They posted this today. Here is an except:

Agents spend inordinate amounts of time warding off knuckleheads and brokers provide little in the way of true leadership and value back to agents. Consumers can’t distinguish one brokerage from another… because almost all of them hire too many lame agents.

My agents must be different. Better. Smarter. If I can’t get them, I don’t do it.

If I can’t get them, I don’t do it.

Modern brokerage can learn a lot from Pepsi. They cut their teeth on TV advertising. They just skipped the Super Bowl to invest in social media. The ROI is far greater in social media, whose premise is not making the founders of Facebook and Twitter gazillionaires, but instead on earning permission assets one person at a time.

www.irs.gov/pub/irs-pdf/f5405.pdf

Right now, the IRS is requiring all who claim the credit to mail in their returns (no e-file) and to expect a 4 month delay.

More people took advantage of the credit than planned and there was also some pretty horrible fraud. There are cases of individuals who were first-time buyers over 100 times in 2009. Talk about “duh factor”… in any event, the IRS is still going ahead with the credits, you can get the credit, you can amend previous year’s returns… you just have to wait awhile since they are demanding:

1. Prove it
2. Earn it.

Updated Market Data

The 2009 Sales Year ended dramatically different than it began.

January was the depths of doom and gloom, lots of listings, lots of fear, skyrocketing job losses, Wall Street hemorrhaging.

Now, we’re back to worrying about Simon Cowel leaving Idol and “shocked” at the admission Mark McGwire used steroids. In other words, the economy is no longer a paramount concern.

But housing is. Last year, 62% of first-time buyers purchased a home because they had strong sentiments about home ownership. The good value rationale was sited as the number one reason among only one in ten respondents to the National Association of REALTOR’s Profile of Home Buyer’s and Sellers.

Locally, this bore itself out with a dramatic shift in the marketplace. The under $250,000 market improved throughout the year, while the $250,000 to $325,000 market made headway… and above $400,000, things actually got worse. Right now, 38% of all listings are over $300,000. Yet only 16% of all sales in 2009 were over $300,000.

Read more at Colorado Springs market leader in real estate information you can use, THE STAT PACK!

To download the book, do so here: What Matters Now

To read about the Goal of This Where-to-Buy Series of Posts, Click Here.

To find out the recommended areas that have probably swung past the bottom of the pendulum and are already appreciating, read about The Green Lights. To see the Data for the Green Light Neighborhoods, that is found HERE.

For the bigger risk takers (but probably where the timing favors a turn to appreciation in later 2010), The Yellow Light areas are documented HERE. Note: I accidentally omitted Gleneagle in that post, which has stabilized pretty significantly in the last 18 months and will probably be in appreciation-mode by 3rd quarter, 2010. Up-to-Date Market Data is found here at THE STAT PACK link of www.BenjaminDay.com.

RED LIGHTS

The Red Lights for the most part represent neighborhoods where the average selling price is over $400,000. In some cases, even in the boom years of 2004 through early 2006, it was more probable that a home would fail to sell than actually sell in a ultra-high-end neighborhood like Kissing Camels or Broadmoor Resort. But the impact of the Great Recession, consumer pessimism, tightened underwriting and Jumbo Loan Regulations starting on any loan over $417,000, and the investor-fueled 1.5% to 3.0% penalty in interest-rate since September, 2007 has had a huge effect on the higher end. These are the same factors that have driven down the average sales price in Colorado Springs from over $270,000 in July, 2007 to $213,000 today: there is not only less demand for a high-end home, it’s just plain hard to buy one.

A Few Good Buys, but New and Expensive will Sit Forever:

Jackson Creek, Stone Crossing/Middle Creek, Erindale/Pulpit Rock and Sunset Mesa/Saddlerock all have average on-the-market values considerably higher than the year to date average sales price. All four have had less than a 47% probability of sale each of the last two years. All four have an average year-to-date sales price that is less than the six -year average. Of the four, Stone Crossing has withstood price pressure the most, only off a couple hundred dollars from the six year average. But the average sales price is only $20,000 higher than the year-to-date sales price and with 15 year-to-date sales and 18 on the market (15 months of inventory), the supply is overwhelming demand and will force values down.

