FEDERAL PACIFIC + ZINSCO = TROUBLE

Ran into yet another situation this week where we found a Federal Pacific Electric Panel in a 1950s Denver area ranch home.  There are literally thousands of these panels installed through the metro area, and they are as common as ungrounded outlets or single paned windows in older homes.

So what's the big deal?  Federal Pacific, along with a company called Zinsco, was literally sued out of existence in the 1980s because of reports of repeated failure and fires stemming from these panels.

Among the chief concerns:

• Some FPE breakers fail to shut off internally even if the toggle is switched to "off"

• Breakers fail to trip during testing up to 60% of the time

• Electricity arcs between buss bars and breaker contacts causing hot spots and fires inside panels.

• All FPE panels are old (most way beyond expected service life). Even the best equipment fails with time.

• The Federal Pacific Company doesn't exist anymore so all retrofitted FPE equipment is manufactured by an after market in Canada or China.

Inspectors and electricians will routinely and "automatically" recommend replacement of FPE and Zinsco panels, because the liability in not doing so would simply be too great.  However, it should be noted that there are upwards of 10 million FPE and Zinsco panels still being used in the United States, and there are literally millions of homeowners who live with these panels on a day to day basis without a problem.

Should you have an FPE or Zinsco panel replaced?  If I am listing a home and I see one, I let my seller know up front there is a high probability that the buyer is going to ask for its replacement.  Often, I will recommend replacement as part of our listing strategy, because we can then both add the cost of the new panel to the list price and market the fact the home has a new panel.  That strategy takes a liability and converts it to an asset.

For my buyers, I identify FPE and Zinsco panels and let them know that the inspector is going to call it out.  We'll normally have an electrician come out and take a closer look to see if there is obvious evidence of trouble, and then design a plan from there.

The quality of your experience in buying or selling a home depends on the quality of the information and counsel you receive.  FPE and Zinsco panels are important considerations for buyers and sellers alike, and it is in your interest to know early on when a problem might arise.

NAR RANKS DENVER THIRD IN MEDIAN HOME PRICE APPRECIATION – BUT NOT SO FAST…

The National Association of Realtors reported this week that Denver’s median home price increased 14.4% in March on a year-over-year basis, which was the third strongest showing in NAR’s 20-city index. And you won’t have to look far to find real estate agents crawling all over each other to tell you how great this is for Denver.

But not so fast. Let me tell you what this really means.

It has been my view that while the first wave of foreclosures in Colorado (2004 – 2007) primarily hit the entry level of the market (80% of foreclosures during that time occurred on homes priced below $250k), the second wave of foreclosures (occurring now) is hitting the high end of the market.

And here’s why: It’s a lot easier to replace a $12 an hour job than a $100,000 per year job.

The first wave of foreclosures in Colorado was caused by poor lending practices, and it was a byproduct of the home ownership rate in America spiking from 61% to 69% (US Census Bureau data) between 1995 and 2005. Because of subprime lending and “easy credit”, home ownership was opened up to anyone who wanted to buy a house, regardless of qualification. And the truth is that most of those coming into the market for the first time were not buying half-million dollar homes – they were credit-impaired buyers who were buying into the entry level.

This time around, it’s job losses and the larger economy that are hurting the housing market. And when a Qwest account manager making $100,000 a year (and consequently living in a larger home) loses his job, he simply cannot find another one to replace it.

Hence, while the recession is affecting everyone, it’s clobbering the middle and upper class.

So when the median home price increases 14.4%, here’s what it really means…

One year ago, two years ago, three years ago, the deals were at the bottom of the market. So people were buying off the bottom.

Now, it’s the higher end of the market that is seeing significant value declines, and so more buyers are seeing value in buying higher up.

Keep in mind what the median home price means – the “median” price is that number at which 50% of sales fall below it, and 50% of sales rise above it. It’s not an average, or a true indicator of value. It tells you where the activity is.

And while it generally can be considered positive that people have the confidence to spend more money on homes today than they did a year ago, I would still argue vehemently that buyers in this market are value-driven, and today the perceived value is at a higher price point, because that’s where values have been declining the most.

Once we establish that values have fallen, we then need to talk about cycles and the implications of where we are in that pricing cycle.

With the low end of the market, we went through about four years of loss or stagnation before things began to improve in 2008. It’s an ugly process, which involves a lot of people losing their homes, or losing their equity, but inevitably suffering a reduction in their standard of living.

The same cycle is now in play at the high end.

As you can tell, this isn’t Realtor “happy talk”. While I am a Realtor, I am also a “realist”. And this is what I see.

So which city sat atop NAR’s list for highest increase in median price over the past 12 months? San Diego, with a gain of 20.4%. But sales there only increased 4%.

What this means is you have a small pool of buyers with the means to purchase, and those buyers are gravitating toward where they see value. And they see value at the higher end because those homes have been hemorrhaging value for the past 12 months.

