CHECKING IN ON OUR 2009 PREDICTIONS

On January 10th of this year, I sent my 2009 market forecast to about 100 past and current clients. I also blogged about my predictions for 2009 in a series of posts that you can find in this space by clicking on the JANUARY tab in the lower right corner of this page.

Ten months later, it’s time to see how I did. Here are the primary predictions I made in January, along with what happened as 2009 unfolded:

Prediction #1 – Prices below $250,000 to stabilize and recover in most areas

Result: Spot on. In fact, especially below $200,000, many areas saw appreciation between 5 and 10% over 2008 as first-time buyers poured into the market, attracted by lower prices, low rates and the $8,000 first-time buyer tax credit. 2009 was a great year to buy an entry level home.

Prediction #2 – From $250,000 to $325,000, values will stagnate. Above $325,000, they will fall.

Result: Again, pretty accurate. While the market below $300,000 generally held up, above $300,000 we simply did not have enough consumer confidence to support the inventory of homes available in the market. Above $325,000, values fell almost everywhere.

Prediction #3 – Above $600,000, losses in value will be severe.

Result: Lack of affordable financing, economic concerns and corporate downsizing destroyed the move-up market in 2009, with many homes high end properties absorbing six-figure losses in value. Anyone looking at purchasing a higher-end home needs to be extra-cautious right now, because the conditions that drove values up from 2000-2005 (easy financing, low rates, consumer confidence) are gone for the foreseeable future, replaced by tight credit, higher rates (for jumbo money) and systemic fear of job loss and downsizing.

Prediction #4 – Interest rates will spend more time in the 6’s than in the 5’s.

Result: Wrong-O! I saw the “trillion dollar money bomb”, otherwise known as the stimulus package, unleashing a series of unintended consequences that would drive rates higher throughout the year. The Federal Reserve responded to the threat of higher rates by agreeing to purchase over $1 trillion in mortgages at discounted rates, which held rates in the low 5s for most of the year. But trust me, sooner or later rates will boomerang into the 6’s, at which point the refi party will be over and home buyers who don’t take action today will see their purchase power erode.

Prediction #5 – Foreclosures in the Denver Metro area, which fell by 7% in 2008, will fall by an additional 12 to 15% in 2009.

Result: Through the first seven months of the year, foreclosure filings in the seven-county Denver metro area had fallen 6.4% year-to-date versus 2008. Keep in mind that the 7% decline last year and the 6.4% decline so far this year puts us nearly 15% below our 2007 numbers, so clearly the flow has slowed. This has been especially evident to first-time buyers, who have been frustrated during the second half of this year with extremely limited inventory and intense competition (see my post from August 20 on “The Best Days to Buy a Foreclosure” for more information about this subject). But ultimately I thought we would see a greater effort from banks to process loan modifications and short sales to stem the tide of foreclosures. Guess I underestimated the callousness and stupidity of banks.

So what’s coming in 2010? I have some specific ideas which I will share in the space next month, but to preview… expect more of the same. 2010 is going to be a lot like 2009, but perhaps with some improvement in the $250,000 - $400,000 market during the first half of the year, spurred by the new “move-up” tax credit signed into law by the President on Friday.

But here are some basic tenants to keep in mind: 1) houses are no longer ATM machines; 2) don’t buy a home if you don’t plan to live in it for a while; and 3) “buying it right” is the key to making a good long-term investment.

Private home ownership has always been at the core of the “American Dream”. But it’s never been more important to do your homework up front, and it’s never been more important to hire a professional who understands the market to protect your interests in these tumultuous times.

TAX CREDIT EXTENSION JUST ABOUT A DONE DEAL

I've tried to stay away from "over-analyzing" all the rumors, lobbying and grandstanding about the proposed extension of the $8,000 first-time buyer tax credit. Either they will or they won't, has been my feeling, and beyond that I have just been focusing on business as usual.

Today, however, it looks like we have concrete news...

U.S. House of Representatives just voted 403 to 12 to extend the home buyer tax credit, expanding the parameters to include existing homeowners and not just first-time buyers. As it now stands, the federal tax credit will be extended through April 30, 2010, with a 60-day extension if a binding contract is in place prior to the deadline.

First-time home buyers will continue to be eligible for a tax credit of up to $8,000, while existing homeowners will be eligible for a reduced credit of up to $6,500. To qualify for the $6,500 credit, existing homeowners must have lived in their current residences for at least five years.