Interestingly, all four areas have a pretty large price spectrum, from as little as $180,000 in Pulplit Rock to $600,000 along the cliff edges, $225,000 in Jackson creek to $650,000 for a newer Saddletree with huge lot and views. So to some degree, there are some very good buys in these neighborhoods. Homes priced less than the average sales price have a greater probability of sale. Homes priced 15 to 30% above average sale price however will have greater difficulty.

The Monument Funk

Woodmoor, Bent Tree/Higby and King’s Deer are Slow, Pretty Slow and Very Slow. Each of the last 3 years they have averaged less than a 47% chance of sale, and all have a year-to-date sales price that is significantly lower than the average price of all listings presently for sale. There is a 9 month supply of housing in Woodmoor, 16 months in Bent Tree and 20 months in King’s Deer. With so much of the “average” property in these areas valued at more than $500,000, the ramifications of the jumbo limit capped at $417,000 are huge: not many buyers have $80,000 or more to put down on a home. The rare, secondary financing that is available to buyers usually is no more than $50,000. So a home asking $550,000 in one of these areas will be competing with another, average-priced home. A buyer shopping in any of these areas could wield enormous leverage in terms of negotiating a lower price.

AWOL Demand, Decent Supply

Three well known luxury areas have seen buyer demand dry up to the tune of a 1 in 3 probability of sale.

Cedar Heights is actually rebounding somewhat and has only 8 months of inventory right now. That’s reasonably low for Cedar Heights. The problem however is that the average asking price is a full $200,000 above what has been the average selling price. Recent sales have submarined values to 2004 levels and today’s buyers will likely make similar demands on the present listing inventory. Upper Skyway and Skyway Heights makes a somewhat surprising appearance. Broadmoor Bluffs and the Spires has registered a dramatically higher sales rate in 2008.  Companion neighborhoods Stratton Forest and Stratton Preserve just saw their first sale in two years last month. Perhaps it is the age of the inventory or the difficulty in access, but 2009 has not been a great year near Bear Creek Park. The most heavily impacted area by far, and possibly in the city, is University Park. University Park has a large number of million dollar dwellings and lots valued at over $250,000. However… there has been a 29% chance of sale over the last three years and the average selling price this year is well below the average in 2004. Worse news for present sellers: the average asking price is $180,000 above the average selling price year-to-date. Sellers today will very likely have to make big price concessions to move their property.

The Ultra High-End

The massive economic upheaval and how consumer values have changed (and how they have stayed the same) is readily evident in three neighborhoods known for million dollar properties. The Broadmoor and Kissing Camels are hard places to sell a home, but are showing signs in 2009 that traditional neighborhoods commonly associated with luxury (the Broadmoor) and locations with a true, one-of-a-kind location (Kissing Camels) have value, even in a bad economy. The Broadmoor Resort meanwhile shows the difficulty of selling in a true custom-home neighborhood: one man’s custom, is another man’s consolation. There is a single MLS sale recorded in the Resort this year (translates to 14.8 years worth of inventory). There are additional new homeowners this year in the Resort, but the idea of buying someone else’s home has less value when builders are willing to build “exactly” what they want… and charge less than they did four years ago.

