Wednesday, November 28, 2012


The good news for homeowners in Denver just keeps on coming.

Case-Shiller reported yesterday that home prices in the Denver Metro area increased 6.7% year over year in September, reaching the highest levels we have seen since 2007.

Case-Shiller uses a scoring matrix (instead of an average or median price) which gave the Denver area a rating of 134.01, meaning that prices at the end of September were up 34.01% over prices in 2000, which Case-Shiller uses as a baseline year.

Prices nationally rose 3.6% over the past 12 months, so value increases here in Denver nearly doubled the national figure.

So what does this mean?

Let's say that 12 months ago, you purchased a $200,000 home with a 3.5% FHA down payment and you had your closing costs paid by the seller.  Your total up front investment in the home is $7,000.

Now, assuming your home's value increase matched the Case-Shiller report and went up 6.7%, its new real-time value is $213,400.  Under this scenario, you have $13,400 of equity appreciation.

If your initial investment was $7,000 and your first year return is $13,400, your one-year "cash on cash" return is 191%!

(Please call you financial advisor immediately and ask if he or she can provide these kinds of returns!)

These incredible yields don't even take into account the fact your mortgage payment is likely lower than comparable rent, that your taxes and mortgage interest are likely tax deductible, and that you might actually like the home you are now living in.

I have always taken a cautious approach to this business, in good times and bad.  I am not saying you should speculatively buy a home in hopes of massive appreciation, but in this market, facts are facts.

While the market remains sluggish above $600k and there's only modest gains above $400k, everything else is in full recovery mode.  At the lower end of the market in particular, prices are rising quickly and virtually all of the key indicators point toward continued growth.

What are those key indicators?

1) Three-quarters of the builders in Colorado filed bankruptcy or left the state between 2006 and 2009, meaning new construction has essentially vaporized compared to historical levels;
2) Colorado's population has consistently increased by 100,000 or more each of the past five years (one of the top 10 growth rates in the country), meaning upwards of 500,000 new residents have moved to our state since the economic downturn began;
3)  Over 50,000 Colorado households were foreclosed on in 2006 and 2007 -  with many of those households now coming back into the housing market (and competing with first-time buyers) as their credit is restored;
4)  Foreclosures and short sales, which were providing 45% of our inventory two years ago, now make up just 8% of active MLS listings;

When you look at those kinds of dynamics, you see the framework for an incredible supply crunch, which is what we are experiencing right now. 

Couple this with the fact interest rates remain in the 3's (still completely absurd) and you can lock in an artificially low payment for however many years you choose to live in your home... and the value in this market is so obvious almost everyone can see it.

This is why we have transitioned into a market where multiple offers are common, days on market have plummeted and absorption rates are near all time lows.

I mentioned to one of my networking groups yesterday that the only people getting homes under contract in this market are those buyers who are fully committed to going on offense.  The mindset of this market is a complete reversal from 2008, 2009, and 2010, when buyers thought defensively, negotiated aggressively and deliberated endlessly.

Those who are finding success in this market are properly educated, fully pre-qualified and ready to take action immediately.  All others are likely to remain on the outside, looking in, while the most motivated buyers are taking advantage of low rates and riding the front end of what figures to be a significant wave of appreciation for the foreseeable future.

Thursday, November 15, 2012


I am quite convinced that many buyers today are purchasing mortgages first, and houses second. 

What do I mean? 

What I mean is that the educated buyer, the one who understands how mind-numbingly low and historically aberrational today’s fixed interest rates are… that person is taking decisive action and shopping with great urgency because of rates.

To this person, who understands the long-term upside of home ownership… who understands how much personal wealth can be accrued through a 15-year mortgage… and who understands that once he or she buys a home, the principal and interest payment can never go up (while rents continue to rise)… this person wants a house and is willing to spend a little more to get it.

Meantime, buyers who don’t understand this market, or buyers who want to grind on price, or buyers who think their experience will be just like the experience of a friend who may have purchased during the dark days of 2009 or 2010… very few of those buyers are actually having success in a highly competitive market.

Now, I never advocate overpaying.  Read this sampling of posts from the past few years and you’ll see, I shoot straight on the subject of value:

But here’s what it boils down to today:

If you offer $5,000 more for a median priced home, that decision will cost you about $22 extra per month, based on a 30-year loan at 3.5%.  Over the course of a year, that’s $264 dollars in higher payments.

If you don’t feel the urgency, if you sign another lease and let this market pass, and rates go up just 1%, you could be looking at an extra $2,500 per year in interest payments on a 30-year fixed rate loan.  Plus, prices are rising in almost every area below $500,000. 

So take action now, write a winning offer, and spend an extra $264 per year.  Or wait 12 months, pay more for a lesser house, and pay 10 times more than the $264 per year a $5,000 increase in your offer price would cost today.

The buyers who want into this market are not fooling around.  And there are lots of them.  They’re writing serious offers fast and closing on their new homes.

The buyers who don’t see the big picture are working off rules that simply don’t apply anymore. 

This is a market for the swift and the determined.  

