Category Archives: Flying Horse

Return to Luxury?

The popular media was stunned when so many Super Bowl ads were pumping the idea of “buy luxury.” Aren’t we still in the Great Recession? Is it bad taste to sell the idea of $100,000 automobiles when 9.0% of the population is claiming to be unemployed?

Well, at least Audi found Kenny G a job. And it’s time to import (???) cars from Detroit (did the belligerent citizens in Windsor, Ontario suddenly invade and nobody told us?).

The reality is that the popular media loves to make stories out of trends that are obvious and/or sensational. So $3 million per 30 second spot (talk about obscene) creates an obvious segue for talking-head bloviating on the morality of luxury consumables. Of course, they never indulged in such shame-filled moralizing back in the day when those that could not responsibly afford such luxuries were buying them left and right in 2004 and 2005

Ben's fully-leveraged real estate ride, 2004 - 2006

(that spotlight would be on yours truly using a HELOC to buy an SUV like so many other stupid self-employed people were doing five and six years ago). The cable media bobblehead alternative is apparently a Despicable Me-style Pep Talk, where the evil villain Gru has to layoff all his robot minion. Feel your shame for wanting. Stay in the box. Rush to conclusions. Etc.

Or… look at the numbers. A close look at local real estate numbers shows a pattern that explains why luxury was getting pushed on Super Sunday. Those that can truly afford to buy luxury: have already started to buy luxury. It explains why earlier today I was talking to a luxury brand retailer about a likely Colorado expansion later this year. Those who have cash: they’re starting to spend it. Those who have cash usually don’t spend it stupidly (those who um, use a HELOC to buy an SUV, uh… they tend to spend it stupidly).

 

Proof: in 2010, there were 38 million dollar or larger MLS sales in the Pikes Peak MLS. This was up from 23 in 2009. The three-year average from 2007 to 2009 was only 45 units. Now in 2007 when big leverage was king, there were 71 sales over $1 million. Yet this is where it gets interesting and explains why Madison Avenue got luxury brands to plunk down for Super Bowl Ads: in 2007, 16 of these million dollar units were purchased with cash. That’s 22.5%. In 2010, 17 of the million dollar units were purchased with cash, including the five most expensive. That’s exactly double the rate of buyers using cash.

This trend was not restricted to the million dollar market. Despite six months of tax-credit stimulus pushing the lower-priced market, sales units under $300,000 were down by 8% in 2010 compared to 2009. It was the worst year for total sales in almost a decade. But average price was up almost 5%. Average price is merely the average value of everything that sold. That means while fewer properties sold in 2010, they were more expensive properties. Unit sales were off 8.4% under $300,000 in 2010. But from $300K to $500K, unit sales were up 11.4%. From $500K to a million, they were up 8.8%.

In 2007, there were 60 cash sales from $500,000 to $1 million; that was just under 10% of the total units sold in that time (608 units closed in 2007 from $500,000 to $1 million). In 2010, there were 50 cash sales from $500,000 to $1 million; that was just under 16% of the total units sold in that time (316 units closed in 2010 from $500,000 to $1 million). In 2007, buyers were more likely to use cash in the $600,000 to $800,000 price range (28 closed cash sales out of 268 or around 10%, compared to 11 closed sales out of 146 in 2010, or 7.5%). But everywhere else, the use of cash increased as a percentage of the marketplace. In 2007, one in ten deals from a half million to a million was cash; in 2010, that rate improved to one in six.

Not missed in this conversation is that the rate of sale of luxury properties is still half of the market peak for luxury (2007). But the refined story here is that in 2007, when leverage was king, there were far more consumers buying luxury items than the number that responsibly could afford such luxury. The reverse trend seems to be happening now: those that can responsibly afford such luxury are starting to buy. Just how artificial that 2007 “peak” really was is easy to identify based on the percentage using cash. Not only did 90% of the marketplace use money leverage to buy their homes in 2007, many bought with less than 20% down. Today, it’s nearly impossible to buy with less than 20% down. The specific numbers are not available on a local basis, but it is fair to theorize that more than 250 units of the 608 sales in 2007 used an interest-only, piggy-back second, 100% financing or balloon-product to buy their home, close to half the market; maybe 50 units did that in 2010, with most of those being VA Jumbos and professional loans tied to medical, legal and tax professionals.

These numbers further expose where change is happening in the market, and that this “change” is not strictly tied to the idea of the market’s “recovery”. It’s  change tied to consumer preferences. If a buyer is using cash to make a high-end purchase, does that change what they want in the home, especially compared to someone buying with a 2007-vintage 90/10/10? Doesn’t use of cash reflect a slower mobility rate? Doesn’t cash carry with it a higher sense of permanence and demand for lasting value? The 2007 sales year was off almost 15% in gross sales units from the year before, and had seven to eight months of inventory on the market most of the year, at one time hitting 7052 single family units for sale. Yet contrary to what was going on in the macro-market, luxury had a banner year in 2007. The average price in July of 2007 was over $270,000, the highest ever recorded. How could price go up if the probability of sale was going down? What was selling was irresponsible luxury, and all average price ever measures is the average of what sold.

What is unique today is that it is easier to call the purchase of higher end properties with cash a responsible acquisition. Buying with cash is not embracing money leverage: it’s enjoyment of the money. It’s not a hedge on the market: it’s the acquisition of a tangible property.

Change is starting to happen. The market is not being pushed one way or another by tax incentives. But it is being pushed by consumer preferences.

Where to Buy in 2010: Part I

I have a lot of buyers looking to make a purchase in the next 12 months. Many of these buyers are relocating into the area. This is a promising sign for overall market recovery.

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.

Just Listed: 4510 Granby Circle in Mountain Shadows

Superb Condition properties can come in a variety of forms.

There are the homes that have been updated with lots of new bells and whistles, with a litany of features to advertise.

There are homes that are brand-new where the perceived value speaks for itself.

Then there are homes that were built by superior builders and have been maintained and kept up in a pristine condition. The new listing at 4510 Granby is one such property.

Built in 1999 by Saddletree Homes the Orleans Plan is one of the more popular plans ever to arrive in the Colorado Springs Marketplace. At just under 3000

Island & Pantry Kitchen

Island & Pantry Kitchen

total square feet, the home features 9 foot ceilings on the main level, a large formal living room, equally spacious family room, over-sized kitchen with island and pantry, big casual dining area, upstairs laundry, 14′ x 11′ secondary bedrooms, and a master with 10′ x 12′ office/retreat, five-piece bath and generous walk-in closet. That’s on the base plan.

At 4510 Granby, the upgrades are almost too numerous to list… OUTSIDE… there are four different outdoor gathering areas, including a raised veranda off

Master Veranda View

Master Veranda View

the master retreat that features a straight-on view of Pikes Peak… a back deck with city light views… a covered front porch large enough for entertaining at the end of the cul-de-sac… and a lower level stamped basement patio that is hot tub-friendly due to the 6 foot privacy fence and views of Ute Valley Park and city lights. That’s in addition to the dimensional shingle roof, stucco exterior and walkout lower level. INSIDE… extensive hardwood flooring unites the family room with dining area and island kitchen… built-in speaker wiring and a giant built-in area accommodates modern media…high quality window coverings with 4″ blinds set the scene for appropriate natural lighting.

Situated in the prestigious Mountain Shadows community, this is a rare find in terms of newly built, and rare find in terms of Saddletree Construction (who typically builds from $500,000 to $1,600,000’s in neighborhoods like Cordera, Flying Horse and Cathedral Pines), but also at a price ($290,000) that is significantly lower than the neighborhood average. Priced to move, this is turn-key, peace of mind that can not be missed.