The hurry-up to the analysis is here…

Did the Gazette just describe the real estate market as “Soaring?” What happened to “plummet, freefall & plunge?
Remember November, 2008? There was not a cable-news network minute that went by without some new bank showing signs of weakness, some new stock plummeting, some new unimaginable sum in the billions of dollars being dedicated to a bailout of some enormous, household name entity that was ruled too big to fail. It was being called the biggest Wall Street Panic since the Great Depression and calling it the Great Recession seemed to be a euphemism for investors that were losing money to the tune of 30 to 60% in a single year. Terminology like plummet, freefall and plunge was routine. It was accurately applied to housing as average selling prices lost over 15% in 4 months and demand shriveled up.
December 2nd, 2009: Sales Increase 59%. Last November was the worst November in 15+ years in the Pikes Peak MLS. Numbers are numbers. A cynic looks at that increase and says, “that’s like the Broncos posting 10 points last week in a loss and winning with 16 the next. So what? The offense is still broken.”
In some regards, the system is still broken. There is less than 4 months supply of housing under $250,000 (that is NOT broken, that’s actually a hot-market). But there is over 10 months supply above $250,000 (that’s pretty slow, even for late Fall). If the numbers are used just to describe where things are today as compared to the recent past, the story is told halfway. It is better now than it was then; but how could it really be worse?
Where the numbers start to really illustrate and tell the whole story is when they are mapped and analyzed for trends. Months of Inventory has not been below 6 months on December 1st since the heyday of the boom market in 2005. That’s where it is now. Average price citywide is about $20,000 less than that time and interest rates are a full percent lower. And there are tax incentives to stimulate more demand, most importantly from first-time buyers who by definition, do not have a home to sell. The December Jobs Report showed a significant decrease in the rate of unemployment filings and durable goods orders are coming in ahead of forecast. Baby it’s cold outside… but the sun is shining. Consumers are cautious and value-oriented… but they are no longer terrified.
What Lies Ahead?
Be prepared for lots of forecasts and lots of media attention in the slow December News Cycle to be dedicated to the green shoots of a housing recovery. Some of this will be helpful, some of this will be accurate and a lot of it will paint with a brush broad enough to cover all 50 states in a minute and five seconds. The Real Estate Bust has definitely shown that real estate can move downward as a nation just as it can move upward as a nation. But the extremes of the market have been in coastal areas and places that posted unsustainable rates of growth. Middle America, places where population has continued to grow, places with lower than national rates of unemployment and neighborhoods that were less impacted by the explosive growth of new construction from 2003 to 2006 are the places where the recovery has already sprung. All of the above market conditions apply to Colorado Springs greater metro area.
“Value” will be the operative phrase to describe any recovery. The 2009 Profile of Home Buyers and Sellers showed that the overwhelming reason First-Time Buyers chose to buy a home in 2009 was NOT the First-Time Buyer Tax Credit. Over 60% had the desire to own a home. The 2nd reason? Affordability (10%). Third? Change in Personal Situation (8%). Only 6% sited the tax credit. And yet look at those November sales when the tax-credit was initially supposed to end. It is a nice carrot that helps propel buyers past the tipping point of personal desire, decent selection, low interest rates and real estate at a four to seven year low in price. The tax credit is eventually unsustainable and it certainly does borrow buyers from the future and activate them in the present. But what better time to do that than when housing affordability is at one of it’s highest levels in record? Who else will consume the inventory of properties of willing (or unwilling) sellers who either need to move or hope to change their real estate investment? It greases the wheels of recovery so that the majority of participants can once again begin to buy and sell real estate.
Make no mistake, the old days will not return and the market has changed in nature and what consumers consider “valuable”. Over 90% of 2009 buyers started their search online; 37% found their home via the internet, and only 33% by their REALTOR. That sends an enormous message to sellers: BUYERS WON’T BE FOOLED. Buyers want thorough property descriptions of high-quality properties and will not waste time looking at over-priced and under-conditioned properties. Affordability has increased. Probability of sale will begin to increase. But that will happen only for properties (and sellers) deemed a better value than their peers.

