THE SILENT VICTIMS OF AMERICA'S FORECLOSURE CRISIS

There has been plenty written about America’s four-year foreclosure epidemic, and it’s undeniable that the impact has been felt from Main Street to Wall Street to the entire world.

From media portrayals, we often see “subprime borrowers” and lower middle class Americans (who saw the biggest growth in homeownership rates during the boom years) as the “big losers”.  But consider the following:

- What percentage of this buyer group actually made a sizeable down payment?

- To continue, what percentage made little or no down payment but then pulled freshly created equity out of their homes as values soared?

- And what percentage of these foreclosure “victims” lived for two, three or four years without making a payment as overwhelmed and politically targeted banks dragged their feet on the foreclosure process?

I am not saying the banks are blameless (hardly).  And I am not denying that’s it traumatizing to lose your home, no matter how long it takes for the banks to actually foreclosure or what kind of neighborhood it's in.

But what is the percentage of buyers who had legitimate credit and income… who put sizeable down payments into their home purchase… who didn’t pillage their equity like a piggy bank… who today have lost tens (or hundreds) of thousands of “after tax” dollars as their values have plunged?

Do they have a lobbying group?  Do they picket and protest the banks?  Do we see them interviewed on “60 Minutes”? 

The point is… everyone should think a little more deeply about this whole crisis, how it started, and what lessons can be learned from it.  Because the guy with lousy credit putting no money down wasn’t really having much of an impact on the economy anyways… but the guy whose 401k has been wiped out, who lost his management job when it was outsourced, and who put $150,000 down on his house only to see it vaporize… that's the person whose not taking vacations, not buying new cars and generally living a much more fiscally conservative life. 

Chances are he's still in his home, stewing about all this.  And one thing is for certain:  he's not buying another one any time soon!

One reason I am so bearish on the high end of the market is because there's no way the homeowner who fits this profile is going to sell and move up.  He's been toasted, his equity is gone, and the last thing he is thinking about is buying a bigger home.

Every market is different, but in Colorado, our housing market has slammed into a wall around $500k.  There is just no demand for anything above this point, and I don't see it changing for a long, long time. 

GOOD NATIONAL PERSPECTIVE ON DENVER AREA HOUSING MARKET

Here's a video that ran on Fox News over the holidays that's been making the rounds in local real estate circles.  I think it's a little bit over the top, but I do believe Denver is certainly in the top 20% of markets nationwide and a well-researched home entry or mid-level home purchase today with rates in the 4's will look good for a long time to come, especially compared to rents, which are rising rapidly.

Take a look:

READY TO LAUNCH

As 2012 arrives, the entry level of the Denver market is truly ready to launch.

Why do I say this?

Consider the following…

If you think of the real estate market as a giant conveyor belt, there is one sector of the market that has been rolling at full speed for three years… and that is with buyers coming in to purchase entry level housing, generally priced below $250,000.

Currently, this sector of the market accounts for 34% of all listings, but 59% of all buyers.  There are just 1.25 homes on the market below $250,000 for each one currently under contract, an absurdly tight ratio, and the absorption rate is below 3 months. 

One leg up, in the $250k - $400k price range, the conveyor belt slows.  Here, there are 2.54 homes on the market to each one under contract (still a functional market) and the absorption rate stands at 4.99 months.  In this range, you have 29% of the inventory accounting for 25% of sales, which is basically a balanced market.

From $400k - $600k, the conveyor belt beings to stall out.  There are 3.88 homes on the market to each one under contract, and the absorption rate is 6.79 months.  Home in this category account for 17% of properties on the market, but just 10% of contracts.

Above $600k, the conveyor belt simply stops.  Homes above $600k account for 19% of the inventory, but just 5% of the contracts.  The absorption rate from $600k - $1 million is 12.24 months, and above $1 million, it’s 22.48 months.  There is simply no price support at the top of the market, and I do not see this changing unless there is a radical (and unforeseeable) turnaround in the economy.

The other major theme in our market is lack of inventory.  With fewer than 13,000 homes on the market, we have 36% fewer homes for sale today than one year ago – a stunning turn of events that I can’t recall seeing at any time in my 17 years as a broker.

There are two reasons for the lack of inventory:

1)      Far fewer foreclosures, and

2)      Loss of the traditional “move up” market

Foreclosures are down 50% from the peak year (2007) in Colorado, and the mix of homes being foreclosed upon is very different than what we were experiencing even three years ago.  While the first waves of the foreclosure crisis pounded the entry level of our market, today it’s a mix of entry-level, mid-range and luxury homes that are going back to the lenders.  Statistically, the fastest growth in foreclosures is occurring at the luxury ($1 million and up) level, as buyers simply do not have the courage or faith in the economy to pay retail prices for high end homes in this market.

