trend continued into August. The competition at the low end of the market is red-hot; many homes are selling in just a few days and there are often bidding wars driving prices above the asking price.
Does the speed to sell the distress property impact the price paid? Yes! [insert chart: 09-0907 Discount trends - REO segments] The bank properties that sell in less than five days are clearly the most sought-after. The premium these homes sell for continues to increase over time. In August 2009, they sold, on average, for 10.7% above the asking price.
We’re expecting the intense competition to continue for at least a few more months as first time buyers race the clock to take advantage of the tax credit. Eventually we’ll probably see more bank inventory hit the market and then prices will ease a bit.
On the other hand, the distress sellers have had a really different experience. “Distress” includes short sales and bank sales. You can see that the average discount for these properties was about the same as non-distress properties for much of 2005, 2006, and 2007. Starting in the middle of 2008, the banks got a little more realistic on their pricing AND demand for these properties greatly increased. Some of this was due to first time buyers but we think most of the demand increase came from investors competing for small rental homes. You can see that the average discount on the distress properties has steadily declined ever since.
Interestingly, in July of 2009, the distress properties sold at a modest PREMIUM to asking price, not a discount. This trend continued into August. The competition at the low end of the market is red-hot; many homes are selling in just a few days and there are often bidding wars driving prices above the asking price.
Does the speed to sell the distress property impact the price paid? Yes! [insert chart: 09-0907 Discount trends - REO segments] The bank properties that sell in less than five days are clearly the most sought-after. The premium these homes sell for continues to increase over time. In August 2009, they sold, on average, for 10.7% above the asking price.
We’re expecting the intense competition to continue for at least a few more months as first time buyers race the clock to take advantage of the tax credit. Eventually we’ll probably see more bank inventory hit the market and then prices will ease a bit.
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Monday, July 27, 2009
Denver Market Trends- Years built and sold by decade, from 1880
This video is a great visual representation of the Denver Real Estate Market. The slides show the decade and price point for homes built in Denver, dating back to 1880. Pretty interesting stuff, presented by my good friend Michael Canon. Leave a comment if you have any questions.
Saturday, July 25, 2009
Friday, July 24, 2009
Wednesday, July 22, 2009
$8k Tax Credit- Charles Roberts interview on Denver 7 News
Me on 7 News... Leave a comment with Questions!
Saturday, July 18, 2009
Egress Windows
A lot of investors ask what an egress window is and when one is needed. Technically, it’s a window for a room below grade that a municipality has deemed large enough to be safe for exit in case of emergency. Most often, it’s associated with a basement bedroom window, making it a legal bedroom. Basement bedrooms without egress windows are illegal. Installing an egress window makes them legal. The confusion is that different cities, counties and agencies have different size requirements and height-above-floor requirements for these windows. Therefore, before you start cutting into the concrete foundation you better make sure you’ve visited the local building department to get their requirements. In addition, HUD, distributing Section 8 vouchers, also has their own requirements for egress windows. So if you’re going to rent to a Section 8 tenant make certain you know what their requirements are. If you don’t, you won’t get credit for that basement bedroom and get way less rent than you expected – believe me it happens every day. But, to be honest there are probably hundreds if not thousands of rentals in Metro Denver that have basement bedrooms without egress windows. In my opinion, this is not only illegal, it’s immoral. And if that wasn’t enough to discourage you from having one, ask yourself what happens if there is a catastrophic fire and someone dies in your illegal basement bedroom. Not good! For about $2,000 - $2,500 you can get a competent contractor to install an egress window (only 1 is required per basement bedroom) and sleep better at night.
Thursday, July 2, 2009
Recap of 2Q 2009 Home Price Performance
Comparing 2007 to 2008, the average home price across the metro dropped 13%, to $267,000: a 13% decrease. Comparing the 1Q of 2008 ($271,000) to 1Q 2009 ($241,000), we saw an additional 11% drop. 2Q looked much better, only a 5% drop. As with many of the national headlines, things may still be getting worse, but the pace of the decline has slowed significantly.
While it’s certainly too soon to call it a trend, we noticed that the average sales price in MLS region AUN (Aurora North) and DSW (Southwest Denver) increased in June. After significant declines in 2006 and 2007, prices were generally stable in 2008. Prices are now edging upwards in these distressed areas!
While it’s certainly too soon to call it a trend, we noticed that the average sales price in MLS region AUN (Aurora North) and DSW (Southwest Denver) increased in June. After significant declines in 2006 and 2007, prices were generally stable in 2008. Prices are now edging upwards in these distressed areas!
Saturday, June 20, 2009
Sewer Scopes
A LOT of agents don’t advise their clients to get sewer scopes when they purchase a property. This is a major mistake. A broken sewer can cost between $3,000 - $10,000 dollars to repair and it only costs $99 ($99Rooter – others are more expensive) to have a tech put a camera down the sewer pipe and videotape the sewer all the way to the mainline. This will tell you-the-buyer what the condition of the sewer is. So let’s see, we pay to have the furnace inspected but a new furnace will only be about $2,000. We pay to have the roof inspected but that’s probably a $4,000 job. So why don’t we always inspect the sewer? One reason is because, let’s face it, realtors want closings. Many figure if they keep their mouth shut and don’t go out of their way to recommend a sewer scope that’s one less chance the deal will fall through. Inexcusable, but all too commonplace. Don’t be a chump – get a sewer scope.
