Category Archives: Housing Market

More Properties Are Equity-Rich Than Ever Before

We all know the local real estate market has appreciated A LOT over the last 2-3 years. Home appreciation goes a long ways to increasing our equity in the home. Another way to increase equity is to pay down the mortgage. In the past, during the economic downturn, millions were plagued with homes that were not worth what they paid for them. My husband and I were one of those with a rental property in Arizona. The rent did not cover the mortgage, even with a substantial down payment. That negative cash flow each month is not what we intended with an investment property. So, I said, “Let’s sell it”. Wrong. The home’s market value was $60,000 less than we had paid for it. So, we had to find a way to cover this difference between the mortgage and the rent received each month until the home either appreciated enough and we could sell it, or we could raise the rent enough to cover the mortgage. I know many people found themselves in the same situation with investment properties and primary residences. Fortunately for us, the home has now appreciated to much more than we paid for it. And, we were in a position to be able to handle the negative cash flow at the time.

It’s good news (see below) that this trend has begun to correct itself. Of course, in areas of economic growth, this is more likely to be the case.

I’m happy to say, living in Boulder County, that our primary residence has appreciated quite a bit. However, I’m also happy to say, we just paid off the mortgage!! Yeah! This feels like true financial freedom. The extra cash flow each month will be used wisely to expand our retirement portfolio. Paying off a home is a huge milestone for all homeowners.

Call me if you are interested in the market value of your home.

~Andria Allen

303.810.8375


More Properties Are Equity-Rich Than Ever Before

Source: Inman

The number of American properties that are equity-rich has reached an-all time high of 14.5 million, or according to new third quarter 2018 data from property data tracking firm Attom Data Solutions.

An equity-rich property is defined as one where the combined estimated amount of loans secured is 50 percent or less of the property’s market worth…Read More

 

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How is the Local Real Estate Market?

How is the local real estate market? The article below provides great information about the areas surrounding Boulder County. I personally believe the surrounding areas are increasing in activity and price due to the fact that the average home price in Boulder County makes it unattainable for many Buyers. We have seen the average home price continue to increase in Boulder County. This trend is contributing to the hike in the surrounding areas as well. If you are interested in finding out the market value of your home, give me a call.

~Andria Allen

303.810.8375


Wellington, Berthoud and Johnstown see double-digit home price hikes

Source: Coloradoan.

Home prices throughout Northern Colorado continue to escalate, with some towns seeing double-digit price hikes.

Overall, Northern Colorado’s median home price in August was $425,000, up nearly 15 percent year over year, and $292,000 for townhomes and condos, up 19 percent.

Fort Collins’ median home prices hit $420,000 after the first eight months of the year, another record high in the city which had 1,607 closed sales through August, a slight drop from a year ago…Read More

FSBOs Make (Way) Less Than They Expect

Recently, I have not met many Sellers trying to market their homes on their own. However, there are still For Sale By Owners or FSBOs. I thought I’d share the article below for your information. If I can help you with the sale of your home, give me a call.

~Andria Allen 303-810-8375


FSBOs Make (Way) Less Than They Expect

Source: REALTOR® Magazine

You’ve heard of buyer’s remorse; but without your market expertise and sales skills to back them up, sellers who choose to sell their home on their own just may experience “seller’s regret” when they see how much less they get for their properties. FSBOs earn an average of $60,000 to $90,000 less on the sale of their home than sellers who work with a real estate agent, according to the National Association of REALTORS®…Read More

 

Home Price Expectations By State

REALTORS® expect modest price gains in home values over the next year. The median expected increase in home prices across the country is 3.5 percent, according to the REALTORS® Confidence Index January 2017 survey, based on the responses of more than 3,800 REALTORS® across the country.

REALTORS® are most bullish about rising home price expectations in Washington, Oregon, and Colorado. Real estate pros in those states believe they will see 4 to 5 percent increases in values over the next year. Meanwhile, oil-producing states like Alaska, North Dakota, and West Virginia had the lowest median expected price changes over the next year.

“Looking at the values over time in selected states, the median expected price change appears to be increasing again from what was expected in the middle of 2016, indicating that respondents expect demand to remain strong,” according to the report. “In more than half of states, expected price change exceeds the price growth that was expected at the end of January 2016, even as home prices continue to rise.” The map below shows REALTORS®’ median expected price change over the next 12 months by state level.

