Let me put
one thing out there, right off the bat.
In 2014, my average closed sales price is $331,000. I’ve closed a half-dozen sales of $500,000 or
higher, and I’ve sold nearly $8 million in real estate so far this year. I’m very happy with my mix of clients, and I successfully
help people at all different price points.
Having said
that, I don’t make decisions about who to work with based solely on price. Because my business is 90% referral-based,
relationships are the true currency of my business. And so I make decisions about who to work
with based not just on commission potential, but also on my assessment of the
person I’m talking to and whether or not I can actually help them.
Yesterday, I
spent nearly two hours in dialog with a referred prospect who wants to buy a
home on the west side of town. All good,
except he wants to keep his principle and interest payment under $1,000 per
month.
The problem
with that, when you run the numbers, is that the payment he’s looking for
equates to a purchase price of about $200,000.
And that, unfortunately, is a market that doesn’t exist anymore.
Here are the
facts. Denver is as hot a real estate
market as there is in the country, and it has been for two-plus years. Active inventory – currently about 8,700
homes in the metro area – is down a whopping 17% from a year ago, down 48% from
three years ago and down 72% from 2007, when there were more than
31,000 homes listed for sale in the Denver MLS.
Transactions
are up. A lot. Over the first eight monthly reporting cycles
of the year, there have 47,516 homes to go under contract in the Denver
MLS. During the corresponding period one
year ago, there were 41,383. That’s an
increase of 13%.
If you go
back to 2011 and measure contracts in the same period (26,155 vs 47,516), the
number of contracts in the first eight months of the year is up 81%. That's frenzied.
Here’s what
it means. When inventory isn’t there,
and buyers are everywhere, prices go up.
We’ve had no inventory, by the standard of historical norms, for two
solid years. And with inventory
nosediving once again in August, down 17% YOY, market conditions appear to only
be getting tighter.
So there’s
less for sale, prices are already up significantly, and guess what… buyers are
still kicking down the gates trying to get into the market. What’s happening here is not, and has not
been, a small deal. It’s huge, so huge
and ongoing that Denver is rapidly becoming a “high cost” market.
As I wrote a
few weeks ago, a major factor in this is the Fed’s intervention into the
bond market since 2009, which has created artificially low rates that have made
refinancing an obvious choice for anyone (especially in 2012-13) with equity and a
job. The net result of that
intervention, a policy the Fed will terminate by the end of this year, is that we
have a generation of recently-refinanced homeowners who are addicted to low
payments, which is what you get when your monthly payments are based on a 3% or
3.25% or 3.50% mortgage for the next 30 years.
For these
people, selling and moving up makes little sense now, because they will be hit
twice… once with a higher interest rate, but also with home values that have
gone up 20% or more. For many of them, adding
an extra bedroom or picking up a larger yard would recast their existing payments
upward by 45% to 60%, and that’s just not worth it.
“We’re not
going to list, but do you know the name of a good contractor? We want to finish the basement.”
So these people simply aren’t selling, and that’s making our price escalation
even more dramatic.
The gentleman
I dialoged with yesterday is a nice guy.
Thoughtful, intelligent, trying to do the right thing. But the bottom line is I don’t have the
ability to go back in time. Try as I
may, I cannot find a magic wand.
The search I
ran for him yesterday… 3/2 single family detached homes, under $200k, in Littleton,
Lakewood, Wheat Ridge, Morrison, Golden, Arvada, Broomfield or Westminster…
turned up eight homes. Eight. How awful must those eight be to linger on
the market when five years ago, there would have been 200 or more sub-$200k
homes for sale at any point in time?
You can say
you want to buy a fixer, you can say you are willing to do some work, I hear it
all the time. Until you walk in and
there’s standing water in the basement, holes punched in the drywall, pet urine
in every square inch of carpet, mold growing in the closets and foundation
cracks in three of the four walls.
Then, suddenly,
most people reconsider this romanticized vision of "buying a fixer".
I went back
and ran some amazing numbers to demonstrate for this prospective buyer how
dramatically things had changed.
Between 2008
and 2012, over a five year period, I personally helped 64 buyers purchase homes
in the Denver metro area for less than $200,000. That's more than 12 per year, on average. Then in 2013, the number fell to four. This year, I’ve had one buyer successfully purchase
a home for less than $200,000. One.
I’ve had
several others who thought they were in the market to buy, only to chase after
fleeting inventory for weeks or months, constantly beaten out by investors or
cash buyers (or those armed with the resources of The Bank of Mom and Dad),
before eventually capitulating and signing another lease or moving back in to
their parents’ basement. For them, game
over.
The era of
sub-$200,000 house in Denver is a thing of the past. It lasted for a hundred years, but in 2013, the clock finally ran out. Today, $250,000 is the
new $200,000. If you can’t write that
check, then you may want to start looking for a roommate.
The next big
booms are coming in the outlying areas… the Firestones, Daconos, Brightons and
Strausburgs. Places where, if you’re
willing to drive and take on projects, you might still have a chance for less
than $200k.
But the game
has changed, and if you didn’t get in when you had the chance, the window isn't just closing, it's almost nailed shut.
This isn’t
the Denver you grew up in or knew even 10 years ago. It’s a bigger, more sophisticated, wealthier,
increasingly metropolitan place. It’s
drawing people from everywhere, but especially from California, where high
taxes, crummy schools and ridiculous home prices are driving people toward
saner places.
Places where
the sun shines bright and there’s lots to do.
Places where there are good jobs and plenty of opportunity for anyone
who is willing to work. Places where it’s
possible to enjoy an amazing sunrise or a remarkable sunset almost every day of
the year. Places like Denver.
Places like
that are really awesome places to live.
They just don’t have homes for less than $200,000 anymore.
