housing bubble

The cause of all your real estate problems…

March 25, 2010 by Spencer Barron

It was me.

My deepest apologies for bringing down the neighborhood with this preforeclosure listing but the truth is, I got the job done for my clients in a difficult market. Not to mention my sales in the neighborhood remain the highest priced non-builder resales. But it begs the question, How much responsibility does an agent bear when it comes to home values? Can real estate brokers actually drive prices up or down or do we simply enable the transaction allowing the buyer to pay what the seller will accept?

Some people believe that the agents are bringing down the neighborhoods. Thus, this anonymous phone call.

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P.S. In case you were wondering. There is no such thing as an anonymous anything anymore. A Google search of the telephone number, his work number, gave me his employer. An insurance company. Insurance sales people are licensed in Colorado. A half hour cross-referencing names between the licensing database and neighborhood homeowners gave me his name and address. The FSBO around the corner that had been on the market for almost 2 years.

Filed Under: Denver Real Estate, Featured, foreclosures, FSBO, housing bubble, Personal, Selling a home

The main cause of Foreclosures in Denver….

October 21, 2008 by Spencer Barron

The cause of many of the current foreclosures may be simply that there is no longer any incentive to make payments. There is no equity because there was no money involved for the home owners. There was none created by paying down principal, and there is no longer any more appreciation. It’s an important thought because most people want to believe that those in foreclosure have problems that are far removed from them. Regardless of what you believe to be the cause, it is evident that foreclosures aren’t just a result of an economic downturn. Neighborhoods with a lot of foreclosures reach a tipping point where even those that normally would have made the payments, don’t. A homeowner doesn’t feel like struggling with a payment when he can walk away and rent for cheaper. There is just no reason left after a 20% (or more) reduction in values. Why struggle with the payments any more? At least that’s my understanding as I try to wrap my head around this report that came out last year that fingers the price devaluation rather than just the typical woes of a down economy. It’s a page turner.

Here’s and example of the Green Valley Subdivision in Denver, Colorado

Notice that once current home values cross the value of what was paid on the 1st position loan, there is a spike in foreclosures.

Foreclosure rates in Green Valley Ranch

just to add some more perspective…

An example of a highly localized collapse of home prices common in many cities.

It’s something to think about. It’s not just a matter of a few bad loans, lost jobs and problems paying health expenses, for many neighborhoods that may be close to a similar tipping point. Because of the substantial amount of money invested into Green Valley Ranch, I would expect that they’ll recover from the collapse within 5 years as the foreclosure sales work through the system. For other neighborhoods in Denver, I’m a lot less optimistic.

Filed Under: Buying a home, Denver Real Estate, Flipping, foreclosures, Fraud, housing bubble, pricing, statistics Tagged With: Denver Real Estate, Green Valley Ranch

The Denver Real Estate Market's Long Winter…

June 6, 2008 by Spencer Barron

In 1816, the winter seemed to never end. In New England, ice on river banks was still visible in July and August. The year came to be known as ’1800 and froze to death’ or ‘the poverty year’. It seems 2008, while much warmer and comfortable temperature wise, will be the year of poverty for many in the real estate industry. The year the real estate market never really came out of the winter slow down.

The real estate market usually is subject to certain cyclical phenomena that vary by area. In Denver, winter usually brings a slowdown in the real estate market, marked by slightly lower prices and sales volume. Typically as early as January or February the seasonal market begins to turn around. Well..not this year.

This chart is a stochastic representation of real estate sales prices over the last couple years. I love technical analysis, almost to a fault. In evaluating stocks, charts like these help traders identify trends and compare the current market price to past prices to identify opportunities. To keep it simple, when the blue line crosses up through the red line, this marks the best time to buy in the market. When the blue line crosses down through the red line that’s when you should sell. When prices go one way when the stochastic suggests another, that’s when there might be a trend reversal coming.

Imagine how many REALTOR friends you would have if you bought and sold that often. Thankfully, this model is usually only applied to stocks. A stock’s liquidity makes it possible for it to be bought and sold in shortened time spans. While it is a poor tool for evaluating the length of a trend and potential buying opportunities, it’s great at determining cycles and safer entry and exit points.