Andria1

Source: “REALTORS® Confidence Index January 2017 Survey,” National Association of REALTORS® (Feb. 22, 2017) 

2017 Market Update: Why Are Appreciation Values So High in Boulder County?

Since 2013 our real estate market has seen double-digit annual price appreciation values, and our agents are often asked, “Are we in another bubble”?  Lou Barnes, Mortgage Banker at Premier Mortgage Lending (and Colorado Real Estate Broker since 1978), gave a phenomenal presentation this morning to the WK Real Estate brokers answering that exact question and more about our current market conditions and why we’re seeing the appreciation values we’re seeing.

Boulder County Home-Price Appreciation

graph-1

1. ARE WE IN A BUBBLE?

To answer this question, let’s take a look at the three typical intrinsic causes of a bubble:

 

  1. Excess supply (too much new construction and/or new subdivision of land)
  2. Single-industry underlying economy (i.e. North Dakota’s current fracking boom)
  3. Foolish lending

 

As of right now, in the Boulder County market we have too little supply and one of the most diversified economies in the world – so cause one and two are out.  We’re also seeing lending being too restrictive rather than too expansive, negating cause number three.  What does this mean?  It means no bubble.

 

2. LENDING IS TOO RESTRICTIVE

A healthy rate of default for loans is around 5%.  This is due to natural unforeseen circumstances such as job loss, family emergencies or life changes.  We’re currently seeing less than 0.5% default for the 2013-2015 time period.  This means a large number of people who can most likely make reliable payments and afford a mortgage are being prevented from obtaining a loan due to the current rigorous loan criteria.  As the below graphs illustrate, the people with less than 660 Ficos are the group of people being denied loans, and jumbo loans (larger than $424,100 in most counties, $529,000 in Boulder County) are harder to get than they should be.

graph2

3. MORE JOBS IN BOULDER COUNTY

According to national statistics, a county as large as Boulder typically has about 145,000 jobs compared to the number of households.  We actually have 190,000.  This means, based on housing inventory, at least 45,000 people drive from outside of Boulder County into Boulder County every day.  Besides creating interesting traffic patterns, it also creates more demand to buy in the county. More demand with limited supply means higher prices. The whole of Boulder County now resembles the City of Boulder in terms of excess demand for limited supply.

graph5

4. SHORTAGE OF INVENTORY

As the below graph clearly demonstrates, we went from overbuilding in Colorado in the 2004-2007 time period to a significant decrease and shortage of new home builds in 2007-2015.  Thus, we have limited inventory supplies, again creating increased housing prices.

graph6

5. VACANCY RATES LIKELY TO RISE

As of right now we’ve seen an unusual increase in rents over the last few years.  More apartments are being built and rent increases are slowing down.  Rents are most likely to stabilize, even possibly go down for two reasons:  1) renters simply can’t pay more after the big hikes of the last four years, and 2) the one segment of supply which may overbuild is apartments.

 

6. ARE WE HEADING FOR A RECESSION?

There is no sign of recession in the local economy. Our next housing downturn, no matter how far off is likely to come from national or international causes. The Fed has entered a rate-hiking cycle which could last for several years. The cycles historically end in surprise recessions. One advance marker: when short-term rates rise above long-term (technically an “inverted yield curve”), easiest to see by comparing the yield on 2-year Treasury notes to 10-year ones. The chart below shows the historical pattern back to the late 1970s, the graph line is 10s minus 2s — whenever 10s minus 2s results in a negative number, recession ahead. The second risk is international: the same globalization which has helped nearly every national economy has also disrupted them, and political groups which have been harmed are now pushing hard against globalization. Protectionism and trade war can result.

This article written by Lou Barnes, Mortgage Banker at Premier Mortgage Lending and Amanda Kelley, Digital Marketing Specialist at WK Real Estate

New Geographical Polarization Emerges as Modest Gains Continue into 2017 for US Housing Forecast

As anyone trying to purchase a home in the Boulder, Denver or Fort Collins area knows, its’ been a very competitive market for buyers. The statistics below outline why!  The level of home appreciation in these areas over the last year it phenomenal. It’s also interesting that the five strongest markets are in the western United States and the weakest markets are on the East Coast.  If you’re interested in selling your home, please don’t hesitate to contact me for a free market analysis. If you’re thinking of buying or moving up, now is the time as it seems property values in our area will continue to appreciate quite a bit, continuing to challenge home affordability.


