Wednesday, May 25, 2011


As federal regulators debate whether to save, reinvent or shut down mortgage giants Fannie Mae and Freddie Mac, there has been increasing discussion of what mortgages should look like going forward.

One provision of the newly-enacted Dodd-Frank Wall Street reform law requires lenders to hold on to at least 5% of the credit risk for anything other than a "safe" mortgage, which is defined in part as a mortgage with higher credit scoring requirements for the borrowers and a minimum 20% down payment.  Because smaller lenders simply do not have the reserves to carry 5% of the credit risk for very many loans, smaller down payment programs are very much at risk.

So should 20% down payments become the "new normal" for home ownership? 

Space doesn't allow me to adaquately explain all the reasons this will destroy the housing market, so let's just start with a few common sense items:

* A 20% down payment requirement will eliminate 75% of first-time buyers, destroying values at the entry level.
* A 20% down payment requirement will simply be unaffordable for higher end homes, destroying the high end of the market.
* With home prices down by 10% - 40% in different parts of the country, and interest rates currently below 5%, the market should be a less risky place for lenders, not one that's more risky.

In other words, now is not the time to be nailing the barn door shut on home ownership.  With Fannie, Freddie and FHA touching nearly 90% of the loans being made today, any talk of a mandated 20% down payment requirement for home ownership is absurd, and it makes me think the regulators and politicians talking about it are either ignorant, stupid or simply looking to shake down the real estate and lending industries for additional campaign contributions.

Any way you slice it, this is a bad conversation to be having.

This does not mean we should go back to the old way of doing business.  But it does mean that the market of today is fundamentally safer than the market of five years ago (except at the high end of the market), because the people who never should have been allowed in have mostly been flushed out of the ownership market. 

But enough already with trying to correct the mistakes of 2005.  It's 2011, and we need to be finding new ways to make home ownership safe, enticing and affordable.  Instead, we've got regulators who think the only way to save the market is to utterly destroy it.

Tuesday, May 17, 2011


Not a surprise... just a fact. 

After 50 years of progressively smaller household sizes, a U.S. Census Bureau report says households grew larger between 2000 and 2010. The primary reason, according to the Census Bureau, was the faltering economy.

One recent study done by an Ohio State University professor reported that the number of adults between 19 and 29 living at home with parents increased from 25% in 1980 to nearly 35% in 2010.  A larger number of immigrant households also helped to reverse the trend toward smaller households. 

What does it mean? Finished basements, egress windows and extra baths can make a real difference when it comes to resale, especially in smaller homes.  And once the economy does begin to improve, it's very likely that millions of younger Americans currently tucked away in spare bedrooms or finished basements will be looking for a place of their own.

Tuesday, May 10, 2011


Looking for three current themes in the Denver area housing market?  Try these:


The latest snapshot of inventory showed that there are currently fewer than 18,000 homes listed for sale in the Denver MLS.  That's a reduction of 14.8% from one year ago, and it's a drop of more than 30% from just three years ago.  So where did the inventory go? 

First, you don't have as many foreclosures as you have had in years past.  A small part of that is the processing delays many servicers have incurred as a result of last year's "robo-signing" scandal, but the larger part is simply that we don't have as many homes being foreclosed upon.  At some point, the orange runs out of juice, and that's what you're seeing at the entry level of our market, where most of the foreclosures have occurred.

Now I will say that foreclosures are increasing at the higher price points, and I expect this trend to continue.  But the fact is from a shear numbers standpoint, there are more entry level homes than luxury homes, and at the entry level we've seen most of the foreclosures already pass through the system.


Looking for evidence of more stability in the market?  Start with absorption rates. 

The absorption rate, as discussed here many times, is a hypothetical calucation that seeks to show "how many months it would take to sell all inventory on the market, based on the current pace of sales, if nothing new were to come on the market."   Economists will tell you that six months of inventory represents a balanced market... higher than that reflects a surplus of inventory, less than that reflects a shortage of homes.

Below $250,000 the absorption rate has fallen from 9.05 months in January to just 3.75 months today.  That's a drop of nearly 60% in just five months!  From $250,000 to $400,000, the absorption rate has fallen from 11.83 months in January to 5.71 months today.  Above this, the drops are not as dramatic, but that's because the market simply lacks enough buyers for higher end homes, so you are going to continue to see a different picture once you work your way beyond about $350,000 to $400,000.

The point is (and I have current buyers experiencing this), there is not much out there right now up to about $300,000.  There's less bank-owned inventory, and sellers have finally realized that this is not a great market to sell into unless your motivation is very, very strong. 

A lack of inventory, however, does not automatically equate to a seller's market - what is in demand is well-priced inventory in good condition. 

Price it right and make it show well, and your chances for a sale are very, very good.  Price it wrong, and the parade just passes right on by and continues looking for the next well-priced, well-maintained home.


As of this writing, 30-year fixed rates have dipped back down below 5.00%, which continues to be the gift that keeps on giving.  A Japanese earthquake and tsunami, stubborn U.S. unemployment, and continued pessimism over recovery are keeping bond yields low, despite $2 trillion of government spending, $100 per barrel oil and rampant inflation in commodity prices.

Are we on borrowed time with interest rates?  Yes, just like we've been for the past two years.  There will come a day of reckoning with interest rates, and it will likely be this year, but I will admit I have been bracing for higher rates for the past 18 months and they've yet to arrive in the way I expect we will eventually see them.

I do believe when rates bump up it will happen quickly, without warning, and it will be for good.  30-year fixed rates in the 4's are totally contrarian to current economic policy and global commodity price inflation.  Whether your interest rate is 4.50%, 5.00% or even 5.50%, one day soon you will look back in amazement at this golden era for cheap money.

What does it all mean?  In reality, we have a very functional market.  There is less sales activity, which is bad for brokerages and salespeople who rely on "the market" to bring them business.  But there are fewer "dead listings" and plenty of motivated (but value-oriented) buyers who are keeping the good agents exceptionally busy. 

Sellers can sell and buyers will buy, but only if there is value in the deal.  That's the bottom line.

Monday, May 2, 2011


I the privilege of seeing Tim Tebow speak Friday night at a local private school fundraiser in Arvada. While the past few years have made it easy to become skeptical about celebrity athletes, I think Tebow is the real deal.

In a 40 minute presentation, unscripted and without notes, Tebow laid out a plan for living life to the fullest in front of an audience of about 2,000 students and parents.  His three key points were as follows:

1) Live with Passion

Life is too short not to care. Life is too short to do things you don’t enjoy. School isn’t just about learning book knowledge, it’s about developing your passions and figuring out what you want to do with your limited time on this earth.

2) Develop the Courage to Stand Alone

If we are going to live principled lives, we won’t fit in every situation and sometimes we’re going to be in conflict or disagreement with others. Speaking to a room full of 10 to 18 year olds, this was a great message. Standing alone doesn’t mean wagging your finger in the face of others when they make different choices, but it does mean knowing what you believe and understanding that’s it okay to stand alone, with your principles.

3) Finish Strong

Finally, in every situation, finish strong. If you make a commitment, keep it. If you start a project, finish it. If you become frustrated, endure and understand that finishing strong is the greatest satisfaction there is in any situation.

Tebow said that his philosophy on the football field is to be the toughest, strongest and most resilient player on the field. The last man standing. The player no one wants to face.

In an era of celebrity and self-absorption, it was great to hear Tim Tebow speak of passion, principle and courage.  I have heard it said that money doesn't make a person - it simply makes a person more of what they already are.  My hope is that my kids will see Tim Tebow use the platform he has been given to continue to stand up for passion, principle and courage, traits that every young person is going to need in order to succeed in the years ahead.