If the median prices surges, but sales don’t, you do not have a thriving market. You simply have people who are shopping selectively, buyers who have moved from hamburger to steak because the steak is now on sale.

If you’re looking for a true leading economic indicator that will signal a broader recovery, it will be jobs.

A jump in the median price is not a bad thing, and I don’t want to portray it as such. But like most statistics, it needs to be interpreted. It’s definitely not a bad time to buy a house… especially at the lower end of the market. But it needs to be the right house, at the right price, under the right terms.

I suspect you will hear lots of rejoicing over the next few days about Denver's ranking in the new NAR report.  But before anyone tells me that all our troubles are behind us, show me the jobs. Because employment, and not median price, is the tide that will (eventually) lift all boats.

NEW LEAD-BASED PAINT REGULATIONS TAKE EFFECT TODAY

Starting today, renovations which could disturb lead-based paint in older homes must comply with new lead-based paint mitigation rules issued by the Environmental Protection Agency.

Under the newly implemented rules, renovators working on homes built before 1978 must be trained and EPA-certified to perform safe work practices to prevent lead contamination. Additionally, renovators must deliver EPA's lead renovation pamphlet to an occupant within 60 days before a project begins (and, if mailed, at least seven days before a project begins). Renovators must also obtain the occupant's signed acknowledgment of receipt.

The EPA issued this rule in 2008, but delayed implementation until now. The rule generally applies to building contractors, handymen, residential landlords, property managers, and anyone else who is paid to perform renovations or to direct workers to perform renovations as specified. The lead renovation rule does not apply to homeowners renovating the homes they live in. However, sellers of homes built prior to 1978 must still disclose to their buyers any known lead-based paint and lead-based paint hazards.

Renovation work covered by the lead renovation rule is defined as a modification of an existing structure that disturbs a painted surface, such as surface restoration or surface preparation activity. Excluded are minor repair and maintenance activities that disrupt up to 6 square feet of interior painted surface or 20 square feet of exterior painted surface. Demolitions and window replacements, however, are not considered minor repairs.

For more information, visit the EPA's website at http://www.epa.gov/lead/pubs/toolkits.htm

COLORADO TO OFFER CASH FOR APPLIANCES STARTING APRIL 19

The Colorado State Energy-Efficient Appliance Rebate Program, which is being referred to as the "Cash for Appliances" program, is scheduled to begin April 19.

The state will implement a mail-in rebate program to help consumers replace older appliances with new, Energy Star-listed appliances. Residents must apply for the rebates online. Colorado has received $4.7 million in federal stimulus money to pay for the program, which will expire when the funds are depleted.

Colorado’s eligible appliances include:

Clothes washers -- $75

Dishwashers -- $50

Refrigerators -- $100 if recycled, $50 if not recycled

Furnaces -- gas condensing $500

Hot water heater -- gas condensing/high performance $200

Hot water heater -- gas tankless $300

Gas boilers -- $400

Other requirements also apply. For instance, refrigerators must be at least 12 cubic feet in size to qualify and furnaces must be rated at an Annual Fuel Utilization Efficiency (AFUE) greater or equal to 92 percent.  There will also be minimum efficiency requirements for water heaters and other household appliances.

The "Cash for Appliances" program will be a great way for new homeowners to make important upgrades affordably.  For more information, access the Colorado Governor's Energy Office website by clicking HERE.

COLORADO JOBLESS RATE HITS 7.9%

New labor statistics released yesterday showed that Colorado's unemployment rate rose 0.2% in March, to 7.9%.  Nationally, the unemployment rate was reported at 9.7%.  Twenty four states showed in an increase in unemployment during March, despite the federal government hiring thousands of temporary census workers.

To me, the jobless rate is directly tied to the housing market.  As I've said in past postings, I don't believe there is anything as a "jobless recovery".  An increase in the unemployment rate tells me the housing market is probably going to limp along, at least in the near term, without any break in the pattern we have seen over the past 18 months.  And that pattern is strength at the low end of the market, softness in the middle, and very little improvement with the high end of the market.

If you're looking for a trigger, it will be with the jobless rate.  If Colorado's unemployment rate had fallen 0.2%, to me that would be a big deal.  And I would be telling my $250,000 - $400,000 buyers to get in fast, because improvement is coming. 

But yesterday's numbers tell me it's going to be more of the same.  Caution will continue to be the order of the day.

THE BACKLASH AGAINST FORBES

"The truth?  You can't handle the truth!!"

       - Jack Nicholson, as Colonel Nathan Jessup, in "A Few Good Men"

Forbes.com has caused a mini-riot inside the Denver real estate community with an online article posted last week entitled "America's Worst Selling Housing Markets," in which Denver was rated as the second worst place to sell a home in the country, behind only Milwaukee.

