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.

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.

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”.

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.

Each week, government-led Freddie Mac publishes a weekly mortgage rate survey based on data from 125 banks across the country.  According to this week’s results, the relative rate of a 5-year ARM in Colorado is extremely low versus its 30-year fixed-rate cousin.

Consider this comparison:

• In April 2009, the two products ran neck-and-neck with respect to rates
• In April 2010, the two products are split by 0.99 percent

On a $200,000 home loan, that’s a difference of $117 per month to a mortgage payment.

Adjustable-rate mortgages aren’t suitable for everyone, but they can be a terrific fit given your individual circumstance.  For example, any one of the following scenarios could warrant a 5-year ARM:

1. Buying a home with an intent to sell within 5 years
2. Currently financed with a 30-year fixed mortgage with plans to sell within 5 years
3. Interested in low payments and comfortable with longer-term interest rate and payment uncertainty

Additionally, homeowners with existing ARMs may want to refinance into a brand-new ARM, if only to extend the initial change date on the current note.

Before opting an ARM or a fixed, speak with your loan officer about how adjustable-rate mortgages work, and what longer-term risks may exist.  The savings may be tempting, but there’s more to consider than just the payment.

Foreclosure filings rose close to 20 percent nationwide last month versus February, according to foreclosure-tracking firm RealtyTrac.com, and for the 13th straight month, total filings topped 300,000.

In addition, bank repossessions reached an all-time, quarterly record. Through the first three months of 2010, banks reclaimed more than 257,000 homes.

Nonetheless, 4 states dominated foreclosure activity nationwide.

California, Florida, Arizona and Georgia accounted for more than half of all bank repossessions. It’s a disproportionate distribution of foreclosures. Together, the 4 states represent just 23 percent of the overall U.S. population.

The RealtyTrac report revealed some other interesting statistics, too.

• Foreclosure activity was up in 40 out of 50 states last month
• Bank repossessions rose 9 percent versus the same quarter last year
• For the 13th straight quarter, Nevada topped the state foreclosure rate

Regardless of where you’re buying, foreclosures and REO are making a profound impact on pricing and product. Distressed homes are 35 percent of the overall resale market.

There’s excellent value in foreclosures out there if you know where to look, but keep these points in mind:

1. Buying bank-owned homes can take 120 days to close or more. Be flexible.
2. Foreclosures aren’t always listed for sale publicly. Some inventory is privately-held.
3. Bank-owned homes are often sold “as is”. There may be defects that render the homes mortgage-ineligible.

The REO market can be different from the traditional “existing home” market.  Therefore, if you have an interest in buying REO, be sure to talk with an experienced real estate agent first.

The federal home buyer tax credit expires April 30 and the deadline is sparking a home sale surge. It figures to burden real estate, mortgage and title offices nationwide over the next 60 days so plan your closing date accordingly.

Especially because the last Friday in May is the Friday before Memorial Day.

Now, if the connection between the tax credit and Memorial Day is not immediately clear, think of your own office on a 3-day weekend’s Friday. Some of your colleagues take a half-day at work, others take the entire day off.

Office-wide, productivity drops.

The same is true in the real estate space. Offices are short-handed ahead of a holiday so, if you’re under contract for a home and plan to close in May, consider a closing date other than Friday May 28, 2010.

And meanwhile, with 6 weeks until Memorial Day, here’s some steps you can take today prepare for other people’s time off later.

1. Notify your lender of your planned vacation time between now and your scheduled closing
2. Purchase a homeowners insurance policy and prepay the first year. Send proof of payment to your lender.
3. Have Power of Attorney forms lender-approved and signed by all parties in advance, if applicable
4. Deposit gift monies and/or retirement fund withdrawals into an acceptable bank account, if applicable
5. Schedule your final walk-through as far in advance as is realistic so there’s time to make “fixes”, if needed
6. Have your closing funds ready at least 1 day in advance

The tax credit’s expiration is around the corner and as it gets closer, real estate-related businesses are taking on more work. Basic title and mortgage tasks are taking longer to complete and that should persist for a while.

