ARE YOU AN "AUTHENTICK"?

Saw an absolutely fascinating article in Realtor Magazine recently about psychographics, the study of backgrounds, lifestyles, beliefs and aspirations to develop portraits of consumer behavior.

Years ago, Tony Robbins educated me on "Auditory, Visual, and Kinesthetic" learning. In other words, all people learn differently, and if you can tell whether people learn and communicate best by sound, sight or touch, it will greatly improve the quality of your communication and presentations. It's a high level skill and one I really enjoy applying in my business. (I'm a visual, by the way)

Psychographics seems to take it to the next level.

Dennis Cahill, who runs the Ohio-based company that created psychographics, uses the following chart to educate salespeople on how to communicate with different types of clients:

ACHIEVERS - are ambitious, hardworking and family-oriented. They often want a high-end home that reflects their success. They are looking for a sophisticated, low-key marketing approach that appeals to status.

AUTHENTICKS - are individualistic, community-oriented, environmentally conscious and aware of world affairs. They tend to like open, airy floorplans with large windows and plenty of space. They choose an agent based on relationships, driven by personal connections and referrals.

HEARTLANDERS - are guardians of traditional values, like family, country and community. These people are often drawn to established subdivisions and put an emphasis on community, but they do not like dramatic change.

TRENDERS - are early career strivers who want to grow up to be ACHIEVERS. They like popular neighborhoods and convenient urban locations that offer lifestyle as well as a place to live. They're often techy, and want you to be techy too.

SELF-SUFFICIENTS - are often blue collar workers or tradespeople. They lean toward traditional styles, but are not averse to fixer uppers. They like value and comfort, and don't want to be dazzled with statistics.

Of course, there are variances to all of these generalities, but the conversation is interesting. The goal is always to communicate clearly and deliver the information your clients need in a way that connects with them.

If ours is a service-based business, then part of that service has to be learning to communicate in the most effective ways possible. It means being a lifelong learner in all areas - not just in market statistics and home design, but in communication methodologies as well.

LIFE AFTER THE TAX CREDIT - CHAPTER ONE

Can't say this is a surprise, but the real estate market in Denver hit a wall in the 30 days immedately after the tax credits expired.  The absorption rate for homes priced below $250,000 rose by over two full months, from 3.36 months to 5.42 months, while the inventory of homes priced between $250,000 and $400,000 rose from 5.20 months to 7.75 months.  

"Absorption rate" is a mathematical calculation that shows how many months it would take to clear out all inventory in a given price range, assuming no new inventory was to come on the market.  For example, if there were 100 homes for sale in a given price range and 10 of them went under contract in the prior 30 days, you would have a 10 month supply of inventory.

Real estate economists will tell you that six months of inventory represents a stable market, favoring neither buyers nor sellers.  Any number below that (like the 3.36 months supply of sub-$250k homes we saw in April) represents a seller's market, while inventory above six months is considered to be a buyer's market.

Overall, during the past month the inventory of homes in Denver has risen from 5.00 months to 7.53 months, which basically reflects a 50% increase in the absorption rate.  Any way you cut it, May was not a good month to be selling your home.

We knew with the flurry of activity at the tax credit deadline, things were bound to cool off in May.  And they did.  In my opinion, it's going to be a good 60 to 90 days before the market stabilizes and we figure out what "normal" looks like going forward. 

Rates are still low, but with tax credits now out of the picture, the focus goes 100% back toward the overall economy.  No jobs, no recovery.  No jobs, no buyers.  No jobs, more foreclosures. 

I would gladly take a 1% increase in interest rates for two points off the unemployment rate.  When jobs return, there will be pent up demand for housing.  But until then, we're just in a holding pattern. 

The next move forward in the housing market is spelled J-O-B-S. 

  

IT'S NOT OVER UNTIL IT'S OVER...

When working with buyers and sellers, I sometimes use what my clients consider to be cliches:

"Don't count your chickens until they hatch."

