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September 2011 – Real Estate Market Update


 

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Real Estate Market Update
Perfect Storm for Real Estate Investors
A monthly market analysis capturing the observations and insights of the 8z Team
Before we delve into why current market conditions have created the “Perfect Storm”, and that is meant in a good way, for anyone interested in becoming a real estate investor, let’s take a look at the market data.
The good news for the local real estate market continued (even if you didn’t hear about it; see Rebchook interview below). The post tax credit market stats for August were quite strong.
The volume of real estate sold in August across all Front Range markets was up a whopping 25.5% compared to last August, the largest year over year increase on record for August according to InsideRealEstateNews.com.
YTD Sales Volume for 2011 has almost caught up to 2010 YTD volume and will most likely pass 2010’s volume by year’s end

(Figures above in millions)
Inventory levels continue to shrink because the number of new listings coming on the market is not keeping pace with sales.
On a month over month basis, the Front Range markets ticked up a slight 0.1% compared to July’s sales volume.
Inventory levels remain tight. The supply of active listings decreased slightly to 5.4 months in August from July’s 5.6 month supply along the Front Range. The number of new listings coming on the market is not keeping pace with the number of sales, keeping the supply below the six month benchmark that equates to a balanced market favoring neither buyers nor sellers.
At 5.4 months, buyers in some price segments, particularly at the low end, are competing for a small number of active listings, resulting in multiple offers and quick sales.
In Boulder County, year over year sales volume was also up, increasing a healthy 23.1% over August 2010, but was down 6.6% on a month over month basis.
The supply of inventory in Boulder County was 6.4 months in August, down a bit from July’s supply of 7.0 months.
Overall, the data indicates that the market has stabilized without the tax credit “training wheels”. We are bouncing along the bottom with home prices fluctuating within a narrow range of plus or minus 5% depending on the location and price range.
This current market presents a nice opportunity for first home buyers and move up buyers due to low interest rates and attractive prices, but the opportunity that our market presents for real estate investors is extremely compelling.  In fact, one might call it the perfect storm.
A perfect storm is a rare combination of circumstances. In today’s market the following trends are all converging to create the potential for big returns for buyers willing to jump into the role of landlord:
  • Demand for rentals is up. The homeownership rate in the US has fallen to its lowest level since 1998, creating about 4 million new renters.
  • Supply of rental housing is limited. Vacancies for rental housing recently reached their lowest level since 2003 according to U.S. Census data.
  • Rents are up. Nationally, rents have risen 11.6% this year according to Money Magazine.
  • Purchase prices are low. The market is bouncing along the bottom and there are deals to be had, allowing investors to keep the basis low.
  • Interest rates are low…really low. Today’s historically low interest rates are filtering down to loans for investment properties as well.
The end result of this perfect storm is that investors can realize significant positive cash flow right out of the gate upon purchasing an investment property. Of course, a long term strategy of owning the investment for 5 to 10 years is recommended. Let me know if you want to run some specific numbers or investment scenarios.
8z’s Fall outlook for the real estate market remains unchanged- a stable balanced market with relatively low inventory levels, coupled with higher year over year sales volumes, keeping home prices flat to moderately increasing. Consumer confidence will be the bellwether that dictates the direction of the market going into 2012.
John Rebchook
Inside Real Estate News by John Rebchook
A monthly conversation with John Rebchook, Editor of InsideRealEstateNews.com and former Editor of the Rocky Mountain News, and Lane Hornung, President of 8z Real Estate.
When Case-Shiller released its most recent real estate report, David M. Blitzer noted that it appears the country is shifting “back to regional housing markets, rather than a national housing market.”
Indeed, the latest downturn marks the first national housing downturn since the Great Depression.
Blitzer, the chairman of the Index Committee Index Committee at S&P Indices, included Denver, along with Dallas and Washington, D.C., as “relatively strong” markets.
The shift from a national to more regional markets caught the eye of Lane Hornung, CEO and founder of COhomefinder.com and 8z Real Estate.
Hornung recently expanded on the apparent shift with John Rebchook of InsideRealEstateNews.
John: Lane, why did this comment catch your attention?
Lane: It was an interesting comment. Basically since the peak in real estate in 2006, if you look at any of the national reports breaking things down state-by-state or city-by-city, it has been really surprising how all of the real estate markets have moved together in lockstep.