The bill also increases the qualifying income limits from $75,000 for single tax filers and $150,000 for joint filers to $125,000 and $225,000, respectively. The purchase price of the home is capped at $800,000 in both instances. Under additional provisions included in the bill, taxpayers can claim the credit on purchases completed in 2010 on their 2009 income tax returns.

The legislation maintains the provision that home buyers do not have to repay the credit provided the home remains their primary residence for 36 months after purchase, and waives this requirement for active duty military personnel who move due to a military order.

So round two of the tax credit looks like its going to benefit a new class of homebuyer - the five-year homeowner who has been looking to move up (or move down). This figures to give some more push to the $250,000 - $400,000 market, which has been flat, and so sellers in this price range should start thinking seriously about taking advantage of this coming wave of new buyers.

REALTY TRAC PLACES DENVER 47TH IN FORECLOSURE FILINGS

Remember when Colorado led the nation in foreclosures per capita in 2006? Or when we were 7th in 2007? Although there are still troubled spots in certain areas (mostly outlying suburbs), the "big picture" continues to get brighter and brighter for the Denver metro area.

RealtyTrac's third quarter foreclosure filing data was released this morning, and the Denver region now ranks 47th among the nation's largest metropolitan areas for new foreclosure filings with 0.89% of homes in some stage of the foreclosure process. Las Vegas, ranked at the top of the survey, has 5.13% of its housing inventory in some stage of the foreclosure process.

Third quarter filings in Denver were down 1.58% from a year earlier, despite the downturn in the economy over the past 12 months. By comparison, foreclosure filings were up 105% in Salt Lake City, 80% in Reno, and 53% in Las Vegas during the same time.

Cities in California, Arizona, Nevada and Florida accounted for 19 of the top 20 foreclosure hot spots in RealtyTrac's report. Greeley, at number 33, was the worst performing Colorado region on the list.

EMBARRASSMENT TO THE PROFESSION

Not calling out any names here, but here's my favorite picture of the week from the MLS.

This is a home for sale in Green Valley Ranch - a short sale, of course - where the agent's commitment to quality marketing went all the way to rolling down the passenger window, but not to the point of actually getting out of the car to take this marketing photo.

How can agents realistically expect sellers (or banks) to pay full commissions when they are too lazy to get out of the car and actually photograph the home? Come on, the sky is blue, I bet it's at least 60 degrees!

For the record, I consider photography to be one of the critical elements in marketing a home for sale, which is why I hire professionals to photograph and stage my listings. We are in the "first impressions" business, and what I see here is that if the seller's agent is too lazy to get out of the car, then how in the world is she going to get the bank to sign off on accepting a short sale?

NATIONAL HOUSING DATA CONTINUES TO SHOW IMPROVEMENT

Interesting chart today addressing some of the "big picture" national trends affecting real estate.

The three charts below show national housing inventory, sales of existing homes and the pending sales index through September.

It's pretty easy to see there has been marked improvement in all three areas - listings on the market have fallen from an inventory of 12 months in January to less than 8 months today; sales have rebounded strongly through the summer months to an annualized pace of 5.6 million; and the pending sales index is up nearly 30 basis points sinice bottoming out at the start of the year.

As the debate rages over extending or even expanding the first-time buyer tax credit, these charts are at the center of the discussion. Has the tax credit caused the rebound, or was the market already rebounding when the $8,000 tax credit was implemented? Truth is, the market was already improving at the start of the year, and the tax credit just amplified the bounce.

Should the tax credit be extended? Do we need it any more? Can we afford it? What do you think? One thing is for sure - buyers who took advantage of depressed prices, low interest rates and got the tax credit appear to have gotten a pretty sweet deal.

SO TRUE IT HURTS - BUT REALLY FUNNY

Courtesy of Kris Berg in San Diego.

ROUND ONE IMPACTED THE ENTRY LEVEL; ROUND TWO TO HIT UPPER MIDDLE CLASS

A new national study by Zillow.com and reported by the Wall Street Journal this week confirms what I have been saying to my clients for months... while the lower end of the housing market got walloped in "round one", it's the high end that's going to take the next big hit.

The Zillow study showed the allocation of foreclosures in markets around the country, breaking the pricing tiers into the bottom, middle, and top based on area median price.

The findings? While higher end homes accounted for just over 10% of foreclosures in 2005, upscale homes will account for 30% of all foreclosure activity nationally in 2009.

And lower end homes, which accounted for 60% of foreclosures nationally (and nearly 80% here in Colorado) in 2005, now account for just under 40% of all foreclosures.

