Real Estate Market Conditions in Colorado’s Front Range - August 2012Posted by Malia Maunakea on Thursday, August 16th, 2012 at 2:58pm.
The real estate story of 2012 in the Front Range continues to surround the lack of inventory and many buyers entering the market soaking up the limited quality homes on the market. This has led to several sellers we represented receiving a favorable price and terms on their homes but on the flip side it has created challenges for several buyers we have represented successfully and others that are still seeking a suitable home. This month I wanted to touch on some of the reasons why we have a lack of inventory in our market place. This is more anecdotal to what I am seeing in the field and in practice and not a data driven scientific study. As one of my clients this weekend said, residential real estate tends to be “more art than science.”
A few factors I see are:
1.” If I sell where do I go next??” A number of my clients and would-be home sellers would like to sell and move to a different home (whether downsizing for empty nesters or growing families seeking more space.) The most common concern is that if we get their house under contract, there is little to no acceptable inventory currently available, and they may have to “settle” or face the unsavory possibility of renting short term and moving twice. I personally have a number of clients on the sidelines for this very reason and in talking with my colleagues they have the same issue.
2. “If I move I can’t get another loan!” The change in the mortgage markets has handcuffed a number of buyers from being able to purchase again or obtain enough purchasing power to justify making a move. In the glory days of the market (until 2008) obtaining a mortgage was very easy with the NINA (No income documentation / No asset documentation) known as “stated income” or “drug dealer” loans. While we can debate the pros and cons of these loans and the policy behind them, they made purchasing a home much easier for those that are self employed, derive a substantial amount of income from passive income, have complex tax returns with write offs, or have inconsistent income that can be tough to document (sales people earning commission and service workers dependent on tips). This is very challenging in the Boulder Valley with a number of folks that fit the self employed/entrepreneur and/or passive income profile not being able to obtain adequate financing (there are cases of very financially responsible individuals unable to qualify for a loan). The homeowners that fit this profile were able to get financed easily before 2008, are now faced with the prospect that if they sell their house they may be unable to obtain a new loan.
3. No equity / upside down – “If I move can I really move UP?” While the Front Range of Colorado has weathered the housing crisis better than most areas of the country, there are certainly pockets that have been hard hit and values have fallen substantially and home owners are under water and stuck (this receives lots of media attention). What does not receive as much press is the homeowner who may be in a stronger area but has not seen any substantial appreciation or only a very small loss in value, in essence they have “flat lined”. These homeowners also don’t have enough equity to move up after the cost of sale, etc. and they are also electing to stay put. They aren’t “distressed” and may not show up in statistics but they are merely stuck.
4. Remodel – Another trend I have seen in recent years (post 2008) is that more and more home owners are electing to remodel or add on as opposed to selling and moving up. This is primarily driven by the three factors above, and coupled with the lack of inventory some owners feel the best way to get what they want is to add on or remodel.
5. “I’ll just rent it” – In some cases, sellers have chosen to rent their properties as they are unable to achieve the sales price they need and/or want in the market. With the combination of a strong rental market and cheap money, some owners are able to make their properties kick off positive cash flow while they hope for a further market recovery. I don’t generally advocate this approach for “accidental landlords” (non real estate investors) as selling a property with a tenant in place, as it generally does not achieve the best sale price since the tenant has no motivation to show the property. In addition there are the headaches of managing the tenant, and reconditioning the property for sale. Other owners decide to stop trying to sell and rent it for a year or two before putting their property back on the market. These rentals have taken several homes out of the sales market.
6. “Shadow” Inventory Myth - In recent weeks, we had several discussions with clients and colleagues about the concept of “shadow” inventory (homes that have been repossessed by banks via foreclosure but have not been released for sale). The theory is banks are holding these homes back to maintain a tighter supply and support prices as opposed to flooding the market with foreclosed inventory. This concept has caught some national media and while I have no doubt there is some validity to this in several depressed markets I am not seeing this take hold in most of our market. I watch the public trustee sales every week and generally when a property is taken back by the bank I see it back on the market within a few months. Perhaps in Weld county and some other challenged areas this will have an impact but on most of Boulder County and central Denver I don’t see this trend as a primary root cause for our lack of inventory.
While all of these factors present some challenges, there are a number solutions and ways to work around them. Call me at 720-254-3590 if you are contemplating a move.
Estey Realty Group
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