MARKET CONDITIONS

Some of the reports that I follow are showing some improvement in Colorado employment figures.  If you have been following my observations for the past few months then you know that this is the change for which I have been waiting as a harbinger of some better numbers for home sales and prices.  If those reports continue to be positive then you can look for home price improvement during 2012.  I have worked through three other real estate “corrections” and with those the bounce back was most significant at the beginning.  This time I see a more gradual and longer period for improving prices.

MAINTENANCE HINT

One of the regular maintenance recommendations made by many inspectors is to replace the beeswax seal at the connection between toilet and waste line about every five years.  I had not been convinced until a recent visit to one of my clients.  I am now a believer.  The leak and accompanying ceiling damage at the home was directly attributed to a deteriorated wax seal.  In an era of many bathroom renovations it is important that the gap between the toilet and the waste line that is created by adding cement board and ceramic tile is bridged by a designed spacer and not just filled by a second beeswax seal. Replacement can be done by some homeowners but many will be better served leaving this to a professional.

It is my hope that the type of information provided in these messages will encourage you to protect what is probably your most expensive asset and  to consider and Exclusive Buyer’s Agent for your Colorado home search and purchase.

That was when a  Denver Post reporter used information provided by a local real estate broker to announce “Metro-area home prices rise 15% over a year ago”.  The broker (who presumably provided the data) was quoted and named in the article and did not refute the conclusion.  I guess “any press is fine.  Just spell my name right”.  In my evaluation, I concluded that it was an irresponsible use of “median” data and an irresponsible conclusion.

S & P Case-Schiller Wins Again

You will continue to see me refer to Case-Schiller because they use “same house sales” to make their evaluation.  And guess what?  Denver prices are up an overall 2.6% for January 2009 to January 2010.  And what else?  The same broker who seemed to support the “15%” increase is right there supporting and being quoted regarding the 2.8% increase. (Disclaimer – The 15% increase was generated as a “median” for February of 2010 and 2009.  The 2.9% is a year-to-year for January.  Case-Schiller is a little (lot?) more conservative and waits for final data.)

Is your home value up by 2.6%?

It may well be.  But as you are reading my blog you know that I continue to maintain that values are very local and what may be true for a home in Parker, may be different for a home in Green Valley Ranch.  Talk to a professional if you need to know.

Is this 2.6% a “sign”?

I am not so sure.  The tax credit “stimulus” has had some effect.  That ends from an “under contract” perspective on April 30th and a closing perspective on June 30th.  After that we will see how the unencumbered market responds.  There is still a lot of unemployment and not much job growth and we will need to see both of those before we have vibrant housing market.

Agree, disagree, have questions?

Leave a comment and I will respond.  Or, contact me directly.  I am an Exclusive Buyer Agent (EBA).  I choose to always and only represent the interests of my buyer clients.

Russ Murray               303-721-1100, ext. 1    russ@buyerbroker-denver.com

Why can’t you believe newspaper headlines?

Because they are written to attract readers, NOT to inform.  This may be one of the more egregious misrepresentations.  If  consumers read the headline and then the article, they would likely come away believing that their house has indeed risen in value and/or that they should buy now because prices are rapidly increasing.  Neither is really true.

Why not?

Because for the purposes of most consumers, medians are not useful and gross market statistics are even less so.  Medians simply indicate are that half the homes sold above this figure and half sold below.  Consumers want to know how the market affects them.  While I could not check every neighborhood and Zip Code, I did check two areas.  One, a popular area in the City of Denver and one, a desirable area in the suburbs.

The results tell a different story from the article

Using the same methodology as the article, the Denver neighborhood showed a 16% decrease in the median and the suburban neighborhood a 6% decrease.  Even within these individual neighborhood there are varying results for individual types and prices of home.  Medians can change a lot based on the distribution of sales prices above and below.

What information can I trust?

The best will be from a market analysis prepared by someone you know and trust who is in the real estate business.  That analysis will compare your home to recent activity in your neighborhood.  Another option is to watch for articles that reflect information from the “Case-Schiller” index.  Those of you following my blog know that I place more credibility with this index because it traces “same home sales”.  Even with Case-Schiller you will want to look at the “micro”, not the “macro” figures.  Just as with politics, all real estate is local.

