Tag Archives: 4.88%

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.