• Price Depreciation was likely over
• Supply and Demand was weighted slightly in favor of Demand increasing (or better)
• The probability of sale was increasing
• Values would like begin increasing by the end of first quarter, 2010 (if they were not already actively appreciating)

Now comes the harder part. Offending people who live in places where these important stabilizing factors are less evident. These are “the Yellow Lights” areas where:

• Price Depreciation may still be occurring
• Supply and Demand is not clearly favoring an increase in demand and an over-supply may exist
• The probability of sale is at the market average (47%) or worse
• Prices may not start appreciating in first quarter 2010. It might take until late 2010 for that to happen

Very quickly, anyone who can read through my cautious language will notice “may”, “maybe” and “might” all dominate the language of this post. The Yellow Lights are areas where there can still be some excellent buys. But a smart buyer who wants in on one of these areas needs to quantify their decision making. Is the home I’m interested in below the median value for the area? Are there any fatal flaws that would possibly hinder appreciation (near or backing to a busy road, non-conforming floorplan, etc.). Am I buying upgrades or dirt? (because the dirt is where the value is)

The ALMOST THERE…

These three areas all had one little glaring problem that kept them from Green Light Status.

In the Old Colorado City area, the probability of sale has increased and demand has picked up. But price has taken a beating every year since 2005. That’s odd that average price in this boutique and unique area started to drop two years ahead of other market. The consumer demand has been largely for less expensive properties. Qualifying the unique qualities of an over $200,000 home will be important for a 2010 buyer in Old Colorado City. Likewise, pricing has taken a hit in both Tamarron and Newport Heights. While the probability of sale has never dipped below 50%, it is interesting to note that surrounding areas have performed better.  When Tamarron (D20) is compared to Pinon Valley or Oak Valley Ranch (both D11), a larger, similarly priced property has had a lower chance of sale in the normally more appealing D20 area. Newport Heights average list price is actually below the 6 year average sold price. One difficulty here however is that the area is small and has many streets impacted by road noise (proximity to Dublin and Austin Bluffs). Homes on the inside and near open space will sell much more easily.

The, “These can’t possibly stay Yellow Light for Long” areas

I was scratching my head looking at Cheyenne Meadows. That’s right up next to Ft. Carson and an always popular area with junior officers. With an average sales price similar to the city and high rental rates, this can’t possibly stay down long. But the probability of sale is lousy and price has reset to 2004 levels. Weird. Very similar circumstances north of New Life in Northgate (collectively Trailridge and Deer Creek). Prices are at the 6-year average and the probability of sale has been low for four years running. This despite a superb location and near many of the destination D20 schools. Then there is Crystal Hills. The only suburban-style neighborhood in Manitou, the problems here are a lower than expected probability of sale and higher than usual inventory. With the price reset to the six year average and an over-supply heading into winter, pressure is down on price (for the short-term). All three of these areas have something somewhat extraordinary to extremely special in their location. That will have to make a measurable impact on a return to better value sometime in 2010.

High-End Areas where the worst is probably over (but boy what a hit)

Mountain Shadows and Peregrine have both seen demand sour substantially in 2009. At one point in October of this year, Mountain Shadows had only 3 properties that had sold for over $400,000 the entire calendar year. For a long stretch of the summer, a half dozen Peregrine properties were in a race to the bottom in price, starting around $650,000 before settling between $575,000 and $615,000. And for the last several years, the Old North End has been characterized by very low demand over $500,000.

In all three of these areas, the average list price remains above the six year average. But the year to date sales price has dropped below the six-year average. In all of these areas, a home under $500,000 is very much worth looking at. Homes asking over $650,000 though will have to offer the buyer something extraordinary. That is, until inventory levels shrink even more.

The Million-Dollar Drag

Pine Creek. Spires. Flying Horse. All of them have taken a beating with direct competition with new construction. All of them have a lot of inventory sitting on the market. All of them have a lower than expected probability of sale. Broadmoor Glen has the added nuance of present new construction that is starting at twice the average of the rest of the neighborhood.