Here are a few things you might notice by examining your market in this way.
1. When is typically the best time of year to buy a home? If we look at the chart, it becomes obvious that the best time to buy a home would be between August and February. Of course, if you look at the actually sales stats, you would notice that August might just be the best month to buy a home during the year because not only is there a slight drop in pricing, there is a larger supply of homes to chose from. Deep down, I would never suggest that you rely on the time of year as the number one reason to buy or sell a home, but it always helps to know where you’re at in the cycle so you know what to expect.

2. How has the credit crunch affected home sales in Denver? From my observations, the availability of credit for lower income and even middle income buyers with lower credit scores has significantly slowed the market. Notice how the chart shows a longer, flatter curve all the way into April (2008) compared to previous years with the market bottoming between December and February. This means sellers can expect continued pressure on high home prices. It doesn’t mean things aren’t selling, it just means your going to need to work harder, show better and price lower than you used to.

3. How long will this last? Who really knows. I wouldn’t expect to see stability return next year at this time without significant improvements in the economy. (I here Microsoft wants more sun and is considering Denver…not really but that’s the instant boom I’m looking for.) Additionally, if REALTOR’s out there still think next year will be better, think again. Foreclosures are driving the market down by far out weighing the slowing local economy. Until lender owned inventory starts drying up, expect more of the incredible buying opportunities and poor selling prices. That being said, I’m keeping an eye on the price of ownership when compared to renting, the ratio of home prices to median income, the economy and inflation. There are encouraging signs and improving signs in many of these statistics.

If you saw one of my previous posts regarding the real estate bubble, you would know I don’t believe Denver is a true bubble candidate and thus has a shorter fall. I would expect that prices would continue to decline through Spring of 2009 finally bottoming during that Summer. I wouldn’t expect an immediate recovery either. Prices will likely stabilize before racing back up. Denver homes will start to look pretty affordable by spring of 2010. To arrive at that, you have to make a few leaps of faith regarding inflation, demand and foreclosures peaking this summer. But I’m sure I’m still more accurate than NAR’s method.
Sometimes though, an opportunity can come along that would likely never come again. Housing is very inconsistent and resists almost every opportunity to have an absolute value price. Most great opportunities will appear only for a couple of days before a savvy waiting investor would pounce. At this moment there are hundreds of homes in Denver that didn’t last a week on the market before being snatched up. If it’s a good deal, it’s a good deal. Who cares if you could of saved $5000 here or there when you get what you want and it has a great long term outlook either for you and your family, your pocket book or both?

Not to mention, the smart money loves these down turns. They need them to get into positions they couldn’t normally get into in strong upswings.

A long bottom can represent a real opportunity for some people in some areas. Of course, in most instances, we don’t usually refer to ourselves as the smart money, though we all wish it to be true.

Filed Under: Buying a home, Denver Real Estate, housing bubble, statistics

Condo Conversions and the Dark Underbelly of the Subprime Mess

February 19, 2008 by Spencer Barron

I just walked out of the second recent condo conversion in a month that I saw back on the market way at about 30% of what it had sold for. It had been ‘flipped’ in 2006 by some investors. In my humble opinion, it seems suspicious to me when large numbers of foreclosures show up all at once in the same building. There were eight or nine lock boxes on the door. Postings in the windows. hmm…

If you know me, you know that this is what I do. I want to know why and how, so, I did a little checking in the MLS and public records.

The unit I saw had previously sold for $204k but was now listed at $60,000 in a building that every unit had previously sold for over $150k. A few even sold for up to $250k. What makes it suspicious is that there were no real upgrades to justify 204k. In fact, the value today is probably about $80,000 if it was cleaned out. No electrical or plumbing upgrades to the building. Some newer windows and a few new light fixtures in the hallway. That’s it. Now it is possible to get $160,000 for this type of unit if it’s done right.

