Eddie Hurt

Happy Holidays!

Trying to come up with that perfect gift for that special someone? How about the gift of financial security; the gift of a college education or maybe the gift of retirement? With our current local market being down, now is the time to consider purchasing investment properties. Home prices are low, mortgage rates are incredible again hovering around 5%, inventory remains good and the rental market is hot. Consider this, buy an investment property for around $175,000, your mortgage payment will be under $1000, and in the current rental market you should be able to get more than $1000 per month for rent. You cash flow $100+ each month and if you reinvest that $100 towards paying down the principal on your mortgage that home will be paid off free & clear in 15 years!!! That means in 15 years you will own a true asset worth AT LEAST $175,000 but more likely it will have increased in value and be worth somewhere around $250,000 all paid for by a renter! Guess what's on my gift list this year!

Ever wonder why the value of some neighborhoods appreciate while others depreciate with the same metro area? One of the reasons often times is the involvement of the residents within the community. For example, I live in the Mountain Shadows neighborhood in Colorado Springs. Mountain Shadows has seen 40 homes successfully sell in 2008 compared to only 24 over the same period in 2007. At first look, the average sales price looks to have fallen close to 10%, but when you analyze the numbers more closely you see that the difference is in the high-end homes; in 2007 4 homes sold for over $700k, in 2008 no homes have sold in the neighborhood for over $700k. The reason why is most likely the change in Jumbo Loans which now requires at least 10% down. If I eliminate these high-end homes from the equation, you will see Mountain Shadows has remained level in terms of the value of our homes.

A primary reason why our home values in Mountain Shadows have held strong is the overwhelming amount of volunteer support the area receives. Chipeta and Trailblazer Elementary Schools boast 2 of the most involved PTA's in the entire state of Colorado, Mountain Shadows Community Association has an outstanding Board including the current chair who is also the chair for the Colorado Springs Community Associations. These are just two examples of volunteerism in this neighborhood and the success of both can be directly traced back to the value of our homes. The involvement of the PTA's helps to insure our schools continue to be rated at the top for both academics as well as facilities. The success of the MSCA has helped to build a greater sense of community through events and helped to keep our neighborhood attractive through covenant enforcement.

Don't allow the difficult times in real estate to negatively impact your financial security; get involved, get your neighbors involved...make a difference.

The market is on a pace to be down 39% in units from the 2005 peak. At the present sales rate for the year, there will be somewhere around 8000 transactions and an average price point roughly the same as the end of December, 2005.

Believe it or not, that's good news and possibly the envy of most markets in the United States. May produced a staggeringly small number of closed transactions at 840 units. Yet possibly bigger news was the reversal of year-over year listing supply: for the first time since September 2005, there were fewer homes to choose from then the same time the year before. The 150 listing difference was a 2% dip from May, 2007. The average price point that had been dropping in freefall fashion in early 2008 has rebounded $25,000 from the February low to a modest $251,543. The median has rebounded to a place similar to the end of Summer, 2007. For the eleventh month out of 14 previous, the market has seen fewer listings added to supply, and while the sales volume was off 18.6% (not good at all), the listing volume was off 19.9% when compared to the previous year.

Right now the average sales price lags the May 2007 by a full $16,000. Appraisers, mortgage insurers and underwriters are labeling several portions of Colorado Springs as a "declining market". But interestingly, online property-value web services like Zillow are characterizing the Colorado Springs market in a light that is even more favorable than the data provided by the Pikes Peak Association of REALTORS. The reality is that different houses are selling in 2008 than in 2007. In 2007, there were sales in the Jumbo category, because properties could be purchased with jumbo loans at rates similar to conforming loans and downpayments could be made up with secondary financing (10%, 15% and even 20% second loans). The reality was that for $30,000, a buyer could get into a $600,000 home in 2007. That buyer can't do that in 2008. If they only have $120,000, they can expect to pay 8% for a 30-year fixed jumbo loan. If they have $183,000, they can scratch back into conforming loans, where the rates are still around 6%. As far as secondary financing: most loan investors won't allow them, and quite a few of the secondary companies are gone completely, shuttered fall out from the mortgage mess.