In all four areas, the “average” property for sale requires not just jumbo financing, but super jumbo financing or a cash buyer. There are not many of either. Since all three areas have homes from $400,000 to well over a million, even talking about them as “areas” requires a discussion of areas within areas. A home on the Golf Course in Pine Creek with a nice lot and great upgrades will probably sell at a respectable price. A home that isn’t on Paisely (where it seems everything is for sale near the top) and is in the low $600,000’s will likely sell in the Spires. In Broadmoor Glen homes can move very quickly… or take forever. The price span is largest here, with home starting around $300,000 (selling very well) and an over-supply of million dollar new construction in the Canyons (one to three units selling per year). Flying Horse is having a hard time selling anywhere north of $500,000, but under $450,000 is actually moving faster than 6 months. In all three areas, the bottom of the neighborhood in price seems to be activated; but the majority of the present listings are quite a bit more than “average”. These will take a year or more to see improvements.

The operative term here is “Yellow Light”. Many drivers see yellow light and hit the accelerator. That means change is about to happen, and if they act quickly, they can beat the change. That might be the case in some of these places. The safe money is found in the Green Lights. The Curve-Beating money is found when the light is yellow.

To be clear: it is a good time to buy. But it is a good time to buy IF a buyer is wiling to set aside priorities of shiny and new and instead, buy into a neighborhood.

Rather than rank neighborhoods or get too complicated with a convoluted metric that only makes sense to a statistical geek like myself, I have color-coded 44 neighborhoods in to easy-to-associate categories: Green Light. Yellow Light. Red Light. The data I used to come to these opinions involved analyzing and comparing these neighborhoods over each of the last six years, calculating the marketplace average for that time span for sake of comparison, and then plotting that against the present-day active market conditions. I looked at units sold, units that failed to sell, the average selling price, the probability of sale and what today’s total active units and average sale price looked like. A neighborhood that exceeded a 50% chance of sale over each of the last 6 years was unusual. A neighborhood that was selling above the 6 year average in 2009 was also notable. A neighborhood that had high unit sales, scarce active listings, a high probability of sale and a geographically desirable location proved to be an overall market leader.

A nearby neighborhood at a higher dollar figure with an increased probability of sale but a 20% drop from peak average value and a location that made it’s future demand questionable got the Yellow Light. An area associated with million dollar properties but an average sales price in the $700,000’s and less than a 20% chance of sale this year… that was a pretty easy Red Light.

Within any of these areas, there are homes and pieces of dirt that are exceptional and valuable in the long-term. This is a study of how actual neighborhoods are doing, not individual properties. It is very apparent that dirt matters. It is also apparent that there are notable market improvements throughout Colorado Springs. Of the 44 neighborhoods researched, green lights were awarded to exactly half (22).

Lastly, before showcasing the performance of these areas, this project is not complete. As usual, I bit off more than I could chew… or at least chew and digest. I need to add at least a dozen different neighborhoods in the coming weeks to include multiple parts of Monument, the East-Side, the Southeast Side and Fountain. Right now I am showcasing the information for the areas where I personally show or preview almost every month, and definitely make an appearance every quarter. There are other neighborhoods in town that have made spectacular improvements on the city’s east and south sides; and there are parts of Monument where demand has disappeared almost completely. This data will take longer to process, but will be treated with the same value association.

So without further ado: Where to Buy 2010

Green Light:

Sundown, Nor’wood, Oak Valley Ranch, Pinon Valley, Fairfax, Gatehouse, Sable Chase/Misty Meadows and Meadow Ridge/Contrails are the market leaders. These are areas in northeastern and northwestern Colorado Springs that have endured the market setbacks with consistent popularity and surprising value resilience. Every area has enjoyed a better than 60% probability of sale year to date and typically enjoys a better than 64% chance of sale over the last six years. The market average year to date is around 46% and has been less than 50% for each of the last three years. Prices suffered in each of these areas between November and March of last year due to bank-owned properties slamming the marketplace. Buyers gobbled these up quickly, frequently in bidding wars. Values plunged almost 10% in less than 2 quarters. The resiliency of these areas is all proven in the fact that they are all rebounding in price to nearly the same point as they were at the end of 3rd quarter 2008.