Friday, November 9, 2012


Let me begin this post with one, upfront statement:  I rarely recommend that someone buy a home strictly for potential appreciation.  Appreciation is a bonus, if all of the other numbers make sense.

Having said that, there is no doubt that the vast majority of homes in the Denver metro area under $500,000 are appreciating in value.  With an inventory shortage of near epic proportions (60% fewer homes on the market than two years ago with 15–25% more closed deals this year, depending on price point), bidding wars are the new norm.

Below $200,000, I know of almost no area that hasn’t seen at least 5% appreciation in the past year.  And for homes below $150,000 (which basically don’t exist anymore), 10% appreciation might be a conservative assessment of how strong the market has been in 2012.

With that as groundwork, let’s run a quick calculation that will illustrate once again why buyers are competing in multiple offer situations on a regular basis.

If you were to purchase a $200,000 home in today’s market, and you assume the value of that home will go up 5% over the next 12 months, that’s $10,000 of equity gain.  Divide that by 12 months, and you have $833.33 of appreciation per month.

Now, the other side of this amazing coin is interest rates.  Unless you have been out of the country or living under a rock, you probably know mortgage rates have trended all the way down into the low 3’s! 

If you purchase a $200,000 home today with FHA financing (which requires a down payment of just 3.5% of the purchase price, or $7,000 in this example) and take out a 30-year fixed rate loan at 3.5%, your monthly principal and interest payment is $866. 

Equity of $833 with a payment of $866 equals net monthly housing expense of $33.

Do you want me to repeat that?

Of course, in addition to the P & I payment you still have property taxes, homeowners insurance, potential HOA dues and maintenance costs.  But even with those amounts added in, the obvious value of ownership vs renting is impossible to miss.

Now, as I said at the beginning of this post, you don’t buy homes for appreciation.  You buy them because you need a place to live, you can afford the payment, and you enjoy pride of ownership.  You also get some excellent tax advantages, you accrue wealth by paying down your mortgage each month… and if fate is smiling on the Denver housing market (as it most definitely is right now), appreciation is the whipped cream. 

But heading into 2013, it’s all good.

I have always been candid with my clients about the state of things in housing.  I left California seven years ago in large part because I felt that market was unsustainable, and I didn’t want to see clients get hurt. 

I have always preached caution, and I still do.

But these numbers are so stinking obvious they simply cannot be ignored.

I have a hard time believing that home ownership will ever be more affordable than it is in this immediate moment. 

Friday, November 2, 2012


A few days ago, I posted a treatise on “Transparency in Real Estate”.  Or, more specifically, the lack of transparency in real estate when it comes to what agents actually sell.

When I meet with buyers and sellers, I often carry several binders along with my tablet computer and presentation materials.  One is a book with over 60 laminated monthly market spreadsheets, dating back to 2007, which allows me to quickly show how our market has evolved over the past few years and allows for quick year-over-year market comparisons.

I also carry a book consisting of laminated MLS printouts of all the properties I've sold in the past 36 months.  This allows me to show and compare homes I’ve sold by price point, location, chronologically, etc. 

I’ve got a new book I'm carrying, however, and this one is growing almost daily.  It’s client reviews that have been posted to, and as of today, I have nearly 50 of them from buyers and sellers.  (I just did a quick search through Zillow’s agent review database, and it appears I currently have the fourth most Zillow reviews of any agent or team in the Denver metro area).

I have written about Zillow on this site before, and my feelings haven’t changed.  Although many of us in the industry hate “Zestimates” for many reasons, they are here to stay.  And the truth is, Zillow’s iPhone app beats just about anything else out there for historical property data (although its real time data feed for MLS listings is very often out of date). 

Zillow provides a treasure trove of information about neighborhoods and homes values, and I have decided to embrace it.  Thus, several weeks ago I began reaching out to past clients and asking them to review me on the site.  From that, I have nearly 50 unbiased reviews from real customers for the whole world to see.

Because I think transparency is a winning strategy, I actually purchased the domain name, which redirects to my agent review landing page within the Zillow website.  From here, prospective clients can see and read everything that my clients have said about me, unabridged and without edits.  

Also, to be clear, I do not pay any money to Zillow for advertising or other services.  Although Zillow most certainly would like to make me a "Premier Agent" (i.e., sell me advertising rights on their site), I don't do it.  I want what people find about me online to be organic and unbiased.

I know for a fact that the 80/20 “Pareto Principle” is alive and well in real estate – 20% of the agents do sell 80% of the houses.  Consumers need to know who is in that 20% group, and they need to know whether agents in that group personally own their transactions, or if they are “farmed out” to lesser known team members whose sales are reported under the leader’s name.

As I said back in August, the recovery in our real estate market this time is going to be far more rational and sustainable than what we’ve seen during previous booms, because now, for the first time ever, the consumer has access to almost unlimited information about the market. 

Real estate property data is no longer hidden behind a veil, accessible only to dues-paying MLS members.  It’s out there in 100 different places online, and as the IQ of real estate consumers increases, their demand for a matching transparency from agents will only ring louder. 

I’m getting in front of this wave, because it’s a big one.  And I have a record to be proud of.  See what nearly 50 past clients have said online at