Foreclosures

We stopped taking the newspaper a few months ago. What I miss most about the daily rag is the comics, which I guess goes to show you just how valuable the daily was in my life. Oddly enough, about the same time, I stopped watching the 10 o’clock news, which is now the “all the time” news, so I am no longer in touch with the talking heads of broadcast media. So, it was a bit unusual that as I was waiting for my plane home after an out of town conference a few days ago, I was idly watching a talking head on a television in the terminal. The talking head was speaking in sad tones about the state of the economy and mentioned in passing the national real estate market having lost XXX trillions of value in the last few years. It suddenly occurred to me that the talking head did not understand the concept of a market, as he was just reading the script. So goes my inspiration for this article.

According to Webster, a market (from the Latin -mercatus), is “a meeting together of people for the purpose of trade by private purchase“. Further, a market is a geographic area of demand for commodities or services. Real Estate is defined as property in buildings or land. So, a “real estate market” is “a meeting together of people in a geographic area for the purposes of purchasing buildings or land“. What the media is constantly referring to as “the real estate market” is really a reference to housing data compiled from thousands of markets to present simple and reportable national averages that can be addressed in 30 or 60 second sound bites.

In the Denver area real estate market, as with most markets nationwide, there are really many “markets”. Certainly there are many geographic markets, with values in neighborhoods such as Washington Park remaining steady, and values in Green Valley Ranch plummeting due to excessive foreclosures.There are new development projects such as The Landmark in Greenwood Village that are selling as fast as the builder can finish them, and other new home projects that are not selling at all. There are also markets stratified by price. Today, in Metro Denver, the price bracket of $100,000 to $200,000 is actually a sellers market, with multiple offers presented on some properties, and sales well over asking price on many bank owned homes. However, there is a glut of million dollar plus homes, with sales slowed to the level of watching grass grow.

And the “real estate market” is very dependent on another market, the “monetary” or “credit” market. With the worldwide money market in complete disarray, the housing market, as well as every other market, is captive to the lack of available credit.

The “real estate market” is much too individually specific, much to complicated, and much to local to accept what the talking heads are spewing on the nightly news. If you have need to buy or sell real property, you must take time to understand the market as it applies to your specific needs. You might want to spend time with a knowledgeable Realtor® and have an extended conversation about how your specific needs relate to the “market”.

Written by Larry D. McGee, Denver Realtor - Visit Website Sphere: Related Content

Along with many other Denver area residents I have enjoyed visiting the annual Parade of Homes, supported by the Home Builders Association of Metro Denver. As a Realtor®, I am of course professionally interested in the products, styles, and vision offered by some of the areas best custom home builders. Therefore I noted with interest the announcement in today’s newspaper of the 2009 Parade of Homes. The 2009 event will be held at McKay Shores, a high end development in Broomfield, a suburb northwest of Denver. Home prices from 1 million to 1.5 million, down somewhat from recent years. Reading the announcement led me to a curiosity moment. Knowing that million dollar plus homes are not flying off the shelves, I looked at the sales of homes in the 2007 and 2008 Parade of Homes, and then at the current available inventory of similarly priced homes.

Oops!

It appears that the very cool, extremely well designed and well built custom homes showcased in both the 2007 and 2008 Parades are not selling well. Some of the 2007 homes are now owned by the banks that financed them, and I am told that showing activity on the 2008 Parade is very slow. Seems we like to look, but do not (or cannot) want to buy.

There are 1,940 homes for sale in Metropolitan Denver priced between 1 and 3 million, the recent target prices for the Parade homes. 38 such homes sold in the past 30 days. That amount of inventory divided by that amount of sales indicates a 4.25 year supply of homes in the 1 to 3 million price range.

A much as I enjoy visiting new million dollar homes, I must question the wisdom of next years Parade. What banks are going to finance the construction, especially in light of sales at the past 2 events? Which builders really want to showcase their product, risking the embarrassment of their best not selling?

Why?

While it is probably too late to alter the 2009 event, I respectfully offer a thought on future events. Build really nice showcase products that are obtainable by the above average buyer. Make them very functional, use the best products, make them green and energy efficient. 2000 to 3000 well designed square feet, with space for 2 cars and some toys (and a plug for electric cars). With a four year supply of million dollar homes, the building community may need to rethink.

Written by Larry D. McGee, Denver Realtor - Visit Website Sphere: Related Content

As the congressional debate continues over the crafting of the what will probably become known as “Bailoutgate” or something equally absurd, I offer a few comments on today’s “bailout” news:

Bloomberg had a nice little interview with Congressman Barney Frank (D-MA) wherein Frank noted that part of the plan would include punitive restrictions on CEO’s financial compensation. This is really just positioning for creating regulatory restrictions on executive compensation that is currently based on share value rather than business accomplishment. The fear that all business leaders should have is that the finger pointing is going to affect everything in business. I would expect the bailout is going to happen, Congressman Frank noting that there is little choice but to support the idea, subject to some wrangling over the details. But the cost of the bailout will not end with the 700 billion price tag. The real cost will be regulatory zeal on a scale not seen since the 1930’s. Think of the financial crises as an unexpected fire in a crowded building, with Congress acting as untrained firefighters. Water will be sprayed everywhere but on the fire.

Just how the “bailout” will affect the housing market is any body’s guess. At the moment, the overall national housing market has lost perhaps 10% of the value it had in late summer of 2006. Of course 10% is just an educated guess, with some local markets having lost much more or slightly less. What is true is that most people are continuing to make their mortgage payment and, once the bleeding stop, the stability of those paying customers will provide the basis for a recovery. As I noted on Saturday, most people do want to own their home if possible. I believe that the home building industry will take a few years to recover, but as a builder once told me, builders build, and they will begin again as soon as possible. The public at large will begin buying homes again, for the same life cycle reasons they have always bought them.

To put a point on it, my lovely wife just returned from a convention in Vegas, where, she noted, there were mobs of people spending bushels of money. The difficulty today is that people would rather spend money playing in Vegas than buying big ticket items. Congress, recognizing that fact, and that the United States is a consumer economy, will pass the “bailout”, so that the American consumer starts spending money on Main Street. Then, watch out for the regulatory monster. It will come with indiscriminate fury.

Written by Larry D. McGee, Denver Realtor - Visit Website Sphere: Related Content

I received a request from a local attorney on Thursday to investigate a property purchased by a potential client of the attorney. The attorney had received a call from a nice lady living in another state concerned that the incredible investment she purchased in a Metro Denver suburb might be a problem.

The nice lady was receiving advice from a web based investment club, and made the purchase through a local affiliate of the investment club. The local affiliate employed Colorado real estate licensee’s. The claim made on the web site was that this property could be purchased way under market value, creating “instant” equity, and that a lease would be executed creating monthly “cash flow”. The nice lady bought the property site unseen.

P.T. Barnum was quoted as saying “There’s a sucker born every minute”. The World Wide Web has just provided a great new way to fleece the gullible, especially those looking for the fabled “great deal”.

The truly amazing thing about these so called “investment clubs” is their ability to convince otherwise smart people to buy property sight unseen using the internet. The advice from these “club” leaders is that they don’t need Realtors, because a Realtors fee just runs the price up. Some people, when offered the “great deal”, seem to go silly, and seldom seek a second opinion. Gotta grab the deal while it’s hot, can’t wait, or some other sucker will get there first.

People will believe what they want to believe, so I suspect nothing I am writing here will stop the stampede of suckers looking for a deal, but perhaps if I could save one or two people from acting stupid, it’s worth my time to write this, so please consider:

1. Do not buy an “investment property” sight unseen. In the situation presented above, the nice lady bought a really pretty home backing to a busy street that will get busier. Busy streets negatively affect value. Not to mention the 5 foreclosed properties down the street.

2. Always get a second opinion. If nothing else, contact an independent appraiser and pay a fee for a unbiased opinion. $400.00 may save you thousands of dollars.

3. If you are buying sight unseen, have the contract reviewed by an attorney. That may be good advice in many real estate transactions anyway.

4. Make sure you have escape clauses in the contract. Perform “due diligence” during the alloted time.

5. Do not obtain an “owner occupied loan” to buy an investment property. That is known as loan fraud. Participants in a loan fraud can look forward to spending time as a guest of the United States in a B&B in Leavenworth, KS. Many times, to create “cash flow”, the happy investment club lender will create an owner occupied loan on a non-owner occupied property.

6. There are 15,000 Realtors in the Metro Denver area. I suspect there are large numbers of Realtors in your neck of the woods. Every one of those Realtors are looking for a deal, either for themselves, or their investor clients. Why does anyone think that there a “secret” good deals? There aren’t.

A savvy investor can do very well buying real estate. There are no “secret” formulas or super deals. Money is made in real estate today just like it has always been made: Slowly, by people who really take the time to understand the local market and the property they are buying.

I know, you have heard all those testimonials from “investors” that have done really well. OK, understand that there really are a few great deals. They are almost always made by people that have taken the time to really understand the local market. (There is also dumb luck.) There are also “shills” chanting the incredible opportunity offered by the “investment club”. If it sounds too good to be true, take 5 steps back and slow down.

The nice lady noted above was taken advantage of by unscrupulous people that search for nice people that want to believe in the “great deal”. There really is no free lunch.

Lastly. are there good investment clubs? Of course. Any club, individual or company that is operating in an honest and ethical manner will provide verifiable information so a prospect can perform independent due diligence. Don’t be in a hurry, there will always be a deal out there tomorrow.

Written by Larry D. McGee, Denver Realtor - Visit Website Sphere: Related Content