Among the newer areas, Stetson Hills/Ridgeview and Cordera are very solid value propositions. Stetson Hills has posted more units sold than any other neighborhood in each of the last six years. It is a huge area and I have some reservations about lumping it as a single area. But it tends to rise and fall as a singular entity. Presently, the average price stands above the six-year average. Over 300 units will probably close this year, behind only 2004 and 2005. Cordera is a real surprise. A record number of units have sold this year already and prices have been stable throughout the four-year history. It also boasts a 65% probability of sale. Apparently the master plan and collection of builders is finding fans in the buyer community.

Additional neighborhoods that get the Green Light include Mesa Heights/Pleasant Valley, Downtown (Patty Jewett & Divine Redeemer), Wagon Trails and Vista Grande. These areas have been less resilient to price fluctuations and have a lower probability of sale, but still have certain factors that show price appreciation in 2010 is likely. In Pleasant Valley, the average year to date sales price is still above the six-year average and the probability of sale has varied no more than 6% over the last half decade, varying from 64% to 70%. The only reason this is not an all-star is because there is a slight over-supply of housing with 15 units presently for sale, when only 22 have sold this year. Vista Grande is priced below 2004 values but has only 16 houses for sale. Such scarcity against the demand of 59 year to date sales says that sellers can probably stop worrying about depreciation. The average asking price is 40% higher than the year to date sales price, so if a buyer is looking under $180,000, they’re probably buying very well in Vista Grande. Wagon Trails has started to return from the big 2008 foreclosure crunch. Thirty units may sound like a lot for sale, but considering that this neighborhood sold more than 190 units in both 2004 and 2005, that is a very low supply for an always popular area. Prices have taken a hit downtown in terms of what has sold, but the asking prices show that there is still some resilience. With supply and demand heading back to a direction that favors sellers, downtown should experience an additional pick-up in activity in 2010.

Wolf Ranch and Pinecliff are two Green Light surprises. Wolf Ranch probably suffered more from the market meltdown than any other sizable neighborhood. In 2007, the average sales price dropped almost 10%, and then 2008 saw three national builders leave the market (John Laing went bankrupt) and foreclosures swept across the area. But prices have stabilized which is very unusual for a market in the mid-$300,000’s and the probability of sale has increased to over 50% which is also unusual for the pricepoint. Pinecliff has taken a beating this year in price, but that is primarily due to a value-enhancing quality: there is very scarce inventory. What has been on the market in 2009 has generally been below-average in terms of price. Only 13 units have sold this year (peak was 27 in 2007), but there are only 7 for sale (this is a 440 unit neighborhood). This is characteristic of a marketplace where sellers with equity have simply waited out the market not wanting to compromise their investments.  The higher end properties will probably start selling once more units come on the market and buyers begin looking at three to four homes in the area rather than one or two here, and ten somewhere else.

Briargate hosts two areas where buyers can probably scoop up a pretty good bargain: Wedgewood and Summerfield. Both of these areas have averaged a 70% probability of sale in the last six years but have stumbled in 2009. That means they have sellers who probably are ready to unload their houses in an area that is typically a magnet for relocation traffic (which is a big part of why they have stumbled in 2009: relocation is off tremendously from the 2006 peak).

Neighborhoods that just squeaked in on the Green Light are Old Farm, Skyway, Rockrimmon and Springs Ranch. In each of these areas, the prices that are selling are well-below the average sold price and the peak. But the probability of sale is visibly increasing. Since all three areas have pockets of higher end properties interspersed with properties at or even below the market average, they deserve attention from savvy buyers looking for long-term investments. A caveat is that in all three areas, the present listing supply is generally leftovers from the summer season. These may move up the list by 2nd quarter 2010. Springs Ranch has not performed nearly as well as it’s northern neighbor Stetson Hills over the last three years. The bigger concern is that there are still 54 units for sale. Properties take longer to sell here and while the probability of sale has increased, there is not the supply:demand ratio swing that shows definite price growth now. It looks likely in 2010, but has not yet materialized. The probability of sale has increased in 2009 from 47% to 64%. This was in part due to sellers getting more realistic with lower prices.

