Wednesday, February 24, 2010


A news bulletin from the Denver Post just flashed across my BlackBerry: NEW HOME SALES HIT RECORD LOW IN JANUARY.

My response: GOOD.

This story in the Post is meant to say the construction industry is in trouble, that builders continue to suffer, and that housing is falling off a cliff.

My response is different than that:


Let me explain something that I have seen extensively over the past three years. It has to do with new construction. It has to do with builders. And it has to do with changing nature of consumer expectations.

I wrote a post over the weekend called “The Consumer is Angry”, and three days removed from that post I stand behind it 100%. The consumer in America today is mad (and I could use stronger language). There is anger at government, institutions, banks, Wall Street, real estate brokers, and yes, builders.

Builders got rich during the boom. And that’s because builders sell a retail product, with thicker profit margins, because the product is shiny and new. And when times were better, consumers would pay for it. But there’s another reason that new construction soared between 1995 and 2007, and that is because anybody who wanted to buy a shiny new house could do it, thanks to the magic of “easy financing”.

Let’s talk about financing today – it’s hard to get, if not impossible. So what did that do to the buyer pool? It killed it. And what did that do to values? Caused them to fall. And what did that do to homeowners? Put them under water. And what did that do? Made it impossible to refinance, made it difficult to sell, and made it hard for many to “get out” without simply mailing the keys back to the lender and suffering the consequences of foreclosure.

Those of you who know me know that I operate in an ultra-protective mode with my clients these days. Unless you have money to burn, why would you even look at new construction right now? Builders have deeper pockets than you do, they can discount in ways you can't, whenever they need to, and most don't care what happens to the buyer once he closes.

Just yesterday, I received a promotional email from a local builder boasting about “Huge Price Reductions” at a high-profile condo tower downtown. I looked at their email and shook my head, thought about it, and then fired back a note (which will probably never be read) – “what about everyone who already paid retail to move into your development?”

So here’s what I see in the Post’s newsflash this morning – I see a wiser consumer, xxxxed off, who says he won’t be fooled again.

That’s good news.

Sunday, February 21, 2010


I ran across a post online recently from sales trainer Jeffrey Gitomer, who always seems to have a handle on how the world of sales is changing. And believe me, it’s changing.

Gitomer can say things that are shocking sometimes, but the truth is that I share a lot of his sentiments. The “customer”, as we identify him, has been laying low for the past 18 months, sorting through his stock market losses and wondering what to do next.

He’s been watching in disbelief as his 401k fell apart, his home lost value and his company dropped 30% of its workers.

Roger Daltrey once sang “We Won’t Get Fooled Again”, and I think the consumer of 2010 is singing the same song. Trust has been burned. The consumer is angry.

He (or she) is also (most likely) in worse shape financially than he was two years ago, and that means he’s coming back more cautiously, wiser, and he’s going to do his homework before signing on the dotted line. As he should.

Here’s Gitomer’s list of what the new consumer looks like, post economic meltdown:

• He's going to decide somewhat slower. He's been hesitating for more than a year.
• He's angry about the value of his home, and the value of his investments.
• He will not be doing business the same way it's been done before.
• He will not be advertising the same way he advertised before.
• He will not be buying a car the same way he did before.
• He will not be investing the same way he did before.
• He will not take your word for things anymore. He’ll need to see the proof, please.
• He's online. Checking out your blog (or wondering why you don’t have one).
• He's socializing. Telling everyone what's happening in his world.
• He's Tweeting, Facebooking, he’s on Linked-In. Social media is a firestorm.
• He's blogging about his experiences with you, for the world to read.
• He's Googling everyone.
• He's texting. A lot.
• He's using his mobile device to do pretty much everything.
• He's WiFi-ing in his hotel room, on the plane, in Starbucks, and at home.
• IF he's reading a paper, or getting the news, it's online.
• He wants technology in the transaction – his time is more valuable now.
• He is value oriented, but will look to price as part of the decision.
• He wants a relationship, based on trust, which you will have to earn.
• He wants, needs, and expects GREAT service after the sale.
• He does not want to wait for anything or anyone.
• He needs help and expert advice – but it better be legitimate.
• He's looking to you for ideas and answers.
• He knows as much about your product as you do.
• He demands the truth. All the time.
• He no longer trusts the institutions he used to hold sacred.
• He needs to be understood and feel your sincere concern.
• He wants you to know that while you are qualifying him, he is qualifying you.