So what does it mean?

In January of 2011, there were 9,121 homes on the market below $250,000 – and just over 1,000 of these went under contract during the month.

In January of 2012, there will be fewer than 4,000 homes on the market below $250,000.  Over the past three months of the year (traditionally the slowest three months of the year), we have averaged over 1,500 homes per month going under contract below $250,000.

With inventory down 60% from one year ago and the number of monthly contracts up roughly 50% from the same time period, how can we not be on the verge of price recovery at the entry level?

These are not small shifts – this is a 60% reduction in inventory with a 50% increase in demand! 

Very few of the buyers I am talking to have any idea how dramatic this change has been, or what it should mean for prices going forward.

The bottom line is this:  if you can buy a home in today’s market with prices that are 10% to 20% off the peak, with a rate in the 4’s, you should be in fabulous shape for many years to come. 

In a few years, when rates work their way back up to historical norms, FHA assumptions will become as common as short sales, and today’s buyers will see future buyers paying a premium to assume their partially amortized loans with rates in 4’s.

In case this isn’t clear, let’s review one more time:

· The overall inventory of homes for sale is down 36% from one year ago
· The overall inventory of homes for sale below $250,000 is down 57% from one year ago
· Overall demand for homes under $250,000 is up 50% from one year ago
· With just 1.25 homes for sale to each one under contract below $250,000, and an absorption rate of just 2.97 months, there is hardly anything for first-time buyers to choose from and sellers have far more leverage than they have had in four or five years

I’m looking for listings under $250,000 right now, because these homes are salable, and they should be salable at prices better than we were seeing one year ago, or even six months ago.

There is no new construction coming online to compete with these homes, there are far fewer of them being foreclosed upon, and we are seeing a new generation of very well qualified buyers replacing a generation of marginally qualified buyers who were never equipped to make it for the long haul.

The beginning of 2012 will reveal a housing market below $250,000 that is very, very different from the one we have seen over the past few years, and buyers who wait are going to have to be willing to spend a little more and perhaps settle for a little less as values in many neighborhoods begin moving higher.

While the higher end of the market will continue to suffer, the entry level will start the year red hot and burn even brighter by spring.  You can bank on it.

HOW MANY TIMES SHOULD YOU REFI?

I have been in my current home for six years and I have refinanced on two occasions.  A few years ago, when rates first went below 6%, I felt like I was being given a gift and I locked in a rate in the mid 5's.  Then, last year, rates dipped below 5% and I felt like there was just too much money to be saved by refinancing once again.

Now, 30-year rates are near 4% (with 15-year rates in the mid 3's) and I'm hearing the siren song again.

I do not want to paint the picture that refinancing is automatically a great move for everyone.  It can be an expensive proposition, and unless you shorten up your loan term (which I recommend if you can afford to do it), you essentially recast your loan onto another 30 year payment schedule.

You also need equity in your home, which is not something everyone has these days.  And if you made a 20% down payment (to avoid mortgage insurance) and your home has lost value, you may either have to bring in a large amount of money to pay your loan balance back down to 80% of current appraised value, or take on the extra expense of mortgage insurance.

So there are reasons to avoid refinancing, or at least think critically about it, before you sign on the dotted line.  But when the savings are just too great to ignore, it's hard to resist.

The one constant through my six years in this home is that I've always made additional payments on my mortgage each year, without fail.  I set a housing budget six years ago and I've stuck to it... so now, even though my payment is significantly less than when I first moved in, I make the full payment as if it's still my original loan. 

Generally speaking, one additional payment each year on a 30 year loan will shorten the life of your loan by about 13 to 14 years.  That's a huge savings opportunity and solid financial planning.

So now, with 30-year rates around 4.00% and 15 year rates even lower, what to do? 

If I refinance into a 15-year loan with a rate in the mid 3's (essentially the same payment I had on my original 30-year loan, which was in the high 6's), I'll have my house paid for in less than 20 years.  That basically means I own my house free and clear 30% faster than with my original loan.  That's a good deal.

The best thing to do, as always, is to gather enough information to make informed decisions.  Talk to a mortgage lender you trust and see how much money there is to be saved by taking advantage of today's incredibly low rates.  And if home values are a concern, give me a call and I'll be happy to pull some comparable area sales information so you can proceed with clarity and confidence.