Finally, a handful of neighborhoods that rate as near-misses. These are interestingly all Higher End areas… and Old Colorado City. These are yellow light areas for a fairly uniform reason. Flying Horse, Pine Creek, Mountain Shadows and Broadmoor Bluffs/Spires are all known for higher value homes than their 2009 average sales price. The 2009 average sales price is well below the 6-year average in each of these areas. But almost without fail, where the inventory problem lies in these areas is in units that are well-above the six-year price average, and often well-above the market-peak for average price seen in 2006 and 2007. Strangely… Old Colorado City has the same problem. OCC is really a $200,000 area, but the average sales price stands at $154,000 for the year. When the median on-the-market asking price is 35% higher than the year to date average sales price… something still is not right. These are some of the Yellow Light Properties, where green shoots are beginning but improvements are yet to get rolling but should begin by 2nd quarter, 2010. More on these tomorrow.

It also is testing my mettle in helping them choose an area to focus their search. Buyers have no problem rattling off a list of what they want in a home. It gets a lot fuzzier when they are challenged to think about where they want their home. Case in point:

I tell every seller this nugget of wisdom: Buyers have three concerns that we must market your home to. 1.) No buyer wants to pay too much for a home. 2.) All buyers are afraid something is wrong with the home. 3.) What if someone else gets the home? Fear 1 and Fear 2 CAN be controlled by a good listing agent. A properly priced home in-line with consumer expectations will get traffic. A well-staged and inspected home will overcome the fear of something being wrong with it. That places a buyer in the position of “what if someone else gets the home?”

I’ll admit, as a REALTOR, I like to sell in the areas that have more “what if someone else gets the home?” properties. This is not because I like inflicting psychological terror upon my buyers (it is fun, though!). It is because these are the properties that are more likely to appreciate, stand the test of time, and are in the “interesting” parts of town that are so unique to El Paso County.

There’s a temptation to think that “when the market comes back” that the old rules will apply. This tempting thought seems to extend out to properties rising in value, buyers preferring more house when they can get it, that more financing rather than smarter financing is all going to occur. To some of that, I say yes… properties will eventually start to rise in value by 4 and 7% a year, and buyers as they move “up” in life will probably want more, not less square footage, and there is a time and place for 10% secondary financing.

But who really believes that 40% of all home sales should be non-owner occupied units? Who thinks that it is a sign of a healthy market when the national residential renting rate is 11%… but 28% of all single family units sold were purchased as “investment property”? Can you find that missing 17% of the population who is supposed to “rent” these properties? These were the market conditions in the 3rd and 4th quarters of 2006. If you really uncork the math on that, inside that 40% number is a really terrifying number: 12% of all units sold were not even investment properties but “2nd homes”. And Nicolas Cage didn’t go on his buying binge until 2007. The raw aspects of that freakish lending means that one in eight people buying a house in 3rd or 4th quarter 2006 – nationwide -  did not have to show sufficient income to offset the cost of ownership. This would involve everything from a beach house on Anini Beach to a condo in Breckenridge to a patio home in Flying Horse to a high-rise condo in South Beach… maybe the latter two were acquired with the intention of the persistent run-up in new construction values, a builder-leveraged flip if you will. But 12% of the homes purchased quarter 3 and quarter 4 were purchased with the lender acknowledging… no one is planning on occupying this residence. Folks… those were the good old days. Return to that?

Yes, this is all the product of the Lehman Brothers subprime financing and we all know that these loans don’t exist anymore. Does that make the market safer? Does that make the market less prone to subprime thinking?

The answer to both, is no. Here is the advice of a CNBC commentator on how we ought to deal with our economic recovery. Who exactly does this benefit? How and where are the jobs being created? I mean, outside of the mortgage shops? The answer is more debt, re-fi’s to people upside down and greater negative liquidity?