The first wave of losses were driven by subprime loans and easy credit, which primarly attracted buyers who had never been able to obtain credit or financing before. The losses sustained from those loans has caused banks to radically restrict lending practices (call it "risk avoidance"), making it difficult or impossible for higher end buyers to obtain the financing they need to purchase or refinance move up homes.

Call it what you will, but the reality is that round two of the foreclosure crisis is going to weigh most heavily on the upper-middle class. This market remains the most segmented I have seen in many years, with three very different realities for buyers and sellers at the entry-level, mid-level and higher end.

This market calls for a more thoughtful examination than any market in decades, and buyers and sellers need to work with someone who understands what's driving the radical changes taking place.

The quality of your outcomes is going to be based on the quality of your information, and that is why you need serious, professional, and honest representation today.

THE BABY BOOMERS, GENERATION X AND THE MILLENNIALS

Yesterday in Fort Collins, I was part of an audience that listened to Dave Liniger, President and Founder of RE/MAX International, as he offered his opinions on the state of the United States real estate market in 2010 and beyond.

And while the next few years will be challenging due to high unemployment and record foreclosures, Liniger predicts that huge demographic changes starting in 2012 will unleash the next national surge in real estate values.

“You’ve got 80 million Baby Boomers, many of whom are looking to downsize in the next few years,” Liniger said. “And what you see is that, for the most part, these are folks who do not want to leave the areas where they have raised their kids, made their friends and lived their lives. Many of these people are looking for lower maintenance homes in urban environments where they can enjoy their retirement without the hassles of home upkeep and maintenance.”

Because these boomers will need to sell their existing homes in conjunction with buying their new ones, there’s a huge opportunity for real estate brokers who successfully can market to this demographic.

“Then you have the ‘Gen X’ers’”, said Liniger. “They are the ‘sandwich generation’, because while there are 80 million ‘Boomers (born between 1946 and 1964) and 74 million Millennials (born between 1980 and 1995), there are only about 48 million Gen X’ers. For the past decade we have been working through a demographic trough, with immigrants helping to supply the additional demand that helped to drive prices higher. Now you’ve got the Millennials coming, and they will start to hit the market in force as first-time buyers in 2012.”

Liniger cited NAR research showing that nearly 70% of first-time buyers are age 34 or younger, meaning that a wave of Gen Y’ers (who are now between 14 and 29 years of age) will be sweeping over the market for the next decade. With new construction down by nearly 80% due to the economy and many builders having gone out of business altogether, Liniger predicts the demand for existing housing will fuel the next boom.

With a surge in housing demand coming, today’s first-time buyers can look forward to seeing appreciation in their housing investments. But today’s buyers won’t necessarily need to sell in order to cash in – by locking in low, fixed rates now in the 5 to 6% range, today’s buyers will have the option of holding on to their homes and owning cash-flowing investment properties for years to come.

WHAT WILL 2010 HOLD FOR REAL ESTATE? REMAX FOUNDER DAVE LINIGER WEIGHS IN

I was in Fort Collins this morning for a presentation on the state of the real estate market by RE/MAX President and Founder Dave Liniger. Speaking before about 250 RE/MAX associates at the Fort Collins Hilton Hotel, Liniger shared his feelings about the tough times we’ve seen in the housing market, but also about the opportunities that lie ahead.

“The market we had this year is pretty much the market we’re going to have next year,” predicted Liniger, who says that the country will have at least three more years of higher than normal unemployment as we struggle to come out of the recession.

Liniger predicted that up to 50% of all real estate transactions in 2010 would involve distressed properties, either short sales or foreclosures.

In 2005, there were only about 400,000 foreclosures. In 2010, there are projected to be 1.9 million foreclosures across the United States, with Nevada, Arizona, California and Florida accounting for over one-half of the total.

Short sales continue to be the most frustrating segment of the market nationally, with just one in nine listed short sales closing successfully so far in 2009.

The vast majority of short sales end up as foreclosures, with banks often leaving tens of thousands of dollars on the table because of their unwillingness to accept short payoffs.

Like many agents, I caution my buyers about the perils of short sales. I have one offer written in May that is still in a holding pattern five months later, despite the fact my clients have twice “upped” their original offer and agreed to switch from FHA to conventional financing. There’s no reason (other than stupidity) that the bank is leaving this offer on the table as the foreclosure sale date looms.

“The banks have got to understand that they are damaging themselves, their balance sheets and an eventual recovery in the market with their stupid policies regarding short sales,” Liniger said. “If the banks can start to process this backlog of short sales, the sellers who are losing their homes today could be back in the market in as soon as two years. But when they foreclose, people see their credit damaged far more severely, and it takes them years longer to get back into the market.”