"Buying (selling) a home is a process, not an event."

"It ain't over till it's over."

They're not cliches!

Truth is, in this environment there is no such thing as a "clean" deal.  And to emphasize that point, Fannie Mae has just rolled out its loan awaited LQI - or Loan Quality Initiative.

What is the Loan Quality Initiative?

Well, in simple English, it means there is no such thing as an "Approved Loan", ever.  At least, not until you get to the closing table and funds are wired by the lender. 

Under LQI, any lender wishing to sell a loan to Fannie Mae must re-verify pertinent credit application data prior to closing.  Obviously, if a buyer loses his job or changes employment, the approval is likely going down the drain. 

But what if, while a buyer is under contract, a collection agency files a $37 collection against him for an unpaid teeth cleaning bill from 1974?  Bye bye approval.  Hello default, and potential loss of earnest money.

What if the buyer purchases a new sofa for his new home on credit, one week prior to closing?  See above.  What if a buyer talks to a car dealer and gives permission for his credit report to be pulled (which can affect his credit score) while under contract to purchase a home?  Flush.  

We are undoubtedly living in the tightest, most restrictive lending environment in the past 40 years.  Lenders are scared, plain and simple.  They don't want to lend.  I see it every day.

From backup credit reports to secondary home inspections to third appraisals, lenders seem to act as if they are paid not to make loans.  It's crazy, really.  And it's a huge reason the economy is not turning around as fast as anyone had hoped.   

So when you're sitting with your loan officer for that initial consultation, don't zone out.  Don't daydream or otherwise lose focus.  Because when the loan officer tells you to cut up your credit card and not replace it until after you have closed on your home, she means it.

ON THE VALUE OF COHABITATION AND PROPERTY AGREEMENTS

One undeniable trend over the past few years is that more couples are purchasing homes before purchasing wedding rings.  And while different folks have different opinions about whether this is a good trend, one thing is clear:  it is critical to have some kind of written agreement in place before taking joint title to a home.

The law treats married couples differently than unmarried couples on many levels, especially in regard to estate planning.  Married couples often get federal and state legal protections that simply are not extended to unmarried partners.

At a minimum, unmarried joint home buyers should have two documents in place: a cohabitation agreement and a property agreement.

A cohabitation agreement details who pays for what.  If the mortgage payments are to be shared, how are they to be shared?  If bills, property taxes, or other expenses are shared, make sure they are clearly spelled out.

A property agreement defines an exit strategy.  If one person becomes disabled or dies, what happens?  If the relationship ends, is there a trigger that could prompt a sale?  Can one party buy the other out?  What if that person cannot qualify for a loan?  What if the value of the home goes down?

A good real estate attorney can help with both of these subjects, as well as an estate plan, which every committed couple should have regardless of marital status.  If one party should pass away unexpectedly, and no estate plan is in place, you could find that mother-in-law you never wanted suddenly empowered to make decisions that could radically affect your life and your finances.

The purchase of a home is a life changing event, and it should be treated with the care it deserves.  A few hundred dollars prudently invested in legal protections today could save thousands of dollars and untold angst down the road. 

THE FORECLOSURE CURVE: STATE BY STATE

Colorado currently ranks 43rd among the 50 states in mortgage delinquencies, according to new data from Lender Processing Services, Inc.  As of the end of April, 5.8% of all mortgage loans in Colorado were delinquent (60 days or more behind), compared to the national average of 8.99%. 

This continues to be a striking reveral from 2005 and 2006, when Colorado led the nation in foreclosure filings per capita, and it's one of the reasons report after report identifies Colorado as one of the nation's top spots to buy a home.

Of course, there are complexities to every market, and Colorado is no different. 

While the overall number of foreclosures is down, the mix of properties being foreclosed upon is certainly different than it was a few years ago.