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.

IN SEARCH OF THE PERFECT HOUSE

So much has changed over the past few years in the housing market. But one of the biggest changes I have seen is that people have shifted their attitudes, and where housing was once seen as an asset, many people now view a home as a liability.

With that change in philosophy, buyers have become much more focused on buying for the long term. What does that mean? In part, it means that homes with obsolescence (located on busy streets, next to industrial areas, irregular floorplans, etc.) are shunned because buyers believe the home they buy today is the one they will live in for the next 10, 15 or 20 years.

So what characteristics do buyers desire most? Based on my experience, here’s a list of what I think buyers desire most heading into 2012:

1) Value – there it is, the bottom line. Buyers want to know that whatever they buy today will be saleable tomorrow. That means whatever they purchase needs to be priced right and be marketable to other buyers. The three most important words in real estate remain “buy it right”.

2) Location – with buyers looking long-term, the emphasis on quality neighborhoods has never been greater. Buyers want safety and predictability, which means stable neighborhoods around good schools.

3) Condition – if buyers are going to pay “retail” for a home, it needs to shine. No deferred maintenance, no inherited deficiencies. Buyers have very high expectations about the condition of a home, which often makes the inspection resolution process loads of fun for sellers these days.

4) Orientation and Floorplan – for years, I have gotten a lot of mileage from the phrase “Light, Bright and Airy” in my listing descriptions. You know why? Because buyers like like, bright and airy. Especially today, there’s a premium for south facing homes (snow melts faster in the winter) and homes with pass-through light. Our mood is affected by our surroundings, which means it’s hard to sell a dark house, and even harder in the winter.

5) Walkability – another trend on the rise. Because “staying in the new going”, people want walkable neighborhoods with good amenities. Parks, shops and schools in walking distance all count for a lot.

6) Privacy – no one likes a neighbor’s house perched up on the hill overlooking your bedroom. In fact, I can’t think of one buyer I’ve worked with who has said, “Gee, I’m glad my neighbor can watch me get dressed in the morning.” Lot location and orientation is important – privacy is an intangible that sells.

7) Ranches – as the population ages, there's strong and growing demand for one-floor living. Builders can’t build ranches affordably because the land costs too much and buyers are reluctant to pay a premium… but as the Baby Boomers continue downsizing and flatsizing, ranches will come with a greater and greater pricing premium.

8) Space and Flow – If buyers like “Like, Bright and Airy”, they love flowing, open floorplans. Connectivity between rooms is all the rage these days, while “single use” rooms (like dining rooms and living rooms) are on the way out. Show me your great room, baby!

9) Finished Basements – with 28 million adult children living at home today, need we say more?

10) Three Car Garage – those with toys can’t afford to store them and with HOA’s that don’t allow them to be on display, the value of a three car garage (or two cars and a boat, or motorcycles, or jet skis) is going up.

11) Large Closets – I have a middle schooler, so I get it. Kids need lots of clothes, especially in a four season state. Having grown up in Southern California, I would say you need a closet that’s at least 50% bigger to hold all of your seasonal clothes, shoes, jackets, etc.

12) Master Bath – since household size is increasing (thanks to those grown kids coming back home), a nice master bath is a must.

13) Cul-de-Sacs – no passthrough traffic is always a plus, especially if you live near a school.

14) Green Features – there definitely as a rising awareness of all things green, but as the economy has tanked I’ve seen people pull back from this. Can you expect to get your money out of a solar panel installation? In today’s market, I would say no. Good windows count for tons, and a competent home inspector can tell you the difference between quality insulation and toilet paper shoved between sheets of drywall.

THE LOSS OF THE MOVE-UP MARKET

The overall inventory of homes for sale currently stands at 15,533, a stunning 32% drop from one year ago, when we had almost 23,000 homes for sale in the Denver Metrolist MLS.

When you focus only on inventory priced below $250,000, the decline in inventory is a full 50%!  This is a sharp and dramatic disappearance of inventory which demands some explanation.

At this sub-$250k price point, there are just 1.43 homes on the market for sale to each one currently under contract. The absorption rate stands at 3.45 months, well below the 6 to 8 month supply economists refer to as a “balanced” market.

The numbers always tell a story, and because I study numbers and I've been at this for 17 years, I can see the trees clearly through the forest. In fact, what's happening right now is fairly obvious if you simply string the numbers together.

