BUYERS ARE EVERYWHERE, BUT SELLERS ARE NOWHERE TO BE FOUND

What happened to the Denver housing market in January? 

In short, buyers are everywhere, but sellers are nowhere to be found.  In the continuation of a theme that has been evolving since last summer, listing inventory grew even more scarce in January, while buyers continued pouring into the market, particularly at the entry level.

As of January 31, there were just 10,443 homes in total on the market in the Denver MLS, a 42% reduction from the 17,890 we had at the end of January in 2011.  Yet over the past 30 days, a total of 3,084 homes went under contract, up from 2,667 that went under contract during the corresponding period a year ago.

Under $250,000, which has been the hottest segment of our market for some time, the numbers are even more amazing.  A full 63% decline in the number of homes for sale (3,333 this year vs 8,933 one year ago), with 6% more homes going under contract (1,647 this year vs 1,538 last year).

Are you following this? 

It is literally a stampede for well-priced, move-in ready inventory. 

Below $250,000, we actually have more homes under contract today (3,524) than homes for sale (3,333).  Eighteen years in the business, and I’ve never seen buyer demand so outstrip seller supply.

The story is even more complex, I believe, because while there is no metric to measure it, I have tons of anecdotal evidence that suggests the actual strength in the buyer market is more pronounced than these impressive numbers demonstrate.  The "hidden strength" in buyer demand lies with the large number of buyers (several working with me) who are waiting for the right house, the right floor plan, the right neighborhood, and/or the right deal.  For all the contracts being written, there is an army of patient, discriminating buyers who feel compelled to wait for the "perfect" deal.  

Have your pen ready, that's all I can say. 

As I have discussed month after month, this has been and will continue to be a segmented market.  Below $250,000, things are just sizzling.  From $250,000 to $400,000, the market is pretty functional.  Above $400,000, it starts tailing off and it gets particularly bad over $600,000.  Be careful about generalizations you hear, because the realities at $200,000 are wildly different than what you may see reported regarding $600,000 homes.

Everyone needs a place to live, but due to the economy, the $500,000 buyer of 2007 is a $300,000 buyer today.  The $300,000 buyer of a few years is a ago is a $200,000 buyer today.  And so on, until you run out of segments to downsize into.  At that point, demand so outstrips supply that prices begin to appreciate, working their way up as the market heals.  Recovery always starts at the bottom in housing market cycles, and that is 100% on display right now.

For those who keep waiting for the mysterious "shadow inventory" (bank-owned properties that are allegedly being held off the market until things improve), let me ask you this:  with inventory down 42% overall and 63% below $250,000, why on earth would you be holding anything off the market right now?  If the banks had piles of "secret inventory", we would be seeing it.

With rates in the 4’s and prices offering all-time levels of affordability, buyers are everywhere. 

The question remains, when will the sellers return?

"AVERAGE IS OVER"

On Christmas morning, columnist Tom Friedman (“The World is Flat”) appeared on Meet the Press and made a comment that resonated with me.  He said, simply, “Average is over.”

Those three words connected deeply with me, because I have been expressing this sentiment in different ways with people for the past three years, especially in explaining why the high end of the real estate market is in such trouble.

In short, average is over. 

What that means is that average people simply aren’t going to have the opportunity to buy $500,000 or $700,000 or $1 million houses any more.  Because of global competition, outsourcing, automation… almost every big company in the world today has opportunities to hire help that is either; a) cheaper; b) more skilled; or c) both.

Because of automation, companies are constantly being presented with ways to increase efficiency by decreasing their overhead, otherwise known as “human capital”.  If you don’t become more efficient, you can’t compete.  If you can compete, you die. 

As more and more “little guys” fail, power consolidates into the hands of an ever-increasingly powerful minority.  This is the underlying premise of Occupy Wall Street. 

And as the overall population becomes poorer, the government fires up the printing presses to keep the masses fed, at the expense of future generations.  This is the underlying premise of the Tea Party.