While the first (and larger) wave of foreclosures hit the lower end of the market, where "easy lending" was most prevalent, today there are more and more higher end homes falling into foreclosure.  This trend seems to be driven more by job loss and economic conditions than by bad lending practices (although that is still a contributing factor), and I expect to see more distress at the higher reaches of the market until such time as jobs come back and the unemployment rate starts to fall.

Having said that, the overall outlook for the state remains positive, and the Denver area in particular continues to benefit from excellent press coverage about our housing market.  The state's population grew at the fourth fastest rate of any state last year, adding nearly 100,000 new residents, and with a growing, well-educated population, the fundamentals for housing (especially at the median price or below) should continue to strengthen as the nation pulls out of recession.

THE FORECLOSURE CURVE: HOW DIFFERENT LOAN PRODUCTS ARE PERFORMING

Another great chart from LPS today addressing the default rates on different types of mortgage products over the first four months of each year going back to 2006. 

The chart looks at eight different different types of mortgage products: 

- FHA

- Agency Prime (conforming loans sold on the secondary market)

- Non-Agency Prime (conforming loans retained by the originating lender)
- Non-Agency Jumbo Prime (high dollar loans held by originating lender)
- Option ARMs
- Subprime
- Alt-A (mostly "stated income")
- Other
 

In every case, there has been a clear and fairly dramatic decline in defaults, with the exception of FHA, which is only slightly improved (click on the chart to see a larger image). 

However, the underlyng trend is easy to see.  The number of mortgage defaults is on the decline, and will continue to decline as the economy recovers.

While there will be fewer overall defaults, though, it will be very interesting to watch the type of loans which default going forward. 

As I have stated repeatedly on this blog, the first wave of foreclosures was caused by poor lending practices, and it hit the lower end of the market in a disproportionately hard way.  Today's defaults are trending towards larger loans and bigger houses.  There will be fewer overall defaults, because there are far more "bread and butter" houses than executive-level homes in the overall housing supply, but the value losses will now come from the higher end of the market, as will the foreclosures. 

So what does this chart mean?  It seems to show that conditions in the largest sector of the housing market (the entry level) are improving, and with builders not adding inventory and far fewer foreclosures coming on the market, we could actually find ourselves looking at a housing shortage within the next two to three years. 

THE FORECLOSURE CURVE: NATIONAL OUTLOOK IMPROVING

Found a series of very interesting charts this week in a new report from LPS (Lender Processing Services), one of the nation's leading providers of mortgage analytics. 

Over the next few days, we'll take a look at a couple of different charts, with some background on what they mean and how to interpret them.

Let's start with a bar chart on delinquencies dating back to 2006.  This chart shows the nationwide increase in foreclosure filings on a month by month basis over the past four years. 

Quite simply, this chart shows a significant stabilization of the nation's housing market over the past 24 months after foreclosure filing growth "topped out" in April of 2008. 

Remember that this chart reflects overall foreclosure filings, which is a leading indicator of the real estate market's economic health.  Some areas (like Colorado) are outperforming the curve, while others (like Nevada, Arizona, Florida and Michigan) continue to struggle.

Put it all together, though, and this chart makes a compelling argument for the Fed to start reigning in the easy money policies of the past two years.  Sooner or later, interest rates must rise.  And once the Fed thinks the housing market has stabilized, you can bet rate increases will be on the agenda. 

POLICOM BUSINESS CONSULTING RANKS DENVER ECONOMY THIRD BEST IN COUNTRY

Denver has the third strongest economy of 366 metro areas in the United States according to Policom Consulting, which released a national report this week covering 23 different economic metrics including wages and income, job growth, and government spending.

It’s the highest ranking ever for Denver in Policom’s annual report. The Denver area moved up from seventh place last year, 17th in 2008 and 19th in 2007.

Other Colorado cities ranked in the report include Colorado Springs (#40), Boulder (#87), Fort Collins (#103) and Pueblo (#293). 

