Category Archives: Real Estate

How ya gonna do? Our 2013 Predictions in Preview

It’s up.

It’s live.

It’s 12 pages of dancing caterpillars, plus pictures of our children, scenic Colorado landscapes and local art.

It’s the 2013 Annual Report & Forecast: Green Shoots.Our 2013 Annual Report & Forecast

Our 2013 Annual Report & Forecast

Pikes Peak Urban Living at ONE: How Aeschylus birthed The Stat Pack

Imagine 32,  19 and 20 year olds learning (in some cases literally) at the feet of two professors who are married to each other in a class that covers everything in Western culture from The Bacchanalia to Freudian libido. It’s a large, sunny family room of a Victorian, mining-era home with wing chairs, chaise lounges, dreadlocked freshmen in thermarest loungers, towering first-line hockey players and a half dozen people who easily could have gone to Williams or Yale but thought the winters in New England would suck and therefore, came west to be intellectually fabulous and a mere two hour drive from Breck in their late model 4Runner. Everyone in the room is smarter than you. In the classroom are several future attorneys, surgeons, human rights activists, an individual that to this day is one of the brilliant political puppeteers in all of Colorado and yours truly. It’s the 1994 edition of Colorado College’s Greek History and Philosophy.

To keep it simple, here’s a Wikipedia synopsis of Aeschylus’ amazing Orestia, specifically Agamemnon.

The play Agamemnon (Ἀγαμέμνων, Agamemnōn) details the homecoming of Agamemnon, King of Argos, from the Trojan War. Waiting at home for him is his wife, Clytemnestra, who has been planning his murder, partly as revenge for the sacrifice of their daughter, Iphigenia, and partly because in the ten years of Agamemnon’s absence Clytemnestra has entered into an adulterous relationship with Aegisthus, Agamemnon’s cousin and the sole survivor of a dispossessed branch of the family, who is determined to regain the throne he believes should rightfully belong to him.

You wonder why the Greeks are rioting. They used to be great.  Clytemnestra is a 2600 year-old example that life is not resolved in a P&L. Agamemnon just won the flipping Trojan War people… he’s the conquering hero of the age. Clytemnestra, if motivated by a profit-motivation, is in the proverbial catbird seat. Her man is home, and her man owes. Instead, cause does not equal a neat and tidy effect, and she murders him. You really have to read Aeschylus (preferably out-loud with others, make some spanikopita, get some grape leaves and wine, it’s fun) to get the full effect of this early heroine of feminism’s motivation. Let’s just say it is timeless because life doesn’t work in mechanical input-equals-output ways. It is timeless because it is eerily true in a way that surprises us with it’s unpredictable familiarity. To accelerate the gamut of emotions, it’s something like this: “Wait… she did what? That way? Wow. Yeah. I could see that. Wow.”

Fast forward two decades and Aeschylus is as relevant as he was 2600 years ago. My advisor at CC said “there is truth, and then there is the meta-truth”. She was talking about the dot and the dot and the dot that people see as life’s datapoints… and then the artistry that was woven between those dots. To use math language, what if the dot and the dot and the dot that we see from a distance on one plain as a triangle are actually being influenced by poles on two additional planes… how will we know to even look for those poles? Well, immersion in the Classics (and Philosophy, and Political Theory and Ancient Language and all four major epochs of western history) has a way of getting one’s brain past simple face value. We read the Orestia in a night, then read large chunks in the round with assigned parts, and debated and tore it apart for three hours straight with two phenomenal teachers who usually didn’t agree with each other. Sure, knowing the facts and details is important for the bucket list of education; but knowing why it all worked the way it did, and how other examples can later unfold, that’s something else entirely different and far more potent.

People who buy their residence based on Excel are usually the same ones selling a year later. They came to a vital decision in what academia calls STEM-thinking (Science, Technology, Engineering, Math). STEM-thinking allows you to see  clearly all the objective pieces (the dots), even all the objective pieces interacting on the board. But it doesn’t tell you how they might interact on the board, why they interact, why things are not always mechanical or systematic… and it also doesn’t tell you to look for outside influences that can break down the relational structures. Mechanical STEM-thinking hates things like “personality”.

And if this all sounds like high-minded, ivory-tower horse pucky, well, it is horse pucky, but it ain’t ivory tower. A social psychology professor friend (CC ’97, represent!) posted this great article from The Economist today on Facebook, the need for more anthropologists on Wall Street. The Economist, an international standard-bearer of rational, empirical thought, is puffing up a colleague over at The Financial Times, another standard-bearer of the left-brain P&L crowd. And one of the sharpest tacks out there is a Cambridge educated Ph.D in… anthropology. Gillian Tett predicted a credit-default-fueled implosion in 2005, largely because she understood inter-personal relationships. To quote: “But the other thing is, if you come from an anthropology background, you also try and put finance in a cultural context. Bankers like to imagine that money and the profit motive is as universal as gravity. They think it’s basically a given and they think it’s completely apersonal. And it’s not. What they do in finance is all about culture and interaction.” This line of thought sees financial crises before they happen. It explains why banks, who are in the money of usury, are not lending money to suitable borrowers (inventing metrics for trust and relationships). It explains the political ramifications and vendettas of our present day.