John: And that is quite unusual, isn’t it?
Lane: That is really atypical. Probably everyone has heard the statement that “All real estate is local.” And that is true. But in this downturn, almost every market moved in synch with only one exception, Washington, D.C. You can draw your own conclusion why D.C. was the only market going up. (Laughs.) The markets have really moved together, but that is starting to break down a little bit.
John: What do you think that means for Denver and Colorado?
Lane: I think that is a good thing for Colorado. The reality is while this may not be the best of times, Colorado is doing better across a number of economic indicators, from jobs to home prices, than the national figures. People are still moving into Colorado at a greater rate than they are moving out. It seems there are four or five markets breaking out of what has been the national trend and Denver is one of them. It will be interesting to see how much the consumers in Colorado follow the national trend, or if we start to decouple from the rest of the country.
John: Because the Front Range is fundamentally in somewhat better shape than most of the nation, do you think that will translate into an increase in consumer confidence locally, even if many consumers nationally remain pessimistic?
Lane: I am glad you brought up consumer confidence. That is the one force keeping the Colorado housing market from acting more autonomously than it is. The corollary to the saying that “all real estate is local” is that “consumer confidence is national”. Consumer confidence, or more accurately, a lack of confidence, is holding back the real estate recovery in Colorado – arguably even more than the unemployment picture.
John: Can you elaborate on that point?
Lane: Don’t get me wrong. Unemployment is obviously a very important factor. But let’s say you have a good job and you are secure in your job. You are aware of the unemployment rate, but it does not necessarily impact you directly. But you look around, and see everything that is happening around the globe, and you may not feel this is a good time to take on the burden of buying your first home or moving up to a bigger home. Instead, you hunker down. Consumer confidence impacts everyone, whether you’ve got a job or do not have a job.
John: The stock market crash that began in August was not good news for consumer confidence, was it?
Lane: The gyrations in the stock market came just when consumer confidence was starting to come back. Then, stocks went on their wild ride, and brought the consumer confidence index back down.
John: What will it take to improve consumer confidence?
Lane: I think any good news on the job front will immediately have a very positive impact on consumer confidence. The news doesn’t have to be dramatic. I think what is going to be a driver is stability. I think if we see some stability in the job market and a slight trend to the positive, some stability in the stock market, and some stability in the European debt crisis, consumer confidence could improve quickly.
John: Considering that the Denver-area housing market showed great improvements by many measures in July and August, why isn’t the local housing market more robust?
Lane: My concern is that the good news in our Front Range market is being drowned out by all of the other national news. We’ve had two good months in a row and I expect September will bring some pretty good news. But I think this is only being heard by consumers who are actively in the market and industry professionals. The good housing news locally is just not being heard. It is being lost in the noise of the daily headlines of moves in the stock market, what’s happening in Europe, and what’s happening in D.C.  Eventually though, the story about our relatively healthy local market will become known and can only help in this slow motion housing recovery.
John: Thanks Lane.
Marsha Badger
Mobile: (303) 818-1390
MarshaBadger@8z.com

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In today’s market there are a lot of misconceptions about Mortgage Rates. Here is a greatarticle that can hopefully shine some light on the subject.
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Noel Bennett
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Data Log
– Total existing-home sales , which are completed transactions that include single-family, townhomes, condominiums and co-ops, rose 7.7 percent to a seasonally adjusted annual rate of 5.03 million in August from an upwardly revised 4.67 million in July, and are 18.6 percent higher than the 4.24 million unit level in August 2010.
– Investors accounted for 22 percent of purchase activity in August, up from 18 percent in July and 21 percent in August 2010. First-time buyers purchased 32 percent of homes in August, unchanged from July; they were 31 percent in August 2010. All-cash sales accounted for 29 percent of transactions in August, unchanged from July; they were 28 percent in August 2010; investors account for the bulk of cash purchases.
– According to Freddie Mac, thenational average commitment rate for a 30-year, conventional, fixed-rate mortgage fell to 4.27 percent in August, down from 4.55 percent in July; the rate was 4.43 percent in August 2010. Last week, Freddie Mac reported the 30-year fixed rate fell to a record low 4.09 percent.
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