The top ten cities in the Policom index were as follows:

1.  Seattle

2.  Washington D.C.

3.  Denver

4.  Houston

5.  Sacramento

6.  Salt Lake City

7.  Des Moines

8.  San Diego

9.  Madison, Wisc

10.  Dallas

HOW TO PURCHASE A FORECLOSURE ON THE COUNTY COURTHOUSE STEPS

I’ve run into into a number of deals lately involving fix and flips... not a surprise with the huge demand among first time buyers as the April tax credits expired.

So the question often arises, how are these flippers able to purchase homes for 60 or 70 cents on the dollar before rehabbing and relisting them for sale?

Often, it involves buying foreclosed properties at the public trustee’s sale.

When a house is foreclosed on, it is first offered for sale “as is”, with no warranties, inspections, or rescission period, subject to any and all liens and encumbrances, on the county courthouse steps.

Normally, a bank will authorize a bid with the public trustee up to whatever it is owed on the property.  If the borrower being foreclosed on owed $144,000, for example, then the bank which financed the property would bid $144,000. 

But what if the home is worth $200,000?

In this is the case, you can bet investors will take note.  Because foreclosure actions are matters of public record, many investors scour the foreclosure records, looking at each foreclosure filing, how much is owed on the property, and then figuring out roughly what the property is worth. 

If the outstanding loans are close to (or exceed) the value of the home, then it's best to keep looking.  But every now and then, you do find a foreclosure on a property with significant equity.  At that point, for investors, the game is on.

If an investor is willing to buy the house sight unseen, not knowing what it looks like inside, and is willing to pay on the spot with certified funds (no financing), then he or she has a chance to purchase a property with built-in equity. 

The process is fascinating, but also fraught with risk. 

Check out this video:

RE/MAX MASTERS RANKED NUMBER ONE FOR AGENT PRODUCTIVITY

The Denver Business Journal has released its 2009 ranking of Denver’s top real estate brokerages. Here is the list, in terms of sales volume. 

Let's call these, "Rankings by Size":

1) Coldwell Banker – 14 offices, sales volume of $2,363,348,000

2) RE/MAX Alliance – 17 offices, sales volume of $2,135,252,781

3) Kentwood Real Estate – 3 offices, sales volume of $904,038,718

4) Fuller Sotheby’s – 5 offices, sales volume of $715,488,652

5) Home Real Estate – 3 offices, sales volume of $554,140,900

6) RE/MAX of Boulder – 1 office, sales volume of $520,597,438

7) RE/MAX Masters – 1 office, sales volume of $464,280,229

8) RE/MAX of Cherry Creek – 1 office, sales volume of $355,261,098

9) Keller Williams Central – 4 offices, sales volume of $329,288,134

10) RE/MAX Southeast – 1 office, sales volume of $277,350,010

This is an impressive list, and it shows who the “power brokerages” are in the Denver market. In terms of sales volume, my company, RE/MAX Masters, is number seven.

Now let’s dig a little deeper, and take a look at “transaction sides per agent”. This number is calculated by dividing the total number of closed transactions by the number of agents in the office.

Let's call these, "Rankings by Productivity":

1) RE/MAX Masters – 1,726 sides / 101 agents = 17.08 TPA (transactions per agent)

2) RE/MAX of Boulder – 1,237 sides / 84 agents = 14.72 TPA

3) Kentwood Real Estate – 2,231 sides / 157 agents = 14.21 TPA

4) RE/MAX Alliance – 8,834 sides / 658 agents = 13.42 TPA

5) RE/MAX Southeast – 1,342 sides / 117 agents = 11.47 TPA

6) RE/MAX of Cherry Creek – 1,077 sides / 96 agents = 11.21 TPA

7) Fuller Sotheby’s – 1,323 sides / 161 agents = 8.21 TPA

8) Coldwell Banker – 8,695 sides / 1,115 agents = 7.79 TPA

9) Keller Williams Central – 1,396 sides / 350 agents = 3.98 TPA

10) Home Real Estate – 2,532 sides / 794 agents = 3.18 TPA

So which office has the most productive agents in Denver? It’s RE/MAX Masters, which is exactly why I chose to affiliate with this office nearly three years ago.