What Hannah and I do in real estate, finance, economics, is far more about culture and interaction then it is about a gravitational attraction to profit. Today I got to speak to someone that was looking for 500 acres to lease for wild horse habitat. There is, let’s see, exactly no money to be made in this project if I’m thinking like a banker. Like, um, nothing. And since most 500 acre land owners in eastern Colorado subscribe to the theory of highest and best use (see Banning-Lewis Ranch and it’s dangerous infatuation with gas leases of late) putting a very small number of horses that need huge range on an oversized property is what economists call “a sunk cost”. How do Hannah and I see that? First, educate on the prevailing winds of sunk cost, but then flush out the angle of what the opportunity cost looks like: Good will. Story-telling. Common hearts. Who are the players. How do we get Catamount Institute involved? Who in CC’s Environmental Science Department might be a catalyst? Can we get media, the visuals are superb, but media will likely have to pay for a night’s lodging with the day long drive to Montana so we really need to craft a home run here to get them on-board… etc.  What will Hannah and/or I make on this? Are you serious? Anything? Probably nothing. In the short-term.

Will we learn something? In the short and long-term, we will.

We don’t have it nailed. Goodness no, we don’t. That’s why we don’t do this blog for SEO. We do it for a finite audience that wants something different, who doesn’t trust easy answers and wants to make lasting decisions of value.

The Stat Pack is well into it’s sixth year, bigger, fuller, richer with more data than ever. About 85% of the Stat Pack is data and charts. What we do differently is that 15% of subjective. It allows us to craft lessons and strategies that are not as universal as gravity and are completely personal.


The Redfin Agent Scouting Report

"Live by the Sword, Die by the Sword" indeed...

Sometimes, someone else’s blogpost is so much more salient than anything I can write.

Other times, you have to head off the train. The Redfin Agent Scouting Report is such a train, and some agents will hate/be terrified/jump out of the way of this train.

In a nutshell, the Agent Scouting Report extracts MLS data on agents and maps it. Think about that for a second. Just like Congressman have to disclose who gives campaign donations, just like Fantasty Football uses Moneyball-style Sabermetrics, just like publicly-traded companies have to disclose their financial reporting, a private company (Redfin) extracts MLS information (constructed for and by local dues-paying members) on those practicing it and displays it in a mapped format showing who sold how much and where.

Glenn Kelman said (in)famously in the 60 Minutes piece 4.5 years ago “I work in the most screwed up industry in America”, and most of institutional real estate is going to hate Redfin all the more. I can’t say I’m a huge fan of the Agent Scouting Report, but some of that has to do with my entrepreneurial-side saying, “Why didn’t I think of that first?”, and the other part is “I really don’t care.” I would have no fear that this information will show my occasional sales in BRI, N/E and TRI (I use the passive “would” because Redfin presently serves the Denver Metro Area, but not Colorado Springs, and I doubt they’ll enter our market anytime soon for economy-of-scale reasons) and I would like the fact that it shows how much I sell in N/W, and it actually really pleases me when it shows which listings I had that didn’t sell (strangely… they were overpriced!). I don’t think this information in the public’s hands would have any negative impact on my business model and can see how it would have a positive impact. But I’m practical like that, and I don’t get bent on polemics behind MLS data being used in ways that don’t support the monster-brokerage business model of 1999.

The major reason why The Agent Scouting Report won’t effect us much (for good or for bad) is that Pikes Peak Urban Living uses a word-of-mouth business model, not a production-centric business model. The Agent Scouting Report is another one of those attempts to distill everything down to a quantifiable, economic datapoint, and funny, I’ve never had a buyer buy a property due to overwhelming, quantifiable, economic datapoints, and thank goodness, I can’t think of a single client that worked with me for overwhelming, quantifiable, datapoint reasons. Hannah likely seconds this. The people who end up talking to Hannah and I end up talking to us because there is something “other” about us that they want access to. It could be that we don’t pretend to be smart about areas where we know nothing (um, Falcon. Park County. Southeast Colorado Springs. Broadmoor Resort Community). It could be that we use a defined system that sellers and buyers both readily understand carries a benefit for them (The Home-Selling Catalyst with pre-sale inspections, professional staging, professional photography, custom sites, social media distribution, use of Postlets and Zillow; Our Home-Buying System which calculates probability of sale, previews properties and leans on the knowledge of The Stat Pack to help facilitate a smart buy of a perfect property). It could be that we are accountable, honest, accessible, and like our employing broker Cherise Selley, tenacious on behalf of our people.