Need some help?

You can contact me.  I am an Exclusive Buyer’s Agent and have been representing only buyers for 20 years.

Russ Murray        russ@buyerbroker-denver.com        303-721-1100, ext 1

In the process of looking for possible homes for a client in the Parker area, I conducted a search for recent sales with the idea that those statistics would be an indication of what to expect in the “for sale” category over the next few months.

What were the criteria?

Pretty general. $400,000 to $600,000 on a minimum half acre site.

And the results were?

Drum roll.  Eight homes.  SEVEN of the eight were “lender owned” homes and most were new construction in the same community.  The sales prices were 30% to 40% under the original asking prices.

Is there a message?

Perhaps two.  One is that homes more distant from employment centers are always hit the hardest in a real estate recession.  Second is that there are some really good deals out there as long as you can see yourself in the home for 5-7 years.

Want some expert assistance?

I am a 20-year exclusive buyer’s agent (EBA) who always and only represents the interests of my buyer clients.

Russ Murray      303-721-1100, ext. 1         russ@buyerbroker-denver.com

What is the reality of home appreciation?

I have tracked several representative homes in a number of markets over 20-year periods.  That is longer than many people own homes but is representative of a longer term look at the market.  Looking at an example of a home in a south suburban Denver area neighborhood, I find a purchase at just under $200,000 in 1990 and a value today, in 2010 of just under $400,000.  At first glance, that looks pretty good.  Value up by 100%.

However, what it really represents is appreciation of about 4.0% per year.  And that is without considering the repairs, replacements and updates that would be typical over a 20-year hold.  There are many other factors to consider but those are outside the purpose of this discussion.  What I am trying to establish here is a realistic look at changes in house values.  There are some neighborhoods that have done a little better over a similar period and some that have done worse.

How should this affect my decision about purchasing?

Well, you can probably see that over an extended period that you will have enjoyed shelter and had the enjoyment of being a home owner.   The value of that shelter has kept up with inflation.  Certainly better than a car that immediately begins to depreciate and has little value after being used for 20 years.

You may get lucky and turn over your home during one of those 3 to 5 year periods of major appreciation.  You must also be prepared for the flat and depreciation times as well.

With a realistic look to the future you can make an informed decision.  Contact me if you have questions regarding your home purchase.

Russ Murray, Exclusive Buyer’s Agent    303-721-1100, ext.1    russ@buyerbroker-denver.com

New Can Be Nice!

What have the builders done?

Well, if we take a look back to the beginning of the decade, single family new construction starts were at 15,000 units per year. For calendar year 2009 the new start figure was 2,400 (not a misprint).  That is a huge reduction.  It does indicate that this time around the builders are not getting so far ahead of demand that they have huge amounts of excess inventory.  It is also significant to observe that several large regional and national builders have left the denver market.  Many smaller builders are simply out of business.

How does that affect you as a potential new home buyer?

If you have your heart set on a new home where you get to select a site and all of the options and and finishes, then you should expect that you will be paying more than if you purchased a very similar home constructed in the last 3-5 years.  How much more will depend on your negotiations with the builder.  They builders will not build below cost, but they do want to keep their activity, employees and subcontrators busy so will build a lot closer to “cost” than in the past.  If you find a new home that is esentially complete, there may be some room to negotiate price, additional upgrades or perhaps landscape.

Is there a better/best decision?

Over a 3-5 year ownership, you will probably be ahead by negotiating a purchase of an existing newer home.  It will probably have basic landscape and window coverings in place and components should not be “wearing out” over that period.

How can I make that determination?

With an experienced agent on your side you can evaluate both options and then know what the financial difference is between the new vs. the existing.  For some buyers, the incremental cost of “new” is simply worth it.

You can contact me for assistance.  I am familiar with the builders and how to negotiate with them.

Russ Murray   303-721-1100, ext. 1  russ@buyerbroker-denver.com

From time to time it is instructive to look at an area from a more “micro” perspective.  If you have read some of my posts then you know I really do not like “Denver” statistics because they so often hide neighborhood data on which consumers really need to be making decisions.