Some developers who do a killer job on the conversions do make top dollar. They add roof top decks, change the curb appeal, improve all the common elements and put about $30,000-$60,000 into each unit upgrading the kitchen, bathrooms and finishes. The units I saw at this place weren’t like that. For this building though, the appraiser would have to be blind not to notice that the doors were missing handles and nothing that was described in the MLS was actually completed. (business center, fitness room, etc..)

It’s painful to see because you really don’t get a redo on a condo conversion. It’s to late. The building is still a dump. Can you imagine trying to coordinate an overhaul of the building with 24 different owners. It’s going to be a blight to the neighborhood for a long time.

They bought the property for $2.9 mill and sold the units for a total of $4.8. 15 days after they closed on the property, they were already selling them. 6 at a time. Many of the buyers bought multiple units. They were 80% sold out in 2 months. In the middle of winter during 2005-2006. That was not a great time for selling condos, even nice ones.

It seems like if you wanted to make 1.8 million fast the dirty way, you could get people who were going to file bankruptcy purchase these properties using stated 80/20 loans. The paper values would support the apparent protection of the 1st lender and the 2nd would be carried back by the seller. It’s all just funny money right? Seller kicks back some money to the buyers for the ‘service’. The buyers then try to rent the properties out and never make a payment. When it all goes south, they just walk and let the properties foreclose. Now, I’m not saying that is what happened here, but I do think it happens.

I know there are people who believe that the only one they’re hurting when they do this is the lender. That frustrates me. It gives the entire industry a bad name. Especially when a lot of people need to work together to decieve the lender. It’s no wonder that the agent that listed the property had his license just long enough to do this deal then leave the business by going inactive. The building had been listed as having an agent owner so he must have been involved. I wonder what his employing broker was thinking. Probably wasn’t. I wonder if the buyers weren’t actually in on it and had their credit ruined by an investor who made a lot of promises he didn’t deliver on.

I’d love to give you the address and name the players…but that seems to get people in trouble. No, I can’t flat out say that there is some fraud involved but it makes you wonder doesn’t it.

Filed Under: Denver Real Estate, Flipping, foreclosures, Fraud, General Interest, housing bubble Tagged With: Denver Real Estate, Mortgage fraud

Who would actually pay price the builders are asking?

December 17, 2007 by Spencer Barron

I noticed that many builders have inflated their abstract pricing on their inventory in order to offer better incentives and offer ‘dramatic’ price cuts so that buyers feel like their getting great deals when they buy a new home.

I recently sold a home in the Village at Centennial near the Denver Tech Center where the builder was offering the same home at $505,000 even though they hadn’t sold a home like it for more than $450,000. In fact, the majority of the similar home sales were around $425-$440k. This method has helped the builders maintain their net in the face of foreclosures appearing on the market. In fact, it actually helps keep the lenders from pricing their homes to low. The BPO (Broker Price Opinions) usually include price of homes that are currently for sale. So even though the foreclosed homes are trashed out, they are priced just under what the builder will accept new. And of course, the buyers leave like they’re getting a great deal.

I talked to the sales rep in the office about their current inventory and he admitted that he had the ability to move as much as 15% off of the list price depending on the ‘read’ he got off of the customer. That’s the sort of thing that doesn’t bode well for the current homeowners that may have paid too much. Especially when they get in a need to sell situation like a job change. It also tells me that most unrepresented buyers are like deer in headlights when they walk into the sales office.

Funny part is, most buyers still fall for the ‘base price’ system where they hook you with a lower price while showing you a better product in the model. They then either raise the price or act like their giving you a deal by offering you incentives in upgrades.

When a builder is offering $50,000 in upgrades, it makes you wonder, how did they arrive at that number?

Filed Under: Denver Real Estate, foreclosures, housing bubble, Marketing, Negotiations, pricing

What Bubble? Denver's real estate market is bucking the trends.

November 6, 2007 by Spencer Barron

Denver Real Estate Bubble

A study released on October 31,2007 by S&P Case-Shiller shows Denver leading the country in price appreciation. While the numbers are not staggering, Denver’s subtle growth marks a stark contrast from the drastic price drops of other cities across the United States.

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