Thursday, May 29, 2008


The number of suspicious activity reports related to mortgage fraud increased 31 percent in 2007 compared to the year before, to 46,717, with 60 percent of those incidents involving false claims on loan applications such as employment history and claimed income.

That's according to an annual report on mortgage fraud by the Mortgage Asset Research Institute (MARI), which said Florida and Nevada led the nation in the rate of suspected mortgage fraud cases, followed by Michigan, California, Utah, Georgia, Virginia, Illinois, New York and Minnesota.

Colorado showed the greatest improvement in this year's report, falling from ninth place last year to 17th, and leaving MARI's list of the top-10 states for mortgage fraud for the first time in five years.

I work hard to educate my buyer clients about what has happened in Colorado over the past few years... how we were one of only two states in the country to have no licensing or registration for mortgage brokers until 2007... how builders, lenders and appraisers have worked in tandem to overvalue new construction... and how the Colorado Real Estate Commission (CREC) has brought down the hammer on those who cheated the system over the past few years.

In 2005, Colorado led the nation in foreclosures per capita. In 2006, we did it again. In 2007, we fell to 12th. And this year, the Mortgage Bankers Association says we're 20th in foreclosures and 40th among the 50 states in delinquencies.

There's no question we're trending in the right direction.

Sunday, May 25, 2008


This is just a fun little exercise with architectural jargon, but when it comes to negotiating repairs it's important to know the difference between a banister and a baluster. While sophisticated HGTV fans may know their antae from their astragals, as it were, a few stubborn terms are still routinely confused -- sometimes even among architects. Here are the usual suspects:

Cement/concrete: Cement refers only to the powder that hardens when you add water. If you add sand and aggregate to the mixture, though, you get concrete. So strictly speaking, a cement mixer should be called a concrete mixer.

Sash/window: The part of a window that moves is called the sash. The whole shebang -- sash, jambs, sill and everything else -- is called a window.

Mullion/muntin: A mullion is a heavy vertical or horizontal member between adjoining window units. Muntins are the narrow strips of wood that divide the individual panes of glass in traditional sash. In the case of so-called "simulated divided lites," grilles resembling muntins are either sandwiched between double glass panes or else installed over the outer surface of the glass to give a divided look.

Trim/casing: On the outside of a house, the decorative frame around a door or window is called trim, while on the inside, the same thing is called casing. Go figure.

Sliding door/pocket door/bypassing door: The term sliding door refers only to the sliding glass variety that usually leads outside. Those interior doors that disappear into a slot in the wall, on the other hand, are properly called pocket doors. To make things more confusing, the type of paired closet doors that slide past each other aren't called sliding doors either -- they're called bypassing doors.

Girder/header/beam: In wood-frame construction, a heavy horizontal member is called a girder if it's below floor level, a header if it's over a door or window, and a beam if it's pretty much anywhere else.

Wall/partition: Structurally speaking, a wall is always bearing, while a partition is always nonbearing. In most houses, the exterior walls and at least one wall running down the middle of the house are bearing, while all the other walls -- er, partitions -- are nonbearing. Since these two varieties aren't always easy to tell apart, it's prudent to call in an architect or engineer before you go tearing out either one.

Shingle/shake: Wood shingles are sawn by machine and are relatively thin. Wood shakes are larger and thicker than shingles, and are split from a solid block of wood rather than sawn.

Flue/vent: Both of these things stick out of your roof, but a flue exhausts combustion gas from a fireplace, water heater or furnace -- anything with a flame -- while a vent leads those nasty gases in your plumbing system to the atmosphere.

Banister/Baluster: Banister refers to the entire railing on a staircase. Balusters are the individual uprights in any railing, whether on a stair, a balcony or whatever. So it's fine to slide down the banister, but you probably wouldn't want to slide down the balusters.

Friday, May 23, 2008


Wait a minute - this can't be right! Colorado home values are... rising??

There's a whole education waiting to be had on the methodologies behind those reports that tell us the sky is falling on the housing market. (For an interesting dissection of the gloom and doom "Case-Shiller" index, also known as the "Bubble Market Index", see this recent article by Bernice Ross: PUT A GAG ON CHICKEN LITTLE )

The chart above is from the OFHEO - the government agency responsible for monitoring the financial health of mortgage giants Fannie Mae and Freddie Mac.

What's unique about this report? Well, since Fannie and Freddie only purchase conforming loans up to $417,000, the snapshot here reflects properties with loans of $417,000 or below where people actually had to go through some qualification process to get financed. It's a good representation of the core of our market.

Among Colorado properties with Fannie/Freddie financing, OFHEO reports year-over-year appreciation of 2.3%.

Hardly scintilating returns, but hardly the meltdown you've read about in the Denver Post, which recently reported that Metro area home values fell 10% last year, based on a drop in the median price (see my post from two weeks ago for more about this).

I'll say it again... yes, there is distress at the bottom of the market, which is also where most of the junk loans were made. Because of this, there's a lot more activity at the bottom of the market - hence, the drop in median price. There are winners (first-time buyers) and losers (low-end sellers competing with bank foreclosures). But the notion that our housing market is universally down is just wrong.