The Forbes.com article, originally published on April 5, had this to say: “Before 2009, if any market seemed to be free from the rest of the country’s housing woes, it was (Denver). But the city’s fortunes seem to have shifted: The recession hit Denver later, and only in the past year have sales slowed and inventory begun to pile up.”

And the report, which it said was based on information from the National Association of Realtors, Zillow.com and Moody’s Economy.com, went on to say that “Denver doesn’t come to mind as a housing-crisis hot spot, but the city that once looked like it would escape the housing bust unscathed now shows signs of strain. More than 42,000 homes are on the market in the metro area, 27% more than last year.” (emphasis added)

It's the last sentence that has thrown everyone into a fit. 

As of March 31, the Denver MLS shows 20,030 homes currently for sale.  That number includes condos and single family homes and covers the Denver MSA from Castle Rock to Longmont.  That's a 2.9% DECREASE from one year ago and a 21.5% DECREASE from March of 2008.

Many agents, including myself, have fired off notes to Forbes asking where this data came from (I'm still waiting for someone to get back to me).  My assertion is that Forbes simply screwed up.

Late last year, the Denver MLS switched over to a new system called "Prime Access".  One result of that migration - Denver agents can now check inventory statewide, instead of just in the seven county Denver statistical MSA.  If you look at the current statewide inventory of homes, the number of homes for sale is around 37,000, which is close to Forbes' magic number of 42,000.

Maybe that's where they goofed.

The bottom line is that the Forbes article needs to be corrected.  It's not just a little wrong, it's 100% wrong.  I would not say our market is thriving (except at the entry level), but it certainly is not the second worst market in the country. 

Step up, Forbes, and admit you got it wrong.

COLORADO HAS EIGHTH LOWEST MORTGAGE DELINQUENCY RATE

Colorado ranked 8th in the country in February for the lowest rate of mortgage delinquencies, according to asset management company Lender Processing Services.

The report said that 8.5% of Colorado mortgages were delinquent in February.  6.7% of those loans were late (at least one missed payment), while just 1.8% were in foreclosure (at least three payments behind with a foreclosure action filed by the lender).  The national average for delinquencies among all states was 13.5%.

Nationwide, there were nearly 8 million delinquent loans plus foreclosed loans nationwide at the end of February, up 26 percent from a year earlier. However, the total was down from January by less than 1 percent.
Florida had the highest noncurrent loan rates for the month, at 23.8 percent, followed by Nevada (23.3 percent) and Arizona (16.3 percent).
North Dakota had the lowest rate (4.7 percent), with South Dakota (5.4 percent) and Alaska (6.6 percent) almost as low.

THE TSUNAMI OF SOCIAL MEDIA

Social media is here to stay. And to prove it, website ratings service Hitwise announced last month that Facebook had supplanted Google as the most visited website on the Internet.

Facebook traffic has increased 185% from a year ago, while Google has only grown by 9% during that time. Overall, Facebook and Google visitors now account for 14% of all Internet traffic.

Because of this, I recently launched a Fan Page on Facebook, which has quickly grown to nearly 100 members including numerous past clients, business partners, prospects and colleagues.

I use this space to post brief updates each week, as well as to stay in touch and share relevant real estate news.

I also have gathered pages of testimonials (click on the REVIEWS tab) while highlighting links to my referral directory, new listings and an updated video library.

And all that is just the tip of the iceberg.

Passive marketing is dead. Active marketing is in. And the Internet is ground zero for the revolution taking place in real estate today. Consumers expect us to meet them where they are… and in greater and greater numbers, they are online.

Friend me on Facebook, find me on LinkedIn, watch me on YouTube. Get the message out there. Show people who you are. Be authentic.

Authenticity, integrity and access. That’s what it’s all about. And that’s why I’m investing in the growing tsunami that is social media.

CASE-SHILLER REPORTS DENVER HOME PRICES UP FOR THIRD CONSECUTIVE MONTH

For the third month in a row, Denver-area home prices showed a year-over-year increase in January, according to the latest Case-Shiller Home Prices Index.

Out of 20 U.S. cities in the closely watched report from Standard & Poor’s, released Tuesday, Denver was one of nine that showed a year-over-year increase in prices.

Denver-area home prices were 2.6 percent higher in January 2010 than in January 2009. That followed a 1.2 percent year-over-year increase in December and a 0.5 percent gain in November.

But again, these price increases are all being driven by activity at the lower levels of the market, which is being propelled by the two tax credits and the high number of first-time buyers entering the market.  A home at $150,000 may have appreciated by 8 to 10% in the past year, while a home at $500,000 may have depreciated by the same percentage.  Condos have performed poorly at all levels.  Put it all together, and you have Case-Shiller numbers showing a 2.6% gain.

Denver’s overall home price index was 125.59 in January, meaning that a typical home in the area was worth nearly 26 percent more than in January 2000, which is the index’s base year.