If the idea of “greater negative liquidity” sounds like a bad idea, than would it not be wise to dial in on properties where the threat of “greater negative liquidity” is lower? Similarly, it seems to make sense that properties that encourage “greater positive liquidity” would be wise. Real Estate has a handy solution: the dirt matters.

Buyers are always attracted to the shiny and new. Apple is a great example of this. People will pay for style. If they did not, Apple would not exist. Apple World would not be the can’t miss event it is. The reality is, my MacBook Pro is heading on year three and just had it’s first major service: it needed a new battery because I exhausted the old one. The remarkable computing device just keeps plugging and multi-tasking and tweeting and I’m all the more efficient for it. There is no engineered obsolescence on this machine like there is inside my piece of junk desktop. Replacing my Mac would be foolhardy. The value is built right in and it is still there today. Yeah, it still looks good, but the functional value supersedes the style. What I bought then still works today.

This is directly similar to the 2010 Colorado Springs Real Estate Landscape. Buyers in 2010 have the opportunity to buy something now that will still work out well for them in three years, six years, 15 years. The common denominator is dirt.

Just as I have a computing tool in my possession that lets be more effective and more efficient, buyers in 2010 will have a landscape that is akin to a gambler’s dream: they can buy with the benefit of history on their side. Compare the November 1, 2002 market to the November 1, 2009 marketplace:

2002        2009

Active Listings               4218         4453

Sold October Units        756           773

Avg. Sales Price         $209,108 $213,352

Interest Rate                   5.88%     4.88%

The numbers look like a 2002 reset. The reality is that home values are really somewhere between 2000 and 2005 depending on the area and type of property (condos and townhomes have fallen faster and farther than single-family). The supply and demand ratios are extremely similar. The November, 2002 stats reflect a market right before the big wave of demand struck the marketplace. These conditions helped catalyze the four year run up in value (because our demand was somewhat strong and inventory high however, they also acted as a deterrent to the astronomical run-up more common in coastal markets). The number that stands out like a soar thumb: the present buying power a buyer enjoys at today’s near-record low interest rates give them the ability to buy 11% more property. Or better said… they can buy with 11% more affordability than they could in 2002. And do so with the power of knowledge that the city looks very different today than it did than.

Pinecliff is 11 minutes from downtown, offering 5400 square feet under $500K with D20 schools

That “foresight knowledge” of seven year’s of city growth is the really valuable commodity. Since 2002, 26,000 single family homes have been constructed. That’s approximately 30% of Fountain and Falcon, a large chunk of Pine Creek, all of Cordera and Wolf Ranch, Banning-Lewis, Stonecliff in the Spires, Cathedral Pines, half of High Forest Ranch, half of Jackson Creek and quite a bit of Monument. These places did not exist 7 years ago. They do now.

That means that a buyer now can actually see the city, not the master plan. Will there be views? Sort of. How are the roads? What are the commute times? Will there be a fire station? Where are the schools? Are they any good? Rather than rely on theory, they can go check out in person each of these key data-points. That means that a buyer can see and feel and touch and appreciate the historical ramifications of good buying decisions… and bad ones.

Within this marketplace there are enormous curves in supply and demand. High Forest Ranch for instance only has a year of inventory to sell through right now. That is similar to Flying Horse. Yet High Forest Ranch is an $800,000 neighborhood and for all their attempts to be uber-luxury, Flying Horse is really a $500,000 area so far. To have a year of inventory in 2009 is remarkable… that’s similar to what an $800,000 area enjoyed in the market boom year of 2005. When supply and demand approach balance, values cease declining and the ability to define a remarkable home on a remarkable parcel increases.

Tactically speaking, buying a home that is newer, with modern flair and “nothing wrong with it” is a good idea.

Strategically speaking, where such a home exists matters infinitely more. Right now there are areas in-balance, seeking balance and wildly out-of-balance. This week we will explore the markets in-balance. Next week, the markets seeking balance. After that: the markets that are still in trouble.