Thursday, May 28, 2009
Special considerations for Investor loans
Special considerations for Investor loans
The talk around the water cooler these days is all about LOANS. Who can get them? At what price? What if I already have a few loans, do I still qualify? A year or two ago the question was at what price do I get a loan (those were the days!). Today it is "am I still in the game?" Here's the deal: if you have an owner occupied loan and 3 investor loans you cannot buy any more properties and get Fannie Mae / Freddie Mac financing, meaning you can't get a conventional 30-year fixed loan. Now, my hope is that someone reads this and tells me I'm wrong. That would be great! But as far as I know that is the case. Where does this leave you? You can pursue loans that are warehoused by lenders, meaning they are not sold on the backend to Fannie or Freddie. You are probably looking at a minimum of 20% down but more importantly it will be almost impossible to get a 30-year loan. But a 5/1 ARM is not out of the question. (Lenders, please start a dialogue here and let folks know who has what products available.) There is also Hard Money available. I met with a group of high-end Hard Money lenders today to discuss options and the consensus is that they are proceeding…but with extreme caution. A final version is to contact smaller local lenders. You'll need 25% down, but if your story makes sense, you'll get your loan - and usually at an attractive rate. Let me know what your situation is and I'll try to refer you to the right person.
Denver RE Trends: Pricing Appreciation Near Light Rail...
Home appreciation near T-Rex light rail line stations have out-performed the market Other cities such as Portland found that homes near light rail lines have out-performed the market in terms of price appreciation. The newest light rail line on the south east corridor (it was built during the T-REX I-25 expansion) bears this out. In the last two years, the average home within two miles has appreciated 4% while the metro Denver average is off 8%. We've shared this with our clients, and many decide to try to purchase homes near future light rail stops in anticipation of future appreciation.
Market Improving?
Take a look at AUN (Aurora North).
Note these positive market trends this year: - number of active listings steadily declining - average list price pretty stable (finally!) - U/C up dramatically - Number of sales / month up (partially seasonality) - DOM dropping - Stability in average sold prices and sold price as % of list - Sold price as % original price UP a lot - banks are getting better at pricing - Number of expired listings down Every indicator is improving this year in AUN. You will see the same trends in DSW (southwest Denver County), but not as marked an improvement as AUN. By contrast look at DSE (southeast Denver County). - listings are up (they should be - seasonality) - Note the average list price ($758,000) is a lot higher than the average sold price ($418,000). Lots of expensive listings brining up the average ask price, but apparently they are not selling - DOM (Days on Market) declining as it normally would due to seasonality - Average price declining rather rapidly. Probably a mix issue - smaller, cheaper homes are probably selling better. Since these homes in DSE are pricier, it has more of an effect on the "average" sales price on metro Denver. Oddly, we could see improvement led by the cheapo neighborhoods, with the lux neighborhoods falling behind for a while. It will be interesting to watch. (C) Copyright 2008 Your Castle Real Estate
Note these positive market trends this year: - number of active listings steadily declining - average list price pretty stable (finally!) - U/C up dramatically - Number of sales / month up (partially seasonality) - DOM dropping - Stability in average sold prices and sold price as % of list - Sold price as % original price UP a lot - banks are getting better at pricing - Number of expired listings down Every indicator is improving this year in AUN. You will see the same trends in DSW (southwest Denver County), but not as marked an improvement as AUN. By contrast look at DSE (southeast Denver County). - listings are up (they should be - seasonality) - Note the average list price ($758,000) is a lot higher than the average sold price ($418,000). Lots of expensive listings brining up the average ask price, but apparently they are not selling - DOM (Days on Market) declining as it normally would due to seasonality - Average price declining rather rapidly. Probably a mix issue - smaller, cheaper homes are probably selling better. Since these homes in DSE are pricier, it has more of an effect on the "average" sales price on metro Denver. Oddly, we could see improvement led by the cheapo neighborhoods, with the lux neighborhoods falling behind for a while. It will be interesting to watch. (C) Copyright 2008 Your Castle Real Estate
Loan considerations for a first time buyer
Lending guidelines are changing on a daily basis for every type of loan: conventional, FHA, VA & commercial. Nevertheless, there are still very attractive first-time home buyer options available. If you are or will be a first-time buyer, it is critical to speak with a loan officer before looking at homes. It is a crushing feeling to view a home, picture making it your own and then find out that you cannot qualify to purchase it. A loan officer will pull credit, analyze debt-to-income ratios, review assets and income and determine what you can afford.
Presuming a pre-qualification occurs, the loan officer will then be able to provide an array of loan options. Presently, FHA loans are the predominant loan for first-time home buyers as they offer flexibility with down payment, income and assets. In 2009, FHA loans will require a 3.5% down payment; however, such funds can be a gift from friend or family member. Additionally, pending on where the home is purchased, many cities still offer down payment monies to assist borrowers with little or nothing down. There is even a program that permits someone to purchase a home for as little as $100. Please keep in mind that when a borrower does not make a down payment, their interest rate will likely be higher, since it the loan will have greater perceived risk.
Conventional loans are very comparable to FHA loans in loan terms and fees. They can be more restrictive with down payment options, debt ratios and alternative forms of credit. But, they require less paperwork than FHA loans, which typically means a smoother underwriting process. Furthermore, they do not require an up-front mortgage insurance premium like FHA loans ---- although, their monthly premiums are higher than FHA. FHA, conventional and VA loans are in the low 6% range on 30 year fixed mortgages with no prepayment penalties. These rates, coupled with lower prices make it an opportune time to purchase real estate.
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