Talking Real Estate

Tax Amendments Will Lessen Your Homes Value

August 20, 2010 by Larry D. McGee · Leave a Comment 

In the next 3 months, The Berkshire Groups Newsletter will discuss each of the proposed Amendments to the Colorado Constitution that may affect the taxes you pay each year.  We will look at this from the standpoint of the potential effect on your homes value, as well as other potential penalties to your lifestyle.

Amendment 60

To begin with we understand that the taxes we are paying have become onerous beyond measure. Many voters are understandably upset with the Federal Governments tax and spend philosophy.  However, we must be careful to separate the taxes we pay for local and state government from the Federal tax burden.  According to JS Online, Colorado ranks 46 among all states for the TAX Burden on Income.  In spite of Douglas Bruce’s continual attack on Colorado’s Tax system, our state is comparatively well managed, in spite of the many conflicting Constitutional Amendments that state leadership must contend with and a healthy reduction is state revenues during the current recession.

So what will Amendment 60 do if passed?  The amendment requires school districts to cut taxes on property in half by 2020.  State enterprises such as Universities (CU and CSU) would be levied for property taxes, as would toll roads, water authorities, and housing authorities.  Amendment 60 would reset all Colorado Property taxes to 1992 levels, repealing any elected local school district and other local tax increases.  In theory school revenues lost by these changes would be made up from Colorado’s General Fund.  The estimate for this increase is 1 Billion in today’s dollars.  The only way the state could cover that deficit (Colorado does not have a billion dollars left in its budget) is to eliminate more services or raise taxes.

But what about other local tax increases?  Has your local fire district had any tax elections since 1992?  How about your recreation district?  Before you vote for this amendment, you might want to make sure that you are not damaging important local services that your life may depend on.

The effect on your property value is incalculable.  While you may save 1/2 of your property taxes (for the average house that would be around $1,000 a year in Metro Denver) your property values will fall as a result of employers leaving the state.  The connection between responsible government and corporate location seems poorly understood by most people, but the fact is Colorado is being increasingly seen by corporate America as a business unfriendly state.  Business”s do not like paying excessive taxes, but most business’s and people understand that there is a cost to operate schools and maintain a system of higher education. Business’s provide jobs.  Property values go up with full employment, and down with increasing unemployment.  Some smaller school districts in Colorado may not be able to operate at all, and larger school districts may have class sizes increase by 50% or more.

We encourage our clients to fully understand the implications of Amendment 60 before voting on what seems to be a measure to save property taxes.  We believe Amendment 60 will cause damage to the state that will affect your property value in a very negative way.

Two final points: (1) Amendment 60 is designed to amend a previous amendment known as the Tax Payer Bill of Rights (TABOR) and (2) the language of the proposed amendment is difficult to understand and makes references to the original amendment.  Most voters simply will not take the time to understand the implications of this complex amendment.

Next month we will discuss Amendment 61.

How’s the Market?

July 17, 2010 by Larry D. McGee · Leave a Comment 

If I had a dollar for every time I have heard that question in the past 32 years, I would be on a beach sipping Mai Tai’s as I while away my retirement.  OK, maybe not, but it certainly is the #1 question asked of REALTORS® in every conversation about real estate.  So, lets try to answer the question for the first half of 2010 in the Denver area market.

Definition

First,let’s define the term “market”.  If we say the “Denver real estate market”, we are talking about a statistical area encompassing 7 counties, 2.6 million people, encompasing a  plethora of “sub-markets”.  Each “sub-market has it’s own story, and we will get back to that concept shortly.  It is also important to understand the point of view of the inquirer.  If you are a seller, you want the market to be strong, with more buyers than homes available to sell, and prices offered exceeding prices asked.  If you are a buyer, you want prices to be low, or at least low enough to buy a desirable property with your available buying power.  The market is simply a snapshot in time of available product, average and median prices, and the number of buyers and sellers engaged in the market at that moment. Of course we can, and do, analyze the market in hundreds of different ways to satisfy various economic and investment models, but the simple definition works for most of us.

For the purposes of this article, the “market” is the snapshot taken at the end of June for homes sold in the first half of 2010 in the Denver Standard  Metropolitan Statistical Area (SMSA).

So, How’s the Market?

Simple answer.  Better than 2009. Also, artificially stimulated by offering a tax credit for many qualifed buyers.