Hannah and I are both having our best ever financial years, with Hannah already at her highest-ever sales volume, and I’m on pace to have my 2nd highest year ever in terms of sales volume and units (better than 2005). Yesterday’s closing put me ahead of last year’s units. I have four more under contract and I’m working ten buyers that want to close in 2011. So the Redfin Agent Scouting Report is fine by us. Here is something else that’s fine by us: the “Why” behind why Glenn Kelman decided this was in Redfin’s best interests (from The Redfin blog, but courtesy of the brilliant lads at 1000WattConsulting):

In some cases, what you’ll see is that an agent at another brokerage is a better fit for that neighborhood, an inevitability that has been a source of great controversy within Redfin. Why would we ever help anyone realize that a Coldwell Banker agent is her best choice?

But once you ask that question, you’ve already framed the debate in terms of short-term consequences rather than long-term principles. It leads you down a path where every market analysis concludes that it’s a good time to buy, and every review of a Redfin agent is five-stars.

The world doesn’t need more brokers like that. It needs a broker who will just tell the truth, the whole truth, and nothing but the truth. We’ll win more clients that way than we’ll lose — and we’ll win everyone’s trust.

April 2011 Colorado Springs Real Estate Market Report

How about that for an SEO Title?

April continued the trend of “we don’t know anything” from one month to the next. In January, sales were lousy, but price was decent. In February, sales were again lousy, as in really lousy, but price was outstanding. Additionally, listing volume continued to be lower than expected. Then came March. March had pricing go down to where it was in January (sigh) but saw a 7% increase in closings over the tax-credit fueled March 2010 (hurrah!).

In other words, predicting the market is like predicting when it will snow next in Colorado. Good luck.

Here is the info:


April 2011 Stat Pack

On a side note… April marks the Five Year Anniversary of the Stat Pack. I was either the first real estate goober to start obsessively tracking the market (be glad my blog wasn’t around for my 13 page July 2007 edition…) or the last one of the first adopters still standing, but I do not think there is a market report with 60 consecutive months and four consecutive annual reports worth of real estate data tracking the local marketplace. Not to say that term of length makes this any more relevant, just saying. I’m happy this project has gone on five years. Thanks for reading it.


It’s About the Listings…It’s about Interest Rates

The 2010 Sales Year was characterized by an abnormal addition of listings to the real estate market in the late winter and early Spring. In February, 2010, inventory swelled by almost 10% in a single month with the gain of over 400 units between March 1 and April 1. This was after February added almost 200 listings to inventory. The seven month run up in inventory from January 1 to July 31, 2010 saw a gain of almost 50% in total listings for sale.


Early 2010 Compared to Early 2011

While demand never quite equaled the same levels experienced in 2009, part of this reason was the double-sided promise to buyers that their opportunity was never getting away from them: More listings just kept coming on the market, allowing them to prolong their decision, and the steady drumbeat of “interest rates are sure to rise” was an outright falsehood as rates actually dipped below 4.00% in October (a full 1% improvement over February, 2010). These two actions allowed buyers to prolong taking action.


In 2011? New listings are coming on the market, but they are beating absorbed by new buying activity. There were 464 unit sales of single-family homes in January 2010 and there were 460 in January 2011. The average selling price of these two months was all of $150 different. In other words: the same buyers were buying the same homes at the same rate. Interesting side note: 2010 had an $8000 tax credit carrot to get buyers to perform. That’s kind of a big deal when $8000 represents a complete first-time buyer downpayment at $210,000 (the January average sales price for the month both years). This year offers no such carrot. But buyers performed in the same manner and volume, absent federal stimulus.

Also interesting: January 2010 gained 170 listings, February 2010 gained 240 listings and March 2010 gained 412 listings. In 2011, January reduced in supply one listing, and February is only up 50 units. Interest rates are about the same as they were this time last year. Again, the drumbeat of “they’re sure to go up” is on the street, and the reality is that they are up close to a full percent in the last four

Freddie Mac 30 Year Avg since 2005


months. Why this is interesting: Conventional Wisdom  was that the market was getting better in 2010. This was “proven” because more people were buying homes in the spring of 2010 then the (miserable) spring of 2009. But the quiet under-current in 2010 was that that inventory was increasing at a rate that ultimately had 50% more listings on the market in the summer than the start of the year. While people were briskly buying houses in early 2010, months of inventory, and therefore, seller’s ability to dictate pricing, wasn’t getting any shorter because the ratio between listings and sales wasn’t changing. But so far in 2011, the big bounce in listing inventory has not happened. However, buyers are still buying at about the same rate, and don’t have federal stimulus inviting them to do so.

