NOVEMBER MARKET UPDATE

If this isn’t a shifting market, I've never seen one!

The overall inventory of homes for sale in the Denver MLS fell 34% last month when compared to October of 2010, the ninth straight month of year-over-year declines.  Below $250,000, the number of homes for sale fell by a breathtaking 50%!

Where did all the inventory go?

As I said last month, there are two driving factors which have drained the market of inventory.  First, the number of foreclosures is down over 30% year-over-year in Colorado, and foreclosure filings are well over 50% off of their peak in 2007. 

Second, poor economic conditions have essentially frozen the “move-up” market, which used to provide the entry level inventory that first-time buyers would purchase.

Fewer foreclosures and fewer move-up buyers equals no inventory, which creates an interesting and potentially inflationary impact on prices as qualified and motivated first-time buyers continue pouring into the market.

In fact, during the reporting period from October 11 through November 10, the number of homes that went under contract increased at every one of the five price brackets we track when compared to the previous 30 days.  That normally does not happen as we move closer to the holidays.

What it means is that there is less inventory and that sellers who are listing their homes are doing so because they are motivated to actually sell them.  No more sellers waiving appraisals from 2007 that have little relevance to today’s market.

It also means that people are hungry to take advantage of well-priced homes with rates in the 4’s.  They feel there is value there that will hold up well as the economy starts to recover, and we all know that rates in the 4’s are more fairlytale (thank you QE1 and QE2) than fact.

In large part because of the strong demand at the entry level, the overall absorption rate for the entire market fell to 4.71 months, last month, the first time it has been below 5.00 months in the past five years. 

Overall, there are just 2.18 homes for sale to each one currently under contract, and below $250,000, there are just 1.25 homes on the market to each one under contract.  That, pure and simple, is a severe shortage of inventory.

So what does it mean?  To cover ground we’ve addressed before, it’s a reminder that any recovery in the Colorado housing market is going to come from the bottom up, where demand is strongest. 

At $1 million and up, there are currently 11 homes for sale to each one under contract, or about one-eighth of the demand that exists for homes priced below $250,000.

So pick your market.  If it’s the entry-level, it’s red hot, even as the temperatures drop.  If it’s high end, be prepared for a long, cold chill. 

With one-third of all real estate transactions nationally involving cash buyers, there is tons of money flowing back into real estate.  And with rental vacancy rates at 10-year lows, landlords are going to have a ton of leverage as the demand for affordable housing far outstrips supply.

At the entry level, there is more demand than supply, both for purchase transactions and rental homes.  And when supply and demand are out of whack, the outcome is almost always higher prices.

JD POWERS RANKS REMAX #1 FOR CUSTOMER SATISFACTION

The 2011 JD Powers and Associates survey of consumer satisfaction for real estate companies and the findings are not surprising:  RE/MAX is number one among both home buyers and home sellers!

This post is not merely an attempt to “pump up the brand”. The fact that RE/MAX was ranked number one is because the entire RE/MAX model is based on recruiting and retaining the most productive agents in the industry by allowing them to keep more of their commissions… while charging a fixed monthly "pay to play" fee structure that simply will not work unless you are selling a large number of homes.

Recognition by JD Powers comes at a price. Although JD Powers has conducted surveys since 1968 recognizing top performers in a variety of industries, the licensing fee to use the JD Powers trademark and logo for commercial purposes starts at $275,000 per year. Because RE/MAX was honored for top performance with both home buyers and home sellers (two different categories), RE/MAX will pay $550,000 to fully promote its JD Powers ranking in the coming year.

That explains why you only see a few select companies – like Honda Automotive, for example – broadly using JD Powers recognition in television and print.

I recently attended a RE/MAX event in Denver where company founder and CEO Dave Liniger challenged every RE/MAX agent to embrace the award and what it represents.

As many of you know, I moved to RE/MAX five years ago because I wanted to be associated with the most powerful, professional and productive brand in real estate.  The JD Powers recognition affirms once again that RE/MAX is the most trusted brand in real estate.

WHAT BUYERS DON'T WANT

Last week, I wrote a post on things most buyers are looking for in a home today. This week, we’ll turn the coin over.

Here are things to be careful of in a fear-based market:

1) Obsolescence – on a busy street? Too close to the train tracks? Back to a gas station? All of these things are trouble for sellers in today’s market.

2) McMansions – real estate investors will tell you that the best value in housing is finding the “WOB in the MOB” (that’s the Worst on the Block at the Median Price or Below). Conversely, anything oversized, non-conforming or which is negatively affected by its neighborhood is toxic in the minds of most buyers.

3) Dated – the fastest way to guarantee vicious lowballing is to list a home that is dated. Whatever improvements need to be made, assume the buyer will double the cost, then deduct if from your list price. There are only two markets today: wholesale and retail. And if you are not retail, you're wholesale.

4) Dark homes – if you don’t have great natural light, then start painting the rooms! Many buyers are in a dark mood before they even get to your home. If the bedrooms are midnight blue, it’s only going to get worse for you.

5) Unkept landscaping – got overgrown trees? Get ready to pay. Shrubs beating on the side of the house when the wind kicks up? That’ll cost you. Limbs dangling over your powerlines? Buyers smell “wholesale.”

6) Large lots – there are still some people who want to live on an acre, but there are fewer of them than there used to be. And since many people in the Great Recession have fired their lawn guy, a 40,000 square foot lot isn’t as appealing as it used to be.

7) Pools – in Colorado, appraisers will tell you that a nice pool adds exactly $0 (zero) to the value of your home. Twelve months of maintenance, three months of use. Instead, call up your friend with access to the HOA or community pool and invite yourself over.

8) Above ground power lines – a fact of life in most older neighborhoods, but the fact remains: many buyers are paranoid about living under electrical currents 24 hours a day.

9) Three story homes – tri-levels are okay, but true “3 levels” are just too non-conforming.

10 Bi-levels - quick decision:  up or down.  Apparently that's confusing to a lot of buyers, and I've had many clients tell me right off the bat that bi-levels are not an option.

11) High Schools – a good elementary school can help value, but proximity to almost any high school will hurt it, due to crazy traffic, loud kids, and events that run day and night.

12) Condos – for a little while longer, it’s still going to suck owning condos. FHA has just killed (killed killed killed!) the market with its asinine financing restrictions, which will loosen up again in time. If you can hang in there for the long haul, you can get some amazing value right now… but just be careful if you need to sell in the next two or three years.