Metro Denver MLS Data supplied by Metrolist for the single family market (both residential and condo) reveals the following:

 2010 Year-to-Date as of June 30 showed a total of 28,395 contracts written, and 20,990 contracts closed. For the same period in 2009, there were 29,030 contract written, with only 19,363 having closed. That is a “fallout” rate of 33.3%, where as in 2010 the “fallout” rate has improved to 27.7%. That means that buyers are more capable, and more stable in their decision process. Another important “market ” statistic is the average residential price, which was $284,000 in June of 2009 and $299,000 in June of 2010.  That is an average price increase if $15,000 in the first half of 2010. The median price, a better indicator of market strength than the average price, improved from $237,500 in June of 2009 to $244,500 in June of 2010. Mortgage rates are .68% better today than at the same time last year, the lowest rates since the 1950′s.  Jumbo mortgage rates are available today at 5.5%, better than the best Fannie Mae conforming mortgage rates of 2007, the very peak of the recent housing market.

Your Market

Earlier I mentioned “sub-markets”.  In a market area as large as Denver, there are many such “sub-markets”, which are defined by area, type of property, or price range.  Some sub-markets are still coping with large numbers of foreclosed property, which deflates prices and depresses the condition of the neighborhood.  Other sub-markets are stronger, with multiple offers seen during the mini-frenzy of the stimulated April market period. June sales in the million $$+ market showed improvement, and many well planned or close in neighborhoods are riding out the “housing” crises relatively well.

To really understand jsut how the market that affects your particular residence, you may wish to consider asking your Berkshire Group REALTOR® to present you with a current market analysis.  If you want or need to buy or sell a personal residence, or just want the peace of mind that comes from a full understanding of how the current market affects you, please call your Berkshire Group REALTOR® today, and obtain the best and most current information available today.

Whooooosh! Sissssss!

June 25, 2010 by Larry D. McGee · Leave a Comment 

Telling Statistics

The sounds of the market retraction after the expiration of the Tax Credit are described in the headline. The number of contracts to purchase dropped 39% from April to May, and declined 27% against May of 2009.  What happened is obvious, but bears a bit of further explanation.

Better Understanding

In the months of February, March and April of 2010, the considerable benefit of the Tax Credit was well understood by the segment of the market that was in a position to take advantage of the opportunity.  While there were some folks that used the opportunity to sell and move up, the bulk of the buying market was first time buyers. The first time buyer segment rand as fast as they could to benefit, in many cases advancing an anticipated home purchase by as much as a an entire year or more.  In other words, there won’t be as many first time buyers available to the market as might have been the case in a “normal” market.  Of course, we really do not know what a normal market looks like at this time.  Looking back, we probably have not seen normal for the better part of a decade.  The buying frenzy that so destroyed markets like Phoenix, Las Vegas, and much of Florida was influenced by monetary factors, not housing demand factors. While the Denver area market did not “heat up” like the aforementioned markets, Denver suffers from the the national backlash of frozen (or at least very cold) mortgage money and reactionary over regulation that accompanies economic downturns.

The Future

Some folks will buy and some folks will sell.  there is always a real estate market. The market many not be as brisk as everyone concerned would like, but in a city the size of Denver, the market will have activity.  The difficulty is not so much the desire to buy, but rather a combination of tight money, consumer apprehension, employment concerns, and overreaching regulatory issues.  The financial services industry has not come to grips with the collapse of the market in 2007-2008, the regulators are running rampant, now creating regulations that conflict with previous regulations in their attempt to appease the voting public, and high unemployment and Federal debt continues to drag the economy.

Our new “normal” in the housing market will be defined by the next two years, as the political landscape changes, mortgage money will become available from other sources besides the banking industry, and unemployment is slowly reduced.

After the Tax Credit

May 18, 2010 by Larry D. McGee · Leave a Comment 

The Tax Credit for home buyers expired on April 30.  This ends 18 months of some kind of Federal assistance being offered as an incentive to home buyers. While the incentive spurred homes sales over the past year, in in fact was probably a life saver for much of the real estate segment of the economy, it is time to let go.  The “market”, meaning the overall national real estate market, must find its equilibrium and be allowed to create solid ground without artificial stimulation. The timing of the cessation of the credit is the best possible for the Denver market, as the next 4-5 months generally are the peak sales months in the Denver area. 

While the tax credit may be a fond memory, there are a few other positive things to consider about the Denver real estate market.  Interest rates continue to hover around 5%; the number of employed people is 91.5% of the available labor market; home prices are still $50,000 below their peak in 2007, which is great for buyers; and prices continue to increase, which will continue to provide relief for sellers.  The home building community is showing a bit of life, with permits for new single family construction up 125% over the same time last year (STLY).