Historically speaking, first-time buyers make up about 40% of the buyer market. So-called “move up” buyers make up the next 40%, with the remaining 20% consisting of downsizers and investors.

In analyzing these numbers, the reality is clear: the move-up market has essentially disappeared.

What does this mean?

In short, it means the homeowner in a $250,000 home who historically would sell to buy one for $375,000… isn’t selling. He has neither the equity nor the confidence in the economy to take on such a move, and so he stays where he is.

The homeowner at $400,000 is even in worse shape. If he’s thinking of selling, it’s to get out from a large housepayment and either buy down or rent. He most certainly is not looking at $700,000 homes. And so it goes all the way up to the $1 million market, where you currently have 15 homes on the market to each one under contract (compared to 1.43 below $250,000).

If you think of it as a conveyor belt, the first leg of the belt, consisting of first-time buyers, is rolling at full speed. There is absolutely no shortage of first-time buyers looking to buy at discounted prices with rates in the 4’s. Any recovery that takes place in housing will most definitely be from the “bottom up” (again, that’s experience speaking), and so these folks who are buying homes at 2011 prices with 1940s interest rates really are in fantastic shape.

The challenge for these buyers today is not fear of the market, but simply a lack of inventory. Because first-time buyers (by definition) have avoided the housing troubles of the past five years, they arrive with clean credit, strong motivation and a better understanding of what mistakes others have made.

The second leg of the conveyor belt, which covers homes priced between $250,000 and $400,000 is running much slower. Buyer demand is not as strong here (although there is still demand). There are currently 3.15 homes on the market to each one under contract, with a functional 6.09 months of inventory.

From $400,000 to $600,000, the pain starts to really set in. Here, there are 4.93 homes on the market to each one under contract and 9.25 months of inventory. This is a surplus of inventory that shows clearly you have more sellers than buyers, and in that situation value loss is almost a certainty.

At $600,000 to $1 million, there are 8 homes on the market to each one under contract. That means that each new seller is competing with 8 other homes – hardly a favorable ratio. Inventory surges to 15.07 months at this price point.

Finally, at $1 million, you have a staggering 15 homes on the market to each one under contract and gruesome 29 months of inventory. Hopeless.

So where is the opportunity in today’s market? Clearly, it’s with first-time buyers and sub $400,000 buyers who have the patience to wait for a great deal.

With three-quarters of Colorado’s builders no longer around, there’s not going to be much new construction coming online any time soon. And because builders cannot build profitably at today’s prices, most will simply wait until there is significant recovery before getting back into the game.

That means first-time buyers today figure to be well-protected for the next several years. With 61% of all contracts coming from just 34% of all listings (the sub-$250k range), recovery starts here.

For first-time buyers today, the hardest part of this market is simply finding something to buy. Because with foreclosures down 50% from the peak and very few people selling entry level homes to move up, there’s hardly anything for sale.

REDFIN’S RADICAL GAME CHANGER

It was called the most disruptive, game changing move in the real estate industry in at least a decade.  And it lasted all of four days.

Redfin, the online-based discount real estate company which only recently expanded into the Denver market, set off waves of panic last week when it launched “Agent Scouting Report”, a new service on its website which did the unthinkable:  it displayed MLS closed listing and sales information for every agent in markets all across the country.

In other words, it pulled back the veil and showed consumers which agents produce, and which agents don’t.  And it was met with howling screams of protest from the moment it launched.

First, some background. 

Myself, I am all for disclosure.  I am for disclosure because I work my tail off, I close more transactions that 90% of my competitors and I have absolutely nothing to hide.  So bring it on.  The Redfin app made me look great, and for those three glorious days of full disclosure, I was walking on air as I strategized how to leverage this awesome windfall of information into even more business for myself.

Behind the scenes, however, Redfin’s move set off fire alarms within the industry. 

Nationally speaking, there are about one million active members of the National Association Realtors.  This year, there will be about four million residential resales.  Do the math, with two transaction sides per deal (buyer and seller), and you see that it averages out to about 7.5 transactions per year, per agent. 

You cannot call yourself a full-time agent, nor provide for your family, on 7.5 paychecks per year. 

Real estate has always been the ultimate turnstile business, with half of all new licensees quitting in their first year and three-quarters of all new real estate licensees walking away during their first three years in the business.  Only the strong – or those with other means of support – survive.

And there’s the rub… because the consumer at home has always had a difficult time figuring out just exactly who is who.  Are you a producer, or a pretender?  Do you close deals, or do you dabble in the business?  Redfin’s new app cranked up the floodlights and put the data out there.

