Market Watch | Reality Under The Radar

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Market Watch | Reality Under The Radar

imagereader.aspxWritten By Steve Blank, Fuller Sotheby’s International Realty managing broker downtown office

The real estate (RE) market creates the most profound affect on the general economy beyond any other single industry. Real estate obviously includes all residential (single family, condos, apartments, etc.); commercial real estate which is office buildings, retail, warehouses, etc, while there are entire industries, within the industries, dealing with sales, leasing and property management of the related properties. Without overlooking the remodeling/renovation business as it pertains to homes, the commercial side has millions of sq ft in offices and retail space that employ millions every year. Pictured left, 5407 Bear Mountain Drive Evergreen, CO | $3,000,000

Home Builders are again building thousands of new homes in metropolitan cities.  Richmond American Home (based in Denver and a leading national builder) will build 1,500 homes in Colorado alone this year.  At the peak of the national real estate market (2007) there were 1.3 million licensed Realtors, (by 2011 only 900,000 but climbing again). And we are barely scratching the surface of people and industries affected by the RE industry.  How about business related to materials (wood, carpet, paint, lighting, electric, plumbing, landscape, HVAC, etc.), and the manufacturing and distribution of all those items.  And remember how many people are involved in soft industries like banks, mortgage lending, title offices, architects, appraisers, and inspectors and not to mention thousands of lawyers, sales people, CPAs, and marketing/advertising professionals. These industries, and many more, are influenced, concerned, interested and impacted by real estate on some level if not daily.

The recent financial debacle sent this country into a mini-depression with everyone pointing fingers, lenders approving millions of less than creditworthy loans, builders for speculating and over-building, and other real estate related professions who took advantage of the market, almost daring it to crash.  Well, the pointed fingers are correct and I hope we remember valuable lessons learned and remain humble moving forward in this much healthier market.  It was more than just simple economic laws of supply and demand that created the past issues.  There are a variety of subtle factors influencing the RE market today and some indicators for the future.

A few items to recognize, understand, and keep your eye on:

FORECLOSURES | (nationally) are down 25% (according to CoreLogic) from a year ago.  As a basis of comparison, there were 49,000 foreclosures in July down from 65,000 in 7/12.  However, foreclosures averaged 21,000/mo from 2000-2006.  Colorado had the 5th lowest foreclosure inventory (as a % of all mortgaged homes) in July.  We were #1 in the country for highest rate of foreclosures in 2007-2008 (big difference).

FRIEND or FOE | Investors played a critical role in the RE recovery, yet we can’t be sure what that means for the future.  By buying homes, they provided needed rentals while purchasing millions of short sale / foreclosures. However, that made it challenging for first-time buyers to compete for homes. And it’s hard to calculate what the exit strategy will be to sell these homes. Typically, owner-occupied homes illustrate a higher level of pride of ownership than rentals.  HOAs (condos) need to be sensitive to the percentage of rentals within the association to assure the best (or any) mortgage financing.

AVAILABILITY and COST OF MONEY | Mortgage funding is extremely available and the cost is still remarkably low. Ten years ago we would have bet against rates ever going below 6%.  Now we pray rates won’t go that high.  And the interest rate spread between conforming and jumbo (over $417,000) loans have diminished to maybe a 1/8% from 0.5% – 1.0%. Underwriting is still fairly tough, but with a desire to make the loan.

UNTIL EQUITY DO US APART | This is about pent-up demand and desire for housing needs and wants.  A healthy RE Market allows people to make housing and lifestyle changes.  Unhappy couples are calling it quits now that they have some start over money from equity built-up.  Other demographics entering the market include empty-nesters, seniors pursuing options, new marriages, new children, new hobbies and new attitudes.

Taking a closer look at Downtown (and close-in neighborhoods) we find all indicators pointing to a positive landscape. With the number of Downtown Denver home for sale up almost 20% over last August combined with the average days on the market being cut in half, we can feel good about the foreseeable future.

Contact Fuller Sotheby’s International Realty to find your expert partner in real estate at 303.893.3200 or visit fullersothebysrealty.com.

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