The world of sales is a tougher place today than it was two years ago. But as I have said in conversation after conversation, we are now in a market that demands skills. A market that demands ethics. A market that won't tolerate BS from anyone, at any level.

We are not going through a "cycle", in my opinion, but rather, we are going through a "revaluation". I'm talking about the stock market and real estate prices... but I'm also talking about each one of us. I'm talking about employees, salespeople and professionals. I'm talking about pastors, construction workers and CEOs. Our value is being tested in this new market, and skills are the new currency of the 21st Century.

You can fear this new market, or you can embrace it as the impetus for positive change in your own life. As always, it comes down to attitude and perspective.

Game on.

Wednesday, February 17, 2010


February has been an interesting month, at least for statistical geeks like myself. The inventory of homes for sale in the Denver MLS tightened up at every price point between January and February, signaling that the “tax credit rush” is now on and even though the calendar says February 17, the spring market of 2010 is officially here.

For the next 71 days, it’s going to be crazy, especially below $250,000. If the $8,000 first-time buyer tax credit of 2009 pulled in all of last year’s first time buyers, plus many of those who otherwise might have waited until 2010 to buy, the extension of the tax credit is now shoving the 2011 crop off first-time buyers off the fence and probably pulling in some 2012 buyers as well.

The $6,500 so-called "move up" buyer's tax credit is also driving activity, with buyers who have owned a principal residence five of the previous eight years eligible for this credit, which also expires April 30.

Let’s recap the influence the tax credits have had on the market.

As of today, homes priced under $250,000 in the Denver MLS account for 34% of the overall listing inventory, but 67% of all transactions. By comparison, homes above $600,000 account for 18% of the inventory, but just 5% of the transactions. So it’s obvious the activity remains concentrated at the lower levels of the market.

Inventory continues to fall. At the end of January, there were just 17,465 single family homes listed for sale in the Denver MLS. That was down 19% from one year earlier, and 45% from the August 2007 peak, when we had more than 30,000 homes for sale in the Denver MLS.

The absorption rate for homes priced below $250,000 fell sharply this month, from a 4.22 months supply in January to just 3.25 so far in February. That’s the clearest evidence of the “spring surge” I referenced at the start of this post.

There was also significant improvement in the $250,000 - $400,000 category, where inventory dropped from a supply of 9.98 months to just 6.16 months. While six months of inventory is considered a "balanced" market (favoring neither sellers nor buyers), the tightening we have seen suggests that you've got both first-time buyers and move-up buyers hitting this sector of the market in force.

However, the question must be asked again: what happens to these numbers after the tax credits expire April 30? Keep in mind, as someone who is "out on the streets" every day working with clients at many different price points, it's clear that buyers are driven by price and value, and they simply will not overpay for anything as long as they have fear about the economy.

Above $400,000, the inventory of unsold homes spikes up to 13.77 months. And so you can see how things just start to tail off as you work your way up the pricing ladder (above $1 million, the inventory of unsold homes is nearly 32 months).

What can we expect going forward?

Well, here’s what we have we have for buyers for the next 71 days: 1) a pair of generous (and highly motivational) tax credits that expire for good April 30; 2) interest rates that are still in the low 5’s, but almost certainly headed higher as the Fed stops purchasing discounted mortgages; and 3) enough motivated sellers and bank-owned listings to find a good deal.

And for sellers? It comes down to one thing – motivated buyers. For the next eight weeks, buyers are out in full force, particularly below $400,000. That means the time to be on the market is right now. When the tax credits expire and rates go up, who’s going to buy your home? There’s a buyer for every home, but when the “gifts” of tax credits and low rates go away, it all comes down to price. And that’s not what sellers want to hear.

Make no mistake – 2010 is not a normal year in real estate, and this is not a normal market. The lion’s share of activity this year is happening right now, and both buyers and sellers may find the market a lot less attractive when rates start climbing and the tax credits expire.

Sunday, February 14, 2010


In a new survey released this week, reports that homeowners in the Denver Metro area pocketed a total of $7.87 billion in home equity gains last year, by far the best performing U.S. market in 2009.