So what happened?

Within hours, backlash and threats of litigation filled the air, most of it tied to the use of MLS data to publish these reports.

MLS, for the uninitiated, is short for Multiple Listing Service.  In most cities, the MLS is a subscriber-based service that collects membership fees from real estate brokers (up to $1,000 per year, in many areas) and provides an online platform for sharing and promoting new real estate listings.  Companies sign "subscriber agreements" with the MLS systems which govern what can and can't be done with the data. 

And in the case of Redfin, a whole lot of agents and companies felt that public disclosure was a violation of those rules.  Many agents called their local MLS boards to complain, or to threaten withdrawl, if Redfin was allowed to publish production data. 

Agents who belong to teams (or who previously have been on sales teams) immediately complained that the data lumped their sales under their team leaders, which made them look unproductive while making team leaders look like giants.  Smaller companies (which often welcome lower-producing agents) felt betrayed by the MLS systems they support, and so the outrage was real and immediate.

With 96 hours, Redfin pulled the plug, finding that the potential price of facilitating this disclosure of information was just too high.

And so, today, the consumer once again lives in the dark. 

It will be interesting to see what happens going forward, because once the Genie pops out of the bottle, it’s hard to put him back.  I am sad to see Redfin’s play foiled, but if it advances the agenda of making more data available to the public and helping the public think more critically about who they are working with, then it has been worth the drama.

A RECURRING CONVERSATION

I’ve been having a recurring conversation lately and it goes like this: “My landlord is raising my rent again it I think it would be cheaper and smarter if I just bought a place instead.”

Three times in the past month, at least six times since the start of the summer, I’ve had somebody bring this story to me. It is not an aberration. Tenants are upset that landlords are raising rents and good units are harder than ever to find.

It’s not going to change any time soon.

Rising rents are a reality, and there is a simple, obvious supply and demand dynamic at work here. When you have 100,000 foreclosures in the Denver metro area, which we have had since the beginning of the housing crisis, you are essentially taking 100,000 households that used to own and converting them back into renters – for at least the next seven years.

And because most of these owners got used to the idea of living in houses, they don’t want to go back to living in apartments.

While apartment vacancy rates are around 5% in the metro area, the vacancy rate for rental is homes is 2%... two percent!!!

In that type of environment, how can you not have rising rents?

For today’s landlords, who are buying foreclosures at discounted prices and locking in mortgage payments with rates in the 4s, there is tremendous long-term upside to this market. For renters, you can see the writing on the wall.

I mentioned at the beginning of this article that I have been meeting with a number of renters who are upset about rising rents. And while I empathize with that, I also want to point out that many landlords have been dealing with years of low rents, high vacancy rates and sinking property values. I’m not going to begrudge them the opportunity to recover some of their losses when the market finally supports higher rents.  This is the market landlords have been waiting on for nearly a decade.

Now I understand that some landlords are jerks – tenants have a right to hot water, clean surroundings and a safe environment. And if your landlord is a jerk, then you should move.

But in my experience, the vast majority of landlords (and certainly the ones I have worked with) are good people who are simply trying to invest profitably in the real estate market. They are neither predatory nor cold… on the contrary, they are exactly the types of people you would want as landlords. They simply don’t get the same press that jackasses do.

And for those people, the investors who have hung on through years of depression in the rental market, there is finally some light at the end of the tunnel.

Economies change. Opportunities shift. For landlords, today’s market is the most promising one we’ve seen in a generation. For renters who can buy into today’s market, with discounted prices and low, long-term fixed payments, there is sweet opportunity.

The truth is, I expect to hear from a lot more renters who think that owning is a better option. And I expect to hear from even more investors looking to take advantage of a red hot rental market.  If you can get your foot in the door of today's market, chances are there are some excellent opportunities for you.

SUPER DIAMOND

My next Client Appreciation Event is coming up October 22, when Super Diamond plays at the Ogden Theatre in Denver.  For the uninitiated, Super Diamond is a nationally-recognized Neil Diamond Tribute Band that puts a contemporary twist on classic Neil Diamond songs, including such well-known hits as "Sweet Caroline", "I'm a Believer" (originally a Neil Diamond song, stolen later by the Monkees), and the patriotic anthem "America".

Just my way of expressing thanks once again to my clients, friends and referral partners.  If you would like tickets to see the show, please contact me.  It's going to be a great time!