So, looking at 2008 vs. 2009 Highlands Ranch activity with the broad brush, we find a reduction in total sales 2008-2009 from 1592 to 1359 (down 15%) with average and median prices remaining pretty constant for both years at $341,000 and $301,000 respectively.  The average price per square foot dropped from $158psf to $155psf (down 2%).  Lets take a look and see if the $350,000 to $450,000 segment performed the same.

This segment represents about 20% of the homes sold in HR for both years.  The average and median prices were both down a relatively insignificant 1% but the price per square foot dropped by 5%; more than twice the rate of the market taken as a whole.

There must be some meaning here.

With relatively level average and median prices, the reduced PSF figure for the overall HR market indicates deterioration in that market with buyers able to purchase larger homes for the same price as the prior year.  With a doubling of that PSF figure for the $350-$450 segment, we can conclude that this price range is not doing as well as the overall HR market.  That should make for better opportunities for buyers.

I am curious about your specific experiences so leave a comment or give me a call.

I will address market segments in HR and in other markets in future posts.

Russ Murray               303-721-1100, ext. 1        russ@buyerbroker-denver.com

One of my friends just forwarded to me an article by Alan Gionet of CBS-4 that indicated our state population is now approximately 5,000,000 (That was a surprise!) and expected to grow to 7,700,000 over the next 25 years. (An even bigger surprise!)  The “rate” of growth is projected to be slower than in the 1990’s.  That slower rate notwithstanding, 2,700,000 people is a huge addition.  Also in the last few days I have read that the number of building permits for residential construction is down by at least 50% from 2008 to 2009 and down by 80% from 2007 to 2009.  We regularly read that water supply in the state is limited.  So, the population is growing both from births and from relocations and at the same time we are not creating new housing units and do not appear to be making progress regarding sources of water.  Colorado clearly has some major planning to do and must do that planning sooner, not later.

Why more growth here?

Quality of life is one of the attractions to Colorado.  The recent “Gallup-Healtways Well Being Index” shows Boulder as the number 1 city nationally in their well-being survey and Colorado a the number 7 state (down from #4 in 2008).  People will continue to come here and those already here are not leaving.  This post will not be lengthy enough, nor is my knowledge broad enough, to answer the question of how to reconcile the projected growth with the available resources.  I will hopefully bring some clarity to the questions.

Enough housing?

On the housing side, the system will eventually meet the demand.  It will probably be behind for awhile, at least until the banks are comfortable with speculative lending, and that will cause upward pressure on home prices and rents.  The system is not particularly efficient so during this next twenty-five years there will also be a time or two of oversupply.  The growth will also cause homes that are currently closer to places of employment to go up in value at a higher rate than the new and more outlying homes. (This phenomenon is nothing new, but will become even more pronounced.)

What about water?

Water availability is altogether another situation.  Many areas are using deep wells as a source and these levels are dropping.  The only disagreement seems to be how fast the aquifers are being depleted.  Water law in Colorado is complex and the state has agreements that require a certain amount of the runoff water to move downstream.  To make things even more “interesting”, most the moisture falls in the form of snow on the western slope and most of the people live on the eastern slope.  I did some research in preparation of writing this post and actually came away feeling better as it relates to water.  My conclusion will not make everyone happy.

From the most recent figures that I could find, Colorado agriculture represents about 90% of the water used in the state. Yes, 90%.  At the same time, agriculture employs 2% of the work force and provides just $2 billion of Colorado’s $236 billion Gross Domestic Product.  Developers and municipalities are already purchasing agricultural water rights.  That is likely to continue and suggests that there will be water to sustain significant population growth without a major effect on the GDP.  Right now, many farmers are finding that the economics of selling their water rights are better than those from farming.

We’re “good”!

S0, I think Colorado has and will have the resouces for growth.  Water may get a little more expensive and the price of housing will continue to increase.

And if you are moving here or already here and thinking of purchasing a home, you should have the most experienced and energetic Exclusive Buyer’s Agent on your side.  That be me!

Russ Murray                             303-721-1100, ext. 1        russ@buyerbroker-denver.com

Which Trend to Believe?

There are many sources.