Significantly, five of the six most productive offices in Denver are part of the RE/MAX network, which makes sense since RE/MAX agents average more experience and more productivity than agents in any other brand. 

If you want to be the best, associate with the best. RE/MAX Masters sets the standard for results.

(To view or print the entire report in a larger frame, click on the image)

CRS 201 - LISTING STRATEGIES

Took two days out of a very busy schedule this week to attend CRS 201, a 16 hour seminar course on listing strategies offered by the Council of Residential Specialists.

First, some background... the CRS designation (which I carry) is widely considered to be the most prestigious credential in real estate, earned by less than 4% of Realtors. 

To qualify, an agent must close a minimum of 75 transactions over a five year period and complete an intensive coursework and seminar program than can add up to well over 60 classroom hours.

Last year, CRS agents accounted for more than 25% of all sales transactions in the United States.  CRS agents had a median transaction count of 21, a production level 350% higher than the national average.

Being a CRS is like playing baseball for the New York Yankees, or singing at Carnegie Hall.  It is a privilege earned, not granted.

So what did I learn this week?  The focus, as always, was on IPODS - Identifiable Points of Difference. 

We talked extensively about the psychology of buyers and sellers in today's market... we were challenged to make our marketing more relevant to buyers by emphasizing "benefits" instead of focusing on "features"... we learned (or relearned) the four pillars of branding... explored "global marketing"... and took a hard look at how we must continue to create value above and beyond what a seller can do on his or her own to remain relevant in the market.

We also role played - a lot.  We were ambushed with hard questions, challenged to think differently and forced to get clarity about what we can and cannot do.  We were put on the spot in front of 35 other top producing agents, forced to think on our feet and challenged to solve problems many others would simply walk away from.  CRS classes are experiences, not events.  They are designed to force change and foster new thinking.

In short, it was two days of excellent personal and professional growth.  The ultimate goal in working with sellers to help them achieve their goals... quickly, and with minimum stress.  If we can effectively market in ways that net our sellers the most money in the shortest period of time, we have a competitive advantage.  And that's what being a CRS is all about.

APRIL TAX-CREDIT MANIA RESULTS ARE IN: 27% INCREASE IN CONTRACTS OVER 2009

If it felt crazy, that's because it was.

I got my last "tax credit deal" under contract around 6:30 Friday night, roughly 5 1/2 hours before the end of the "tax credit era".  Over the past two years, I have helped over 35 first-time buyers take advantage of one of the three tax credits which first surfaced in April of 2008. 

During the final days of April, it was just plain nuts, with buyers scrambling as if they were playing musical chairs and sellers rushing to hurry homes onto the market.  With 6,616 homes under contract in April, we came within 44 homes of recording the largest sales month in the history of the Denver Multiple Listing Service.  And that happened with the most rigid, inflexible and credit-starved mortgage conditions I have seen in 16 years as a broker.

So now what?  What do things look like going forward?

For the next month or so, there will clearly be a hangover in the market.  With first-time buyers traditionally making up 40 to 45% of our market, the deck has largely been cleared.  Interest rates are still ridiculously low, helped by the tumult in Europe and widespread uncertainty about the health of our economy here at home.  The inventory of homes is also low, down more than 40% from the "high water" mark we reached during the summer of 2007.  So there aren't a lot of homes, and buyers are either under contract or exhausted.

Whether it was worth the $30 billion price tag is debatable, but the truth is the tax credit worked.  It picked up the housing market and created a bridge from recession to recovery, at least with the inventory at the entry level, which was unquestionably the most adversely affected by the first phase of the housing crisis.

The entry level has stabilized and recovered (with the exception of condos).  The soft spots in the market are now clearly at the mid-to-high end, but tax credits are not enough to revitalize the upper crust.  For that, it's going to take jobs.  And that is unquestionably where our focus should be going forward.