Tomorrow I’ll talk about the silver lining that Liniger sees starting in 2012 – and how today’s first-time buyers could be real beneficiaries of the wave that is coming.

WINTERIZATION TIPS

The bitter cold that rolled through over this weekend serves as more than a gentle reminder that winter is right around the corner. For those who have lived here a few years, the drill is familiar. For those new to our state, here are a few tips to help you get ready for the cold season ahead.

SPRINKLERS

Shut off the water to your sprinklers and have them blown out. Hopefully, this advice isn't coming to you "too late". I saw at least three homes in my travels over the weekend where copper lines had frozen and geysers were shooting up toward the heavens. Last year, we blew our sprinklers out in early October and then had three more weeks of hot weather. This year, the first "hard freeze" hit October 9. As usual, the autumn weather here is purely random.

GUTTERS AND DOWNSPOUTS

This weekend's cold snap has thrown a lot of the trees into a panic. From here on out, we're going to have a pretty fast "turning" of the leaves, which means roof gutters and downspouts will be filling up with leaves over the next few weeks. Clean them out to make sure water (which will freeze and expand) isn't trapped, and make sure they are firmly mounted so they can bear the weight of snow and ice.

FURNACE AND HEATING SYSTEMS

Don't forget to have your furnace checked out at least every two years. Same with your gas fireplaces. Carbon monoxide in your home is a deadly serious matter (bad pun intended)... and over the past few years Colorado has been in the news more than a few times for CO-related deaths. Effective July 1, sellers are now required by law to install functioning carbon monoxide detectors within 15 feet of any sleeping area in homes with fuel-based heating systems.

SNOW SHOVELS, SNOW MELT AND WASHER FLUID

Make sure you know where your snow shovel is before you need it, and take time this week to fill your car's windshield washer fluid reservoir with a good, winter grade solution. Keep in mind, too, that your tires may loose a few pounds of pressure in the cold air and you should top them off next time you hit the filling station.

This is not a comprehensive list, but it's a good start. The important thing is to be prepared for whatever comes, and help your neighbors to do the same.

CASE SHILLER REPORTS SIXTH STRAIGHT MONTH OF GAINS

I wouldn't pop the bubbly just yet, but we'll take good news where we can find it.

Case-Shiller reported this week that July housing prices in the report's 20-city composite index rose 1.6% between June and July, the sixth straight month of sustained improvement in the national survey.

On a year-over-year basis, Case-Shiller reports an overall decline in values of 13.3%, but a loss of just 2.9% in Denver.

While Case-Shiller's information is interesting (and gets plenty of media attention), it doesn't really tell you much about the market that exists today.

Because Case-Shiller is lumping all sales together into one statistical pie, it does not illustrate the radical disparity between the hyperactive, multiple-offer driven entry level and the credit-frozen, equity-losing high end of the market.

A Denver area seller or buyer at $200,000 is living in a completely different reality than a Denver area seller or buyer at $600,000. Below $200,000, many homes are appreciating (or more accurately, rebounding from previous losses) at 5 to 10% on an annualized basis. Above about $400,000, it's hard to find any neighborhood that isn't losing value.

So take the Case-Shiller report as good news, but don't get carried away. Show me continued improvement AFTER the $8,000 first-time buyer tax credit goes away, and then you'll have me on board the recovery bandwagon.

90 DAYS OF MASSIVE ACTION - LET'S GO!

October is here, at last!

Turning leaves, crisp nights... and decisions that will shape our destinies in 2010 and beyond.

The fourth quarter of the year has always been my favorite quarter of the year, not only for the change of seasons, but because the last 90 days of the year is when those of us in real estate are faced with a critical, annual decision:

Ramp up, or shut down. Make plans, or "veg out". Accelerate hard, or coast into next year.

I don't know why agents lose focus in the fourth quarter of the year. Maybe it's the shorter days. Perhaps the colder weather turns them off.

All I know is that there is less competition, and those who are in the market are more motivated than those who work and shop seasonally.

It's true that demand among first-time buyers will fall off soon, either because the $8,000 tax credit is extended ("Whew! - more time") or expires ("Tilt! - game over"). But first-time buyers are only a part of the market, and I believe there are many non-first time buyers who have been sitting on the sidelines waiting for traffic to clear.

Either way, there is always opportunity if you are willing to work hard.

So bring it on... let's rock in the fourth quarter!