VeroFORECASTSM showing overall strength with just 10 percent of markets seeing depreciation in next 12 months.

image1

All top 10 markets are forecast to be in the 9% to 11% range. Boulder (+10.5%), Fort Collins (+10.3%), Seattle (+10.2%), and Boise City (+9.7%) round out the top 5 markets. These sizzling markets are characterized by strong market fundamentals (low unemployment rates, growing populations, and month’s supply of homes around 2.0 months or less).

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Why is housing inventory so low?

Being a buyer in today’s real estate market can be challenging and frustrating with low inventories and competing offers.  The article below sheds some light on several reasons for the current low real estate inventory. — Andria Allen


There has been a great deal of discussion regarding the consistently low housing inventory levels throughout the nation. Very little, however, has been written about the reasons why inventory levels are so low, especially following the economic disruption of 2008-2011.

Understanding the why can be helpful in predicting how these factors might influence longer-term supply levels and future appreciation potential. This knowledge might also shed light on why inventory might remain constrained over the long run.

In the second half of 2011 we began to see an acceleration in the decline of inventory levels nationally, and since that time the available housing inventory has continued to remain historically low. The graph (figure 1) below highlights the continuous low-inventory environment.

Inman Inventory chart 1

Why is this so? There are numerous conditions that have contributed to this phenomenon and bundled together have created an inventory control dynamic that, as prices rise, only serves to limit the number of homes available for sale.

Capital gains exclusion on primary residence:

Prior to May 7, 1997, the only way you could avoid paying taxes on your home-sale gain was to use the funds to buy another, equal or more-expensive house within two years. I recall my father being motivated by a “move up” mentality. Every few years, he would sell our existing home for a bigger, more expensive property. He would explain to us that he was using tax-free money or “playing with the house’s chips” to leverage into a bigger home that only “someday” he would owe capital gains on. By leveraging his gains, he contributed to the health of the local real estate market. This dynamic created a steady supply and demand equilibrium not only in our local market, but in markets throughout the country.

When he turned 55, another option became available. He could take a once-in-a-lifetime tax exemption of up to $125,000 in capital gains. However, when the Taxpayer Relief Act of 1997 became law, the rollover or once-in-a-lifetime options were replaced with the current per-sale exclusion amounts.

The Taxpayer Relief Act allows homeowners to take a $250,000 (for singles) or a $500,000 (for married couples) capital gains/appreciation exclusion, which could be used under certain conditions every two years. While the Taxpayer Relief Act eased the home-sale tax burden for millions of homeowners, higher-priced real estate markets experienced an unintended outcome: fewer move-up buyers because their gains on their existing home exceeded the $250K/$500K maximum, thereby creating an unwanted tax burden.

This frozen segment of the real estate pipeline has upset the flow of buying and selling activity. The typical move-up buyer has caused a bottleneck by remaining in place thereby reducing available supply to new entrants. The current law does not create the compelling motivation for individuals to continually move up into “bigger and better” higher-priced properties.

In areas such as Silicon Valley, it is not uncommon for homeowners to exceed the $250K/$500K exclusion amounts if they have owned their primary residence for a period of time. Once a homeowner eclipses this threshold, their motivation to sell in order to move up diminishes as the possibility of a financial tax consequence looms. Many move-up buyers have begun their research only to discover they would be subject to capital gains tax on a portion of their gain — another sacrifice they are not willing to make in order to buy that bigger, better property.

Step-up in basis:

This factor is one of the least understood. Mainly because most people do not have large enough real estate gains to care or they are not old enough to begin pondering their longer-term estate plans and how the timing of their home sale might be impacted by capital gains tax exposure.

For couples, upon the death of one spouse the tax basis of the ownership interest that belonged to one spouse is stepped up, the tax basis of the entire asset might be stepped up to “Fair Market Value” (FMV).* This means a surviving spouse can potentially sell their property and owe only federal capital gains tax on the property’s appreciation after the death of the spouse, which might drastically reduce the tax consequence of the sale.