The conditions that caused higher end housing to be so overbuilt between 2000 and 2007 – namely low unemployment and easy credit – are not coming back.

And so we have hundreds of thousands of homeowners who “overbought”, based on a confidence that no longer exists.  The number of truly qualified buyers who can afford (in today’s economy) to live in $500,000 homes is a fraction of the total number of these homes that were built. 

The result – we’re going to continue to see this sector of the market gradually lose air like a tire with a slow leak.  While there is still some demand for these types of properties, it is simply not commensurate with the supply that is available.  Higher end homes will simply keep deflating until equilibrium is reached with today’s economic realities. 

On my Facebook Business Page this week, I posted that I could sum up the housing market for 2012 in 13 words.  “Entry-level is RED HOT.  Mid-level is OKAY.  High end = PAINFULLY BAD.”

Going forward, everyone is going to need someplace to live.  But that place is likely to be smaller, and the simple fact is that we have way more people living in higher end homes than can actually afford them.

THE BEST TIME TO LIST A HOME FOR SALE - NOW!

In Colorado, we have a seasonal housing market.  Historically speaking, inventory is lowest during the month of December, then builds month by month, peaking in May, June and July.  Sales activity follows a similar path, with one small adjustment - whereas the peak inventory months are during the summer, the peak sales months occur in the spring - usually March, April or May.

In other words, sellers list in the summer, but buyers buy in the spring.

So when should you put your home on the market?  Obviously, to catch the March - April - May spring buyer surge, you want to be on the market before the buyers show up.

Take a look at month-by-month listing and sales activity for 2011:

LISTING AND CONTRACT ACTIVITY, MONTH BY MONTH (DENVER MLS)
2011	ACTIVE LISTINGS	UNDER CONTRACT
JANUARY	17,890	2,667
FEBRUARY	17,358	2,841
MARCH	17,707	3,092
APRIL	17,847	3,775
MAY	17,888	3,321
JUNE	18,026	2,903
JULY	17,583	2,960
AUGUST	16,631	2,637
SEPTEMBER	15,533	2,663
OCTOBER	14,156	2,850
NOVEMBER	12,634	2,342
DECEMBER	10,993	1,756

The peak sales month last year was April, while the peak listing month was June.  This trend is one I have seen year after year throughout my nearly 18 years in the business.

My interpretation of why this happens is that, based on hundreds of conversations through the years with buyers and sellers, buyers (especially first-time buyers) make up their minds to purchase over the holiday season and engage quickly once the new year begins.

Sellers often work on a school-year calendar, and assume that listing their home in May or June will allow them to move over the summer, creating the least amount of distraction for their families.

From a strictly financial standpoint, the best time to be on the market is starting in February or March, when buying activity is at its peak and many sellers have not yet come on the market.  (Keep in mind that many buyers look for six to ten weeks before buying a home, which means the serious looking is actually under way by late January)

Of course, no matter when you choose to list, your home must be salable.  In today's fear-based economy, buyers are going to look more critically than ever at a home's location, components, and overall value in relation to the competition.  

But if you're looking for that time of year when you have the greatest probability to sell your home for top dollar, it's the spring market.  Simple supply and demand says if you list with maximum buyer interest against less competition, you'll get the best price.

THE WORLD OF THE ONE PERCENT

In something as complicated as a real estate transaction, let’s face it:  experience matters.

In 18 years as a broker, I have seen dozens of deals go sideways for a host of different reasons.  Sometimes they are legitimate.  Sometimes they are based on emotion overriding logic.  And sometimes they are totally avoidable with a few slight adjustments or corrections in the way certain challenges are addressed.

The fact of the matter is that, above all else, you should hire a real estate broker for his or her experience.  Contrary to the old adage that “experience is the best teacher”, in reality, the far better alternative is to learn from other people’s experience.  It’s more efficient, less costly and it doesn’t hurt nearly as much!