Get ahead of the curve and beat your contract dates handily. Use the checklist above and be responsive to your lender’s requests.

And, if at all possible, avoid closing on the Friday before Memorial Day and even the Tuesday after — it’s when office staffs are at their smallest.

Not all home improvements are created equal. Especially if you’re looking for “resale value” back from your work.

An article from the Wall Street Journal lays it out cleanly. Function beats flash these days so be wary of where you spend.

Environmental upgrades such as home insulation and energy-efficient steel entry doors are recovering a much greater percentage of their cost these days than major remodels including kitchens or bathrooms.  This is especially true for homes that are already “over-improved” relative to the neighborhood.

Upgrading the biggest and best homes on the block can be a losing proposition.

The article’s findings include data from groups such as the National Association of Home Builders, Remodeling Magazine, and Consumer Reports.  It lists the following home improvements among its top “paybacks”:

• Steel entry door replacement : 129% cost recovery
• Wood deck addition : 81% cost recovery
• Vinyl-replacement window : 77% cost recovery

Energy-efficiency projects also recoup costs monthly in the form of lower heating and cooling bills.

Remodeling Magazine says a larger number of homeowners will remodel their homes in 2010 with less emphasis on upgrading kitchens and bathrooms, and more emphasis on adding new rooms.  From an appraisal perspective, this is a terrific way to increase your home’s value — especially if your home’s bed/bath count lags your neighbors.

Before starting a home improvement project, regardless of whether your goal is increase resale value, talk with a real estate agent about other homes in the area and how they’re built. At worst, you’ll gather some ideas you can work into your plan. At best, you’ll keep yourself from over-improving.

As the federal home buyer tax credit nears its April 30 end-date, there’s a lot of would-be home buyers in Denver still working to get under contract.

A piece of advice for all of them : If your pre-qualification and/or pre-approval letter is more than 8 weeks old, it would be prudent to have your lender “re-pre-approve” you.  Mortgage guidelines have been in flux and your original lender letter may now be invalid.

For example, over the past half-dozen months, the majority of mortgage lenders have reduced their risk tolerance with respect to:

• Maximum debt-to-income ratios
• Minimum allowable credit scores
• Calculation of “assets in reserve”

For buyers of condominiums and co-ops, even the subject property itself is coming under tougher scrutiny.

Today’s mortgage applicants need to be a complete package. It takes more than just good income and credit to get approved anymore and today’s buyers should revisit their qualifications. What passed underwriting in January may not pass in May.

Being pro-active brings other advantages, too. If a mortgage re-pre-approval does unearth an issue, it’ll be easier for every party to the transaction to address and correct it up-front versus trying to clean up a mess once a home’s already under contract.

Talk to your agent and your loan officer about your pre-qualification/pre-approval letter before you bid on a home.

Taxes are due April 15 and if you’re among the millions of Americans who wait until the last week to file, here’s a video interview that could help you reduce your federal tax liability.

Originally broadcast by NBC’s The Today Show, the 4-minute piece reviews various tax credits and deductions, plus some recent tax law changes.  A few of the topics covered include:

• Tax filers receiving larger “personal exemptions” in 2009 versus 2008
• Unemployment income recipients being required pay taxes beyond the first $2,400 received
• The “first time” home buyer credit being extended to non-first time home buyers for up to $6,500

The interview also talks about how taking a parent, child or other family member into your home may change your tax filing status and reduce your tax liability.

Even if you’ve filed your taxes already, watch the video above. You may find that you missed a potential deduction. If that’s the case, consider filing an amended return with the IRS to recapture the credits you left on the table.  Most times, the benefits of re-filing will outweigh the costs of doing it.

Be sure to talk with your tax professional for personal tax advice.