It is very likely that a good percentage of longtime married homeowners in the higher-priced areas of the U.S. understand this dynamic and will opt to stay and wait, surprisingly to some, for one or the other to pass away before a move makes practical financial sense.

If so, this would mean that potentially thousands of multimillion-dollar properties with swollen appreciation are being held off the market until an unfortunate family loss occurs at some point down the road.

Sustained low-rate environment:

Given the sustained low interest rate environment, many homeowners and investors have either purchased or have now refinanced and are locked into tremendously low interest rates over the past six years. It is highly unlikely that these homes will be coming up for sale anytime soon as a result of this favorable financing.

Value disruption/reset in 08/09:

In addition to the sustained low interest rate environment and its potential damper on those properties actually coming up for sale anytime during the life of their loans, we should mention the “value disruption” factor that occurred between 2007 and 2010.

A number of areas experienced a complete “reset” of values and in some cases to nearly half their peak values. Buyers purchased properties in these marketplaces at significant discounts from the high point, resulting in additional “frozen inventory.”

If you combine the sustained low interest rate climate with the thousands of homes purchased at up to 50 percent discounts or more, it’s unreasonable to expect that these homes will be coming up for sale anytime soon.

In addition, an unprecedented number of institutional investors entered the residential real estate market acquiring large pools and blocks of properties. This inventory is now also frozen and held.

Values not at peak levels across the country:

In some regional areas sales prices have reached or even surpassed the peak levels in 2007. However, this not a national phenomenon; some cities and regions across the U.S. are still below the historical highs of the mid-2000s. Until prices reach peak levels across the board these homeowners won’t be listing their homes for sale.

Sense that values will continue to climb:  

Additionally, there is the current mentality among some homeowners that home values will continue to rise. Very similar to the mindset of people holding on to a stock because they expect it to rise, people believe their properties will increase over time. Right or wrong, this mindset has become another factor in the tightening of inventory. What typically happens is that once homeowners realize the up cycle has turned, they electively decide or are forced to sell due to job loss or other negative economic pressures. This would result in a significant inventory increase.

Where would I go? Move up:

We have already mentioned a few of the constraints on the move-up buyer. The aforementioned forces feed on each other and further exacerbate the move-up opportunity. Lower inventory begets lower inventory; a downward pressure cycle continues. If one cannot find properties to move up to, they will not list or sell their current homes.

This same dilemma plagues retirees finding limited or no options for retirement communities in their local area. This also limits housing supply on the top end of the market since seniors are not motivated to sell unless they know exactly where they are going.

Stunted new development:  

Over the past seven years (since the beginning of 2008) there has been an unparalleled low level of new housing starts (figure 2). This prolonged decrease in new home development dramatically multiplies the low-inventory gap. To further the dilemma, the start-to-finish build cycle is lengthy, often requiring multiple years to plan, approve, build and market, which slows market momentum. Until the new housing development engine gets moving at an accelerated pace it will continue to have a lingering impact.

Inman Inventory chart 2

These major factors have created this extraordinary nationwide low-inventory environment we are currently experiencing. Given the factors above, inventory will remain low for an extended period of time, the natural solution of which remains unknown.

*This depends/varies by state of residence and ownership.

References:

Figure 1 & 2 – National Association of Realtors, Lawrence Yun, Ph.D., NAR chief economist, presentation at Residential Real Estate Forum at the 2014 Realtors Conference & Expo in New Orleans, Louisiana, on Nov. 7, 2014. Retrieved from: http://www.realtor.org/presentations/presentation-residential-real-estate-trends-and-outlook.

Chris Trapani co-founded Sereno Group with his father, Marko Trapani Sr. and his lifetime best friend, Ryan Iwanaga. Sereno Group has blossomed to eight offices and over 250 experienced Realtors in less than nine years. The company has established itself as a proven market leader and consistent community supporter partly through its 1% for Good Program. In 2014, the company closed over $2.4 billion in sales with an average sales price of $1 million. Follow the Sereno Group on Facebook.

Email Chris Trapani.