During the National Association of REALTOR®meetings held last week in Washington, D.C., the conversations regarding the market were generally self-described as “cautiously optimistic”.  Many markets around the country have been subjected to much worse conditions than has been the case in Denver.  Most of national reporting of the real estate and builder market is focused on population centers on the East coast and Southern California, and not reflective of markets like Denver, Omaha, or Dallas.  So, as of this writing in mid-May, 2010, we remain “cautiously optimistic”.

The Forbes Flap, Dissing Denver

April 18, 2010 by Larry D. McGee · 2 Comments 

Background:

It has been almost 2 weeks since Francesca Levy wrote and published an article on Forbes.com stating that Denver is the second worse housing market in the country.  The article was picked up and republished by Lani Rosales at AgentGenius.com, which has a large audience in the REALTOR® population.  Kristal Kraft, a Broker with The Berkshire Group in Denver was astounded to read that the homes for sale inventory had increased by 27% in the past year according to the Forbes.com article.  Metrolist Inc., the Denver area MLS service provider, had just provided statistics that indicated that the available inventory had declined year over year since early 2008, with average and median prices steadily increasing since early 2009.  Surely, Ms. Levy and Forbes were a bit out of focus. Where were her numbers coming from?

Pursuit:

The grassroots anger over this obvious misstatement of the facts as they were understood locally became a firestorm, eventually involving Denver Mayor Hickenlooper, and countless other professionals, both in and out of the real estate business. At issue was the source of Ms. Levy’s data.  After repeated efforts by many, including John Rebchook (Inside Real Estate News), Peter Neiderman (The Kentwood Company), Melissa Olson (Metrolist) and Ms. Kraft, it was revealed that Ms Levy’s source was none other than Zillow.com.  Using Zillow.com as a market data source is, at best, suspect; and at worse, simply irresponsible.  Somewhere back in journalism school, Ms. Levy was certainly taught to verify sources.  In the broad sense of the term, Zillow.com is in the advertising business.  Quoting Zillow.com for accurate real estate inventory statistics is similar to scanning the New York Times classifieds to see how many homes are for sale in Brooklyn. You can derive a number, but it does not mean much.

Damage:

So, damage has been done, certainly at the micro level, where at least one buyer was overheard canceling a contract because of the story; and at the macro level, where the story has been repeated in other media, both national and local.  The word is that Ms. Levy is about to publish another story delving deeper into the variance of real estate statistics.  We can only hope her words will be kind, or at least fair, and that she has learned to really verify her sources.

Truth, Damn Lies, etc.:

While no one, least of all me, wants or expects any media venue to sugar coat the state of the real estate market, it would be nice if the stories were fair and the information sources were at least somewhat accurate.  The fact is that the available housing inventory in any market is very difficult to portray accurately, and national aggregators simply cannot get the job done.  Most MLS systems do a good, but not perfect, job of showing the inventory for sale as offered by the MLS members.  Missing of course, are For Sale by Owners (FSBO’s), some builder inventory, and some foreclosure inventory.  At issue is consistency.  Tracking an authoritative data base such as Denver’s Metrolist may not show every property available for purchase, but the tracking and reporting is consistent, has been for many years, and is very reliable.

Those that helped:

By the way, a few acknowledgements are apropos: Patty Silverstein, local economist and professional researcher, whose own analysis of Zillow.com data found less than 32,000 homes on the market in the 10 county Denver MSA; John Rebchook, late of the Rocky Mountain News, a professional journalist that picked up this story and did not let go; Kristal Kraft, whose social media connections are a local legend, blogging heavily the counterpoints; Peter Neiderman, CEO of The Kentwood Company, whose reasoned letter to Ms. Levy was rebutted with a heavy touch of condescension; Melissa Olson, of Metrolist Inc., who jumped in the fray marshalling the local media and flinging statistics in all directions; Gary Shapiro at 9News for his fair and tolerant interview of yours truly on April 16; Lani Rosales at Agent Genius.com, for pursuing this story and fairly treating the local Denver statistics in a follow-up article; and a few hundred other folks from up and down the Front Range, that, without any recognized leadership, arose to take angry but measured issue with Ms. Levy’s article.

And, oh yes, the Denver real estate market is doing well, thank you.  Not without warts and pain, but well.

Next Page »