Many local media use figures from the MLS as compiled by a real estate broker and information from industry trade groups.  As I read those reports, particularly beginning in late 2006, it was clear to me that the “compiler” was looking at the figures differently than I was seeing the same data.  I was reporting in my monthly communication to my clients that I was seeing a slow down in volume and in price increases and many other licensees were talking about price increases and the strong market.  Going into 2007, I was very busy while at the same time seeing more inventory and more negotiation.  My clients were able to make decisions based on what was really happening, not what was reported.

All real estate is local.

Yeah, I know you’ve heard that about politics too.  It is at least equally so for real estate.  Even with the overall decrease in Denver area home values over the past few years there are pockets that have done much better along with those areas that have fared worse thant the averages.  What you care about is the neighborhood where you are living or purchasing.  Be certain that if you are purchasing that your broker evaluates your prospective home using sales in the immediate area.  It is very easy to go outside and support a higher price.  If you have been diligent in your reasearch and hired an Exclusive Buyer’s Agent (EBA) then you should have someone on your side who will be doing just that.

Area trends do have value.

It is worth knowing what is happening in the overall market as those trends can have some effect on all neighborhoods and are an indication of the condition of the area economy.  So, back to the original question, whose figures to believe?  I have looked at reports based on MLS data, Zillow data and Standard & Poors/Case-Shiller data.  It is my opinion that the “S & P/Case-Shiller” methodology and therefore the results are most accurate.  It is the only system that tracks “same house sales”, has built in filters for anomolies and considers whether the sale is a “lender/seller” or a consumer seller.  The other two consider all sales and can be skewed by several extremely high dollar sales or by a proliferation of non-market transactions.

So, what is happening in the Denver area?

According to Case-Shiller, Denver is one of only four of the twenty cities that they track that showed overall price increases from November 2008 to November 2009 (The most recent month that has been released). Overall, the Denver changes show considerably less “swing” than does the 20-city index.  Also, and very interesting’ is that the same graph is heading into positive territory.

Is it a good time to purchase in the Denver area?

Probably so for many neighborhoods.  Check your target area very carefully as there are still areas where values continue to decrease.  Better yet, engage me to assist with your purchase and know that I will always be on your side.

Russ Murray              303-721-1100                                    russ@buyerbroker-denver.com

You read/heard it where?

December 2009 Real Estate Results

I do not agree with the way that the December real estate results are being interpreted by most of the media.  The theme seems to be that the extension of the first-time buyer tax credit should have caused December results to meet or exceed the results of prior months.  The problem with that conclusion is not having considered how long it really takes to get from contract to closing. (more about that in a subsequent post)  That time has increased with new underwriting and appraisal requirements so what we formerly could always do in 30 days is now taking longer.  By the time the extension was approved, there simply were not enough days left to get a transaction closed in December and because the new deadline was April 30th, there was little incentive to move quickly.

“Cash For Clunkers” and “First Time Home Buyer Tax Credit”

What these two programs have in common is that they seem to have adjusted only the timing of most purchases, not the actual decision.  Edmunds.com evaluated the CARS program and, adjusting for the autos that would have been purchased regardless of the credit, found that the cost per car to the taxpayers was about $14,000.  The anecdotal history in our office for home purchases is similar.  Of about ten first time buyer transactions following the announcement, only one person seems to have purchased because of the credit.  When you think about the process, it just makes sense.  The $8,000 could not be used forthe purchase and most of these first-time buyers are short on cash so the buyers had to be consumers who had already accumulated their needed funds.  In terms of timing, once these clients had decided to purchase, the tax credit certainly was the carrot to get them to close by November 30th.

Unintended Consequences

As we approached mid-October, probably the latest a contract could be written with a guarantee of a November closing, we did observe that sellers with homes that were ready realized the date predicament and became less negotiable.  I had to tell several buyers that they may have just “financed” the $8,000.  Still a pretty good deal at 5% or less!

Going forward looks better.  With the credit now decreasing at $2,000 per month after April 30th rather than just expiring, we should see less desperation on the part of buyers and more market-driven negotiations.

Have Questions or Comments?

Please leave any comments or questions.  I am interested in your experience as a buyer or a broker (on either side of the transaction)

If you are thinking of a purchase in the Denver area in 2010, please contact me.  I am an experienced Exclusive Buyer’s Agent (EBA) and will always be your advocate.

Russ Murray        russ@buyerbroker-denver.com    303-721-1100, ext 1