Inventory is falling, foreclosures are slowing, interest rates are low (but starting to creep up, due to $130 per barrel oil) and there are deals to be had, especially at the lower price points.

Tuesday, May 20, 2008


I received a couple of emails overnight about our posting on interest rates... interesting stuff!

Yesterday's post compared buying a home for $210,000 with 20% down at a 30-year fixed rate of 6.0% with buying a home for $189,000 (10% less) with 20% down at a 30-year fixed rate of 7.0%.

The premise is that, as the economy recovers - and even if housing prices fell another 10% (which they won't, at least here in Denver) - interest rates would have to go up as a consequence of the Fed flooding the economy with "cheap" money.

Here's the skinny:

Buying a home at $210,000 with 20% down would give you a loan of $168,000. Your monthly P&I at 6% would be $1,007. Over the life of the loan, if you never made a prepayment, you would pay a total of $194,608 in interest.

If you waited a year, and if homes fell another 10% in value, you would pay $189,000 for the same home. An 80% loan would be in the amount of $151,200, and at 7% interest your monthly P&I would be $1,006 (you saved a dollar). With the higher interest rate, you would pay a total of $210,937 in interest over the life of the loan, or $16,329 more than if you purchased today at 6%. However, since you opted to wait a year, you also likely paid rent for an additional 12 months, with no tax benefit or principal paydown whatsoever.

And, of course, if the market doesn't drop 10%, it's even worse.

I'm not telling you what you should do... there are many factors that go into deciding whether homeownership is the right choice for your circumstance.

But if you believe in today's low-rate environment that waiting out the market for another year is the "smart" choice, understand that unless you're an all-cash buyer, it's the lender who finances your loan who is going to be the real winner.

Monday, May 19, 2008


Last week, Freddie Mac reported that the average 30-year fixed interest rate was 6.01% for loans originated between May 9 and May 15. Mortgage rates hit their low-water mark for the year the week of January 24, when grave concerns about the national housing market and speculation about a severe recession drove 30-year fixed rates down to 5.48%.

Since then, the Fed has cut short-term rates seven times in seven months, creating a season of "cheap money" that is pumping up the stock market while speeding recovery to the housing market in many parts of the country (FYI and to be reported soon - market time for homes in Southern California has fallen from 15.6 months in January to 5.88 months in April... and 26% more homes sold in April of 2008 than in April of 2007).

Because of this, in my opinion, the Fed is done with rate cuts.

So what does it mean?

Any conversation about housing prices really needs to be looked at two ways. First, there is the issue of what a home costs... but just as important is a discussion about monthly payments.

And that's where todays fence-sitters begin to lose if and when rates start to rise.

Ponder this excerpt from Time Magazine's February 2008 article "Ignore the Headlines":

Consider a typical home that sells for $210,000. You put down 20% and get a 30-year fixed-rate mortgage at today's rate of 6.0%. Monthly principal and interest come to $1,007. Let's say that 12 months from now the same house goes for 10% less, or $189,000. But by then the recession is history and the Fed is jacking up rates to stem inflation. If mortgage costs rise a point, to 7.0%, your monthly payment would be $1,006 and you'd have saved nothing. Meanwhile, home prices might steady and sellers might become less willing to negotiate. And you have spent a year living someplace you'd rather not be.

Can you see the risk you run by trying to time the market? Homes are plentiful, rates are low and sellers are motivated because they see no good news in the headlines... yet.

It's coming, though. And when it does, what will it mean to you?

Friday, May 16, 2008


There's good news today out of Washington, where mortgage giant Fannie Mae has announced it will discontinue its "declining markets" policy June 1.

The controversial initiative, launched earlier this year, increased downpayment requirements for hundreds of thousands of borrowers in areas (including Denver) that were "redlined" by Fannie Mae for having experienced declining values.

So what does it mean?

Beginning June 1, buyers using Fannie Mae loan products will have the option of making lower down payments when purchasing a home. Increased flexibility with down payment requirements should bring more buyers back into the market, which bodes well for a further draw-down of our available housing inventory.

Thursday, May 15, 2008


Once a property is "under contract", there are basically four hurdles to clear to get to closing.

1) Inspection
2) Apprisal
3) Title/HOA
4) Financing

Now this is not an all-inclusive list. There are, in fact, many things that can derail a real estate transaction. But these are the "big four".

With the high number of bank-owned properties on the market, home inspections are more important than ever.

Here is a partial list of what your home inspector should be looking for when your property is inspected:

  • Siding: Looking for dents, buckling or deterioration
  • Foundation: Looking for cracks or water seepage
  • Exterior brick: Looking for cracked bricks or mortar pulling away from bricks
  • Insulation: Looking for condition, adequate condition for climate
  • Doors and Windows: Looking for loose or tight fits, condition of locks, condition of weatherstripping
  • Roof: Looking for age, condition of flashing, pooling water, buckled shingles, or loose gutters and downspouts
  • Ceilings, Walls and Moldings: Looking for loose pieces, drywall that is pulling away
  • Porch / Deck: Loose railings or steps, signs of rot
  • Electrical: Looking for condition of fuse box / circuit breakers, number of outlets in each room
  • Plumbing: Looking for poor water pressure, banging pipes, rust spots or corrosion that could suggest leaks, sufficient insulation
  • Water Heater: Looking for age, size adequate for house, speed of recovery, energy rating
  • Furnace / Air Conditioning: Looking for age, energy rating.
  • Garage: Looking to see if exterior is in good repair, condition of floors, operability of door mechanism
  • Basement: Signs of leakage or prior standing water, musty smell
  • Attic: Looking for adequate ventilation, water leaks from roof
  • Septic Tank (if applicable): Adequate absorption field capacity for the percolation rate in your area and the size of your family
  • Driveways / Sidewalks: Looking for cracks, heaving pavement, crumbling near edges, stains

Remember, an inspector's job is not to tell you whether or not you should buy a home, but rather to create a detailed "punchlist" of every defect he can spot with a visual inspection.

Once this step is completed, we sit down and work on a strategy for negotiating repairs with the seller.

A thorough home inspection should cost betweeen $300 and $400, but it's about the most important "pre-closing" investment you can make.

Saturday, May 10, 2008


Just kidding. But I had to have some fun with this... it's about the only way I can keep my sanity.

Headline last week in the Denver Post:



Bad reporting. Inaccurate, bad reporting.

The Denver Post is reporting on the "median" home price, which is that point of equilibrium where as many homes sell "above the number" as "below the number". In April, as many homes sold below $222,500 as above $222,500, giving us our median price.

With 80% of Metro Area foreclosures priced at $240,000 or below, and that being the "hottest" segment of the market for buyers, where else do you expect the median price to go?

As I have cited previously in this blog, if you eliminate foreclosures and short sales from MLS statistics, we have seen about 5% appreciation in prices for "non-distressed" homes over the past two years.

When an abundance of low-priced homes sell, the median price falls.

Now, there is distress at the lower levels of the market... no doubt about it. And that points to some tremendous opportunities for investors and first-time buyers, and a lot of heartache for homeowners in some areas.

But when you start pushing up into the $300,000 range, foreclosures become scarce. And as you move even higher, buyers and sellers find themselves working through a pretty normal housing market, one that doesn't jive with the scary headlines in the Denver Post.

Friday, May 9, 2008


Active Homes on the Market as of 4/30/08: 26,171
Active Homes on the Market as of 4/30/07: 27,757
Change: - 6.06%

Homes Under Contract as of 4/30/08: 6,287
Homes Under Contract as of 4/30/07: 6,417
Change: - 1.85%

Homes SOLD in April 2008: 4,265
Homes SOLD in April 2007: 4,395
Change: – 3.05%

As I mentioned last month, these YOY (year-over-year) statistics are tough to get a handle on because the rules of the game when it comes to financing were completely different 12 months ago.

It has become so much more difficult for many buyers (and investors) to secure financing that one would logically presume a falloff in sales activity, yet that is not the case.

ACTIVE inventory has fallen by more than 6% from one year ago. There were an additional 1,586 homes on the market in April of 2007. Falling inventory is a key indicator of a firming market.

We have about 2% fewer homes under contract than a year ago, and there were about 3% fewer sales in April of 2008 than in April of 2007. With the changes in the mortgage market, however, these numbers still look pretty good.

Now let's drill down a bit further:

The number of active condos on the market has fallen by 17.13% from one year ago. With 80% of our foreclosures priced at $240,000 and below, the condo market has been hit hardest of all. However a 17% reduction in inventory suggests that renters are investors alike realize its cheaper to own than to rent now in many areas of town.

Days on market has fallen to 103 for single family homes, a decline of about 5% from one year ago.

Days on market is a very deceiving statistic, in my opinion, because you have a mix of overpriced homes on the market that will likely never sell and occasional "screaming deals" that get picked off in two or three days. From all that, you get an "average", and I just don't know how much you can figure out with this number.

Well priced homes in good areas sell quickly. Overpriced homes in down areas do not.

My best advice here is for us to really thoroughly analyze what's happening in your subdivision, because submarkets are everything right now.

It's a "professional's market"... so choose your counsel wisely.

Thursday, May 8, 2008


Just a quick note to say I have posted my newest referral directory online at

One click will take you to a roster of service professionals and tradespeople who deliver great service and affordable prices.

Have a recommendation for my directory? Let me know about it!

Monday, May 5, 2008


Think it’s tough to find a nice place to live? The single family rental vacancy rate (homes, not condos or apartments) fell to 2.8% in the first quarter, the lowest figure in the 19 years the statistic has been tracked in the Denver Metro area.

Unemployment is at 4.4%, Colorado’s population is growing by over 2% per year, and we just had our largest “in-migration” year since things were going strong during the tech boom of 1998 – 2001.

New construction permits fell by 49% last year as builders shut down operations. The “credit crunch” has transformed over 40,000 former homeowners into renters, and restricted lending guidelines are making it more difficult for entry level buyers to purchase a first home.

Where do you think rents are going from here?