What has happened in the last 90 days that is encouraging is that some of the high end has started to sell. In some way, shape or form, the market went from a five-year supply of over $500,000 homes to a two-year supply between February and the end of May. Part of the reason is that high-end buyers are willing to take some risk: they are willing to finance their properties with Jumbo ARMS, obtaining interest rates that are on par or lower than the 30-year fixed conforming rates (5.3 to 5.8% for 5 and 7 year Jumbo ARMS in the last 30 days). By doing this, they are expressing two things: they want to buy; they are confident enough in the market that they believe in time values will improve or they will see Jumbo reform allowing them to refinance into a more appropriate loan. This is one of the variables that is new, and is starting to influence the market.

On the other end of the spectrum are the declining market appraisals. Conventional financing usually requires a 3% buyer downpayment. If a market is registered as declining market, it may require an 8 or 10% downpayment. Only adding to the confusion, not all lenders are calling the same zip codes declining markets. Lender A may call Zip Code 1 a declining market, either due to the conservative values of their investors or their portfolio of originated loans heavy exposure to foreclosures here or other markets. But Lender B may call the same Zip Code 1 a conforming market, either due to their aggressive tendencies to continue loan originations or simply, they have a low exposure to foreclosures here or elsewhere. As a Buyer, make a quality decision as to who your lender is. Your lender could literally choose your zip code right now if you're not careful. As a seller, pay attention to your neighbors and what paper thatloan pre-approval is written on. Colorado Springs and El Paso County was one of the last areas in Colorado that saw declining market registrations and it may be one of the first to crawl out of this stigma. But for now, almost any zip code could be effected. Beware.

The market is at the bottom. The next nine months will likely see incremental market improvements. The market will not likely max out at 7065 single family homes as it did last year, but it may hit around 6800 in the next couple months. Buyers will continue to march up in price for the next few months as fewer quality listings come on the market and buyers choose to bring the price reduction to sellers by negotiating deals on more expensive properties. But a wholesale market flip seems unlikely in 2008. The fundamental characteristic will be that buyers hold most of the cards.

Advice for SELLERS:

It's a Race. There may not be many 2nd place ribbons handed out this year. In cold, simple terms you need to be in touch with the rate of sale for your immediate area. If it is selling at one unit a month, don't price yourself versus the past: school starts in 60 days. Eight out of Ten homes selling this year are under $300,000. The buying demographic is family-centric. The time to do a deal is between now and July 31st.

BUYERS:

We've said it before for different reasons, we'll say it again for a bigger reason: CHOSE YOUR LENDER WISELY. Will your lender's past loans influence your buying decision? Maybe. Will your lender provide you with 90 days of rate security? They seem to change by the hour. Will your lender close on time? Has your lender created a nightmare recently for the listing agent on the property you wish to buy? It is in your fiduciary interest to evaluate all these concerns just as you would evaluate a good faith estimate of closing costs.

INVESTORS:

Do you think a soldier deployed to Fort Carson is more likely to rent or to buy? It is the best buyer's market in 15 years, yet the average soldier has been deployed more than twice. Rental properties south of Constitution are scarce. Vacancy rates in apartments are less than 10%. See a pattern?

Springtime in the Rockies where April Showers bring May Snows...

Stabilizing trends are evident amidst the usual spring tumult. As Relocation Season shifts into high gear, lots of homes come on the market and some of them sell. In the last calendar year, less than half the homes put on the market (20,705 single family listings 2007) actually sold (9995 sales in 2007). In the last three months, that ratio has increased a little more than 10% as 53% of the listings put on the market from February through April sold (3833 listed, 2042 sold 2/1/08 through 4/30/08). Only a spin doctor would call this a landmark improvement. It is however an indicator of the wholesale market-slump moderating. Other indicators: At this time last year there were 6052 single family homes for sale; right now there are 6175, a 2% difference. One of the major misconceptions of the marketplace is that the market moved into a heavy listing pattern in 2006. The reality is that it moved into a heavy listing pattern in mid- 2004: demand kept up with supply through 2005. Supply tailed off in late Spring, 2006 and the heavy listing forces kept on chugging.

However, the listing stimulus now appears gassed: only three of the previous 15 months have seen more year-over-year listings in a calendar month, and it appears likely that around Memorial Day the active inventory in 2008 will dip below the active inventory from the same time in 2007. Again, it's not a statement or declaration of the market "having changed". It is instead, another indication of the market "changing."

Year to date, 80% of the properties sold, sold for less than $300,000. If there is a drag on the overall "average values" and median value of Colorado Springs property, it's the fact that the market is so top heavy with expensive listings and little financing to purchase those properties. Correspondingly, the median value is lower