Boston was the second best performing market, showing gains of $3.47 billion, while New York reported the ugliest losses, with homes dropping a staggering $93.4 billion in aggregate value last year.

The Denver Post published a map with its coverage showing which neighborhoods have performed best and which areas remain soft. North Aurora and the I-70 corridor of East Denver remain the hardest hit parts of town, while much of Adams County showed surprising strength after several years of value declines.

Of course, as I say in post after post, generalizations really don’t work in this market. There is such disparity between what is happening at the low end of the market (3 month supply of homes) compared to the high end (32 month supply of homes) that the Zillow report may or may not have much relevance to your particular situation.

Many sub-$200k single family neighborhoods have seen values jump 10% or more in the past year, while homes above $400,000 have lost value. Condos continue to perform below expectations at all levels, while investors have made huge profts by fixing and flipping starter homes for the past two years.

The strong numbers reported by Zillow are likely driven by the fact that, in sheer numbers, there are more entry level homes appreciating than high-end estates depreciating, so the net bottom line looks pretty good.

Overall, it’s good PR for Denver and indicative of a market that is further along on the path to recovery than many other metropolitan areas. If you have questions about how your particular neighborhood has performed, give me a call.

Thursday, February 11, 2010


Interesting article in John Rebchook's blog today about the long-term prospects for landlords in the seven-county Denver Metro region... although rents and vacancy rates have basically been unchanged over the past year, signs point to a fairly serious shortage of rental units over the next five to seven years.

With more than 30,000 high school seniors graduating each year, and only about 5,000 new apartment units per year coming online since 2001, you can see the opportunity that exists for landlords over the next few years. Add in the fact that Colorado was the fourth-fastest growing state in the country last year and you can see that sooner or later we're going to start running out of housing, again.

It is true that the difficult economic times of today are affecting behavior... the home ownership rate is falling, kids are moving back in with their parents, families are "doubling up" to save money... but sooner or later people will want to get back out on their own, and there simply isn't enough new inventory coming online to meet that future demand.

After the 2001 economic downturn, vacancy rates in Denver spiked by 10% or more and rents crashed hard. But go back and reread the first paragraph of this post... in 2009, in the worst economy in 70 years, vacancies and rents were essentially flat. That's called "hidden strength", and it's an indicator that this decade could be a really good one for Colorado investors and landlords alike.

Tuesday, February 9, 2010


A theme I have been hitting on repeatedly in this blog is that, in my estimation, there is no such thing as a “jobless recovery”. Until jobs come back, the economy will remain in a broken state.

Jobs are also the biggest impediment to the housing market, now, as well. While the first round of foreclosures (2005 – 2008 in Colorado) were primarily the result of “everyone qualifies” financing, round two is tied to the loss of jobs.

Good news today comes from job search engine, which ranks Denver 9th among 50 metropolitan areas in terms of availability of employment. The survey shows that there are currently about four job seekers for each advertised position in the Denver market. Some of the worst performing areas, such as St Louis and Detroit, currently have more than 15 applicants in pursuit of each advertised job opening.

The survey is more “interesting” than “scientific”, since it doesn’t consider the problem of “underemployment”, which I consider to be a serious issue both in Colorado and throughout the country.

But it does show the relative strength of Colorado, which continues to outperform the rest of the country during these difficult economic times.

Tuesday, February 2, 2010


Looking for the hot new place to retire? Historically, retirees have flocked toward warm weather climates like Florida or San Diego. Now, according to the AARP, it’s cities like Loveland, Colorado and neighboring Fort Collins that are the new “make sense” destinations for retiring Baby Boomers.

In a special report to broadcast on CNBC March 4, Tom Brokaw discusses how retirement realities are changing for Boomers after the economic meltdown. Moves to the coasts are on the decline, while cities like Denver, Dallas and Atlanta are attracting record numbers of relocating retirees who are looking for a great quality of life along with more affordable housing.

The trend among younger Boomers is a search for more security, more stability and more opportunities, especially for those who wish to continue working in some capacity after retirement. High growth, high quality of life areas like Loveland or Fort Collins offer the best of both worlds, according to the CNBC report.