So far in 2011 (and that’s all of 50 days), listings for sale have increased slightly more than 1% while the rate of sale has remained the same (without a tax credit stimulus) and interest rates after steadily rising for four months have retreated 0.1% in the last week to come back below 5%.

This doesn’t establish a trend. But if you’re a buyer thinking “where are all the new listings I was expecting?”… you’re not alone. If you were hoping to buy based on a 4.25% interest rate, your window might have already closed. Over 30 years, the increase in interest payments from 4.25% to today’s 5.00% on a $210,000 loan is $35,000. I was told the other day by a buyer that the real cost of buying a home is the amount you finance. That is kind of true.


Comparison of Loan Values, Interest Rates, and 30 Yr. Paid Interest


But literally,  that’s only half of the equation. The price you pay is the amount you finance at the interest rate you finance it at.





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.

2011 Annual Forecast: Part I

How is the market?

I love the question, but have to prep anyone I know that I’m as big a windbag as anyone they’ll ever meet in real estate. I can talk the pros and cons and opportunities and pitfalls like anyone.

For the sake of everyone’s oxygen-supply, I’ve found it’s better to show how the market is rather then tell.

Page 2 of the 2011 Annual Report and Forecast

This is Page 2 of the 2011 Annual Report and Forecast.

This page tells everything that is going on in the macro-market. It doesn’t tell you much about what’s going on down the street from your home, but it does tell you what sellers are feeling and what buyers are seeing. This is the pulse of the market.

This page shows four different trends in graph form: Monthly Listing and Sale trends for the last six years; units listed versus units sold for the last six years; months of inventory (sales-rate) for the last six years; and pricing comparisons (all listings, new listings and solds) for the last six years.

As many people know and acknowledge, 2005 was the peak boom year nationally and locally for the real estate market. That is the baseline for comparison for 2010 sold data in all six graphs.

The relationship between monthly listing inventory and monthly sales was most of out whack in Summer 2005 and Winter 2008. The 2005 sales year was characterized by high purchasing and low inventory; 2008 was characterized by high inventory and low purchasing. But in 2009, inventory started to return to more normal levels. Demand picked up. This lead to a more balanced market. This lead to declarations that maybe the end of the slump was at hand (yours truly: guilty).

What few anticipated was the rapid build-up in listing inventory in the first six months of 2010. Inventory increased from just under 4000 to 6000 in less than 180 days. This spike in inventory actually out-paced the massive listing build-ups (on a percentage basis) in 2006 and 2007. Following the expiration of the tax credits June 30th, the lid was coming off of inventory while demand disappeared. July 2010 was the worst summer sales month in decades. It was then eclipsed by August. Quarter 3 sales were off 26.9% from 2009.

The massive drop in Quarter 3 explains why 2010 ended up as the worst performing year for sales in the last decade. Sales began to pick up moderately in November and December, but the four to five month echo behind the expiration of the tax credits radically changed the game. For the year, it was more probable your home listed for sale would not sell, then sell.

Six months is considered a balanced market. That means prices are not likely to go up or down, but stay flat. Less then six months sustained gives pressure to rising prices; over six months gives credibility to falling prices. Again, this is the market as a whole. There are neighborhoods in the $300K’s with 4 months inventory today; there are neighborhoods in the low $200K’s with 10 months inventory today. But 2010 looked more like 2007 and 2008 then 2009 when the year ended with less than six months on the board. It is worth noting that months of inventory has actually declined through the fall into winter on a monthly basis, after peaking at over 10 months in August. But this graph indicates further threats to pricing in 2011.

For my money, this is the craziest graph of them all, and it doesn’t have to do with my color scheme. It’s all lines merging towards some sort of magnetic pole. Since February 2009, average price has steadily increased. Since approximately the same time, new listings coming to market have moderated their expectations. At the start of Summer, 2009, total listing price began to drop. The average list price in the market has dropped by more than 20% in the last 20 months, while average price has risen to 2004/2005 levels again. In the last four months, when listing volume has slackened notably, sellers that are coming on are increasingly coming on in lower price ranges and/or are coming on closer to in-line with price expectations. If you’re looking for a new listing in the $500K’s, keep waiting; not many have hit the market lately. But if you’re hoping that sellers would quit over-pricing their homes, start looking at inventory again. Right now, new to market average asking price and average selling price are identical as 2011 begins.

So what to make of all this?

We’ll keep un-packing the story later this week. This is some of the data. I’d love to make a neat and tidy explanation of all this, but that would be 1.) cheating and 2.) inaccurate. There’s more data to share to complete the picture and generate the forecast.