My goal as your broker is to help you negotiate the best possible terms, sidestep the pitfalls and use my 18 years of hands-on experience to close your transaction smoothly.

Having said that, it still must be acknowledged that we are living in a world of new and ever-changing lending regulations, underwriting requirements and a fundamental shift in attitudes about housing.  This means that closing a real estate transaction is more difficult today than at any time in recent memory, and it means there can be no room for complacency or assumptions during the contract period.

A good broker must be vigilant, diligent and always thinking one step ahead.

Here are 100 of the most common reasons real estate transactions fail to close:

The Buyer / Borrower…
1.    Fails to disclose information which disqualifies the buyer from financing
2.    Provides inaccurate information on the loan application
3.    Has late payments after applying for credit
4.    Takes on new debt after applying for credit
5.    Loses job after going under contract
6.    Underwriter refuses to accept sourcing of buyer’s income
7.    Overtime hours used for qualifying are rejected by underwriter
8.    Buyer becomes sick or incapacitated while under contract
9.    Buyers separate or divorce while under contract
10.  Anticipated gift funds fail to materialize
11.  Tax returns obtain from IRS differ from what buyer disclosed
12.  Cannot obtain certified copies of tax returns from IRS in a timely manner
13.  Buyer’s personal circumstance changes and purchasing the home no longer makes sense
14.  Bank statements do not substantiate assets buyer claimed to have
15.  Landlord refuses to verify rental history or provides negative information about buyer
16.  Rates increase before borrower locks rate in, causing buyer to no longer qualify
17.  Loan program is discontinued prior to closing
18.  Child support increases, decreases or stops altogether after buyer is under contract
19.  Buyer cannot provide or obtain divorce decree from courts
20.  Judgments are uncovered which disqualify buyer from financing
21.  IRS liens are placed against buyer’s income
22.  Borrower declares bankruptcy
23.  Underwriter declines file based on “payment shock” compared to previous rent
24.  Borrower changes jobs while under contract 
25.  Borrower has less than two years of work history in a commissioned sales position
26.  Employer refuses to verify likelihood of continued employment
27.  Too much emphasis given to commissions or bonuses in calculating qualifying income
28.  Friends or family members talk buyer out of purchasing once under contract
29.  A more attractive, competing home comes on the market
30.  Inspections cause buyer to ask for unreasonable or unrealistic repairs
31.  Veteran using VA financing cannot obtain DD-214
32.  Buyer has concerns about future planned development in the neighborhood and cancels
33.  “Megan’s Law” – registered sex offender is discovered in the neighborhood and buyer cancels
34.  Buyer gambles away funds required to close
35.  Buyer’s lender closes shop and disappears

The Seller…

36.  Lacks motivation to sell and refuses to cooperate (not uncommon during short sale transactions)

37.   Cannot find adequate replacement property

38.  Rents the home to uncooperative tenants or family members

39.   Removes inclusions previously agreed to in the contract

40.   Cannot clear liens against the property

41.   Fails or refuses to complete inspection repairs to buyer’s satisfaction

42.   Does not own 100% interest in the property

43.   Divorcing spouse, or spouse’s attorney, kills the deal

44.   Has insufficient equity to sell

45.   Attempts to change closing date, possession date or inclusions after agreement is reached

46.   Is in foreclosure and sale date arrives before contract closes

47.   If a short sale, terms from bank are deemed unacceptable by seller

48.   Problems with seller’s replacement home transaction derail the deal

49.   Builder for seller’s replacement home is delayed in construction

50.   Builder of seller’s replacement home declares bankruptcy

51.   Seller of seller’s replacement home declares bankruptcy

52.   Representatives of estate cannot agree on price or terms

53.   Seller loses job and cannot complete transaction

54.   Seller becomes sick or incapacitated and cannot close the transaction

55.   Seller is sued and cannot complete transaction due to litigation

56.   Seller’s HOA is sued and buyer cannot finance into community with pending litigation

57.   Seller dies while under contract

The Property…

58.   Has problems discovered during inspections which cannot be cured

59.   Has condition issues the lender requires remedy for which the seller cannot provide

60.   Property suffers freeze damage and floods

61.   Property has electrical issues and there is a fire

62.   Hailstorm damages or destroys all or part of property

63.   Lightning strike damages the home or inclusions

64.   Is not FHA approved or loses FHA approval during contract period

65.   Has real or perceived structural concerns that concern the buyer or buyer’s inspector

66.  Is subject to environmental issues which cause the buyer to cancel

67.  Square footage does match what was marketed

68.  Property is vandalized during contract period

69.  Property is subject to zoning change which affects desirability

70.  Property tax increases are passed which make the home too expensive

71.  Draws water from a source which is deemed unreliable for future needs

72.  Existing well on the property is not permitted

73.  Septic system fails inspection

74.  Survey reveals faults with boundary lines, encroachments or easements

75.  Excessive claims history makes it uninsurable

76.  Neighboring home is damaged or destroyed, affecting neighborhood’s desirability 

77.  Is not zoned for intended use

78.  Has a special assessment levied against it

79.  HOA declares bankruptcy

The Agent(s)…

80.   Has not properly vetted client’s ability or motivation to sell or buy

81.   Has not educated clients thoroughly enough and they waver at buyer or selling

82.   Loses the confidence of buyer or seller through gross incompetence

83.   Disappears during the transaction

84.   Is fired by the buyer or seller after contract terms have been agreed to

85.   Lacks experience to close a complicated transaction

86.   Does not accurately portray true contents of short sale approval until day of closing

87.   Sues the seller for breach of contract, derailing the transaction

88.   Sues the buyer for having multiple agency agreements

89.   In a short sale, has misrepresented communications with the seller’s bank

90.   Recommends incompetent or negligent inspectors

The Appraiser…

91.   Lowballs the value of the property

92.   Comes from out of the area and does not know the neighborhood

93.   Fails to adequately value certain improvements

94.   Cannot find suitable comparables

95.   Loses license or has lender approval revoked after the appraisal is complete

96.   Is accused of favoring buyer at the expense of seller

97.   Is accused of favoring seller at expense of buyer

Variables…

98.   War, natural disaster or Act of God that affects the economy during the contract period

99.   Title company shuts down, freezing assets held in trust       

100. Government shuts down, freezing accessibility to financing through FHA, VA and GSE’s

My clients know that I write “tight” contracts and I don’t skip over anything when it comes to reviewing the 15 page Colorado Real Estate Commission purchase contract, the eight page listing contract or the six page buyer agency agreement.

I often explain my meticulous approach to going over contracts by saying that “I live in the world of the one percent,” which means I am always thinking about things that have a one percent chance of happening… but when you have been licensed for nearly 20 years, you have seen what can happen to agents who haven't given thought to every contingency.  

The point of this article is simply to let you know that the decision to hire a broker is an important one, and it should not be entered into lightly.  If your agent isn’t talking to you about the “world of the one percent”, chances are he or she hasn’t been there, or worse yet, doesn’t even know it exists.

OVERDOSING ON GARY V

A few weeks ago, I posted a review on this site of Gary Vaynerchuk’s new book, “The Thank You Economy”.

In the book, Vaynerchuk makes the argument that the Internet is creating an age of transparency which will create more turbulence, change and opportunity than we’ve ever seen before.

If your product is good and your service is sincere, social media will be the fuel that propels your business to greatness.

If your product is stale and you don’t care about the end user, social media will be the demise of your organization.

For Vaynerchuk, there is no middle ground. You either go all in with customer service, listening to your audience and doing whatever it takes to bond with them in a real way… or you ignore them, oblivious to the consequences of neglect in the age of social media.

Watch the video link I have embedded in this post. Just go ahead and launch it, and let it run in the background while you work on other things. Listen to what Gary says about the radical changes taking place in the way consumers shop for products and services, and tell me if his arguments don’t make perfect sense.

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.