Tuesday, August 28, 2012


If you work in the trenches, know anyone looking to buy a house, or subscribe to a newspaper, you probably already know the market in Denver has turned.

Yet, almost every buyer I work with arrives with a residual psychological hangover, a fear-based caution caused by too many years of declining values, distressed inventory, broken promises and financial hardship.  

“How do we know values won’t plummet again?” they often ask.

It’s a good question, and one worth exploring in more detail.

There are actually several arguments you could make in support of future price stability, including strict new licensing requirements for mortgage lenders, an absence of new construction and demographic changes that cry out for more housing inventory.

But I want to focus on two big ones that are game changers.  One is at the government level, and the other is at the individual level.

At the government level, the fact is that the Federal government is up to its eyeballs in mortgages and loan guarantees.  Between Fannie Mae, Freddie Mac and FHA, the Federal government now has a financial stake in nearly 90% of all mortgages originated today.

When the banking industry imploded in 2008, largely under the weight of ridiculously loose mortgage lending practices, the government became the financier of last resort though its sponsorship of the two GSEs and FHA.  

Almost overnight, the role of the Federal government in housing exploded, creating massive liability for the taxpayer and leading to unprecedented overhauls in regulation and lending standards.

With Fannie and Freddie incurring nearly $200 billion in losses from bad loans made during the last boom, the lesson has been learned.  No more risky loans to marginally qualified buyers. 

Since bottoming out in 2008, Fannie and Freddie have radically revamped underwriting standards and as a result of making good loans to qualified borrowers, they two GSEs have already repaid over $46 billion back to the treasury. 

There is no way, however, that any single entity should be holding 90% of the nation’s mortgage loans.  A downturn in values would be utterly catastrophic to the already fragile economic condition of the US government, and it would likely plunge us into a full-blown Depression. 

This is reason number one why the market won’t tank again.

The second reason I can’t see values plummeting again is because of what I call “The Zillow Effect”.  Simply put, clients have access to infinitely more raw data about housing than they have ever had before.  For the first time ever, the housing market is almost fully transparent to the consumer.

Today, I would estimate that half of my clients have the Zillow app on their iPhones.  Using this app, clients can instantaneously pull sales history, assessment information, comparable sales data, and read MLS information directly from their phones. 

It’s incredibly empowering to clients, and frankly, this technology was almost non-existent during the boom years of 2000 – 2005.  Back then, buyers relied on real estate agents for data, and many agents were far more committed to paychecks than protecting their clients from making poor decisions.

You wonder why one-third of the agents in Colorado have quit since 2007?  There are several reasons, including a scarcity of transactions, downward pressure on commissions, and the brutal and often fruitless practice of trying to negotiate short sales.  But the biggest trigger for this exodus, in my opinion, is the pressure of being under an intense microscope with skeptical clients who (rightfully) won’t stand for anything less than full and complete disclosure.

If your business model has been based on anything less than character, competence, hard work and personal integrity, chances are your business is in shambles.

The reason my business has grown exponentially, the reason I have been named a Five Star Professional by 5280 Magazine each of the past three years, the reason I am closing more transactions than ever… is because I have always operated with transparency.  

Transparency will promote you, or transparency will expose you, based upon your ethics.

When a new market emerges, a transparent market where consumers have access to as much data as you do, you can’t fake your way to success.  You either know what you’re doing or you don’t.  You either have your clients’ back or you don’t.  You either tell the truth, or you are quickly exposed to be a fraud.

Truth be told, the real estate market of 2012 is far, far healthier today than most people are willing to acknowledge.  If you can trust the data, if you know the data, if you have a skilled negotiator on your side, and if you can get a mortgage at less than 4.0%, what is there to fear?