Metro Denver Market Stats/Economy

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

Not that I am really sure just what that means, except that it is the opposite of misplaced optimism. I bring it up because I was “accused” last week of having “misplaced optimism” with regard to the real estate market. So, with my usual introspective take on the really silly things people say, I started to think about “misplaced optimism”. Just exactly what could that be? When could optimism ever be misplaced? Does “misplaced” mean that I should not express optimism? Or that optimism is in someway lost? Or If I, or the collective we, just do not want to recognize positive anything? And, if “optimism” is indeed lost, just where should I go searching for it?

Just so the average member of the home owning or wannabe home owner public is up to date, there is a large group of “optimistic” investors wandering around buying residential real estate. Lots of it. They are renting them out, covering the debt, and waiting patiently for the market to rebound. Grasping the fact that all markets move up and down is not a discussion of optimism, it is a discussion of and understanding of basic economics. It’s only been two years when the average American was buying real estate at a furious pace, using loan vehicles that transferred all the risk of borrowing to securities investors trying to get a bit more profit than made good sense. There was not even a hint that the market was at the peak. Just as few people recognize the peak of a market, if is also true that few people recognize the valley of that same market. And those securities investors forgot about the market also. If I owned stock in Merrill-Lynch, I would be furious today that a small group of greedy managers (who no doubt walked away with really big bucks) flushed both the company and my stock value.

In Denver, we are no longer in the valley’s creek. The Denver market has started slowly up toward the next peak. The operative word is “slowly”, because this time around it will take awhile for the the capital markets to re-establish themselves and create equalibrium in mortage loan origination’s. But, it will peak again in three years or ten. That is probably way to long for the average American, but long-view investors will get rich from Joe Citizens impatience.

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

I took one last look at downtown “Demver” today…well, actually two last looks-one in the late morning accompanied by Janet Marlow, TBG’s VP in charge of everything and a second late afternoon trip with wife and business partner Kristal Kraft. The first trip was billed as a property search tour, with DNC rubbernecking thrown in. The second trip was rubbernecking on steroids, with Kristal’s ever present camera clicking away the whole time. Surprised we did not get detained by any one of a couple hundred cops on the beat for overzealous shutter clicking. Both trips featured an overwhelming police presence. COPS on every corner, dozens of COPS on bikes, cops on Harleys, SWAT team cops hanging on the foot racks of a Ford Expedition, COPS in black Chevy Tahoe Hybrids with way cool DNC license plates, COPS in cleverly disguised unmarked cars, COPS on horses, a whole squad of COPS dressed in riot gear with blue plastic handcuffs dangling-COPS from Aurora, Commerce City, Brighton, Boulder-I am sure everyone is in the act. As an ex-COP, I was impressed-a bunch.

Security is silly tight. Fences and concrete barricades, bomb smelling dogs, massive dump trucks barricading gates to the Pepsi Center, RTD buses stashed close by with COPS and Sheriff’s Deputies as escorts( to carry violent demonstrators off to the warehouse pokey). Plainly visible to anyone looking are Secret Service and F.B.I. Agents, and lest we forget, Colorado Highway Patrol Troopers and military and police helicopters circling above.

As we drove home, we passed by a hotel located close to our Lone Tree home (the southern boonies 20 miles from the convention). Spotted local Sheriff Deputies just hanging around watching the limos and folks with “creds” hanging around their neck. Get it yet? Metro Denver is SECURE!!

While I certainly understand the supposed need for this massive outbreak of protection, I question why the need for the whole event, considering it is really just a christening party. And if you think my concern is directed only at the Dems, I have the same thoughts regarding the Republican party in Minneapolis. OK, there is an upside. Denver (and Minny) get fantastic world wide media attention. Assuming that the “Wackos” don’t crawl out of the dark places and spoil the party, Denver will certainly profit from this exposure. The weather is supposed to be good to great, the world will note that there is no snow on the ground, building cranes announce prosperity everywhere, light rail hums along, and there are no visible “street people”. “Demver” has worked very hard to put it’s best foot forward, and doubly hard to make sure no one steps on that foot. I hope the party is great, everyone goes away happy, no one gets hurt, the “street people enjoy the movies, (where did you think they went?), and the clean-up is quick.

My best wishes to the thousands of police and security people. Here’s hoping your worst problem is helping a lost Democrat find their hotel.

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

I am dropping out. Out of the negative. Tuning in to the positive. Turning on to the idea that the media is not where I want to be.

With apologies to the 1970’s counter culture, I have dropped out of the media quote game. Just like many other people, I like to see my name in the newspaper, and have enjoyed seeing my name in lights many times lately. But stroking my ego is not helping me, my company, the market, or the consumer. I know the local Denver dailies will miss me (not) but there are plenty of other industry professionals that will continue to damage their own business and the market by feeding the media lots of great info that will be printed as negative. Good luck to all.

Please understand that I do not have rose colored glasses. The national economy is hurting, and housing/lending practices are a big piece of why that is true. Residential home sales values have declined 13% since late 2005. Capital market losses are large, and when the dust settles, we may find out just how much capital disappeared.

So having acknowledged the obvious, let us move on. The United States today is a consumer economy. Simplistically, that means the economy functions well if all of us have money and are spending it. Today all of us have less money for a variety of reasons well documented in the media, and therefore we are spending less money. But are things really that bad? I think not, so please consider:

The gross domestic product (GDP) in the second quarter of 2008 was $14,256,500,000 That is up $144,000,000 from the first quarter of 2008. In spite of the negative press, we are still making scads of money. And we are still the largest economy in the world, by a bunch. There has not been a decline in present dollar GDP since WWII.

69.1% of Americans owned homes in the first quarter of 2005. That was the highest percentage of American home owners on record.

68.1% of Americans owned homes at the end of the second quarter of 2008. That is a loss of just ONE PERCENT!

The 1% loss of consumer ownership did not mean a loss of the homes. It just means the ownership of those homes was transferred. To Banks. Or, more specifically, to the Real Estate Owned (REO) Departments of various financial asset organizations. The REO’s will sell those homes (with a reduction in value, or loss of capital) to investors and new homes owners.

According to Realty Trac, which keeps up with these things, 99% of American homes are NOT in foreclosure. They choose not to say it that way, but 99% not having a problem sounds a bit more positive than focusing on the negative.

Home owners that do not need or have to sell at his time are not affected by any losses in value. Losses are realized at time of sale. And some markets across the country are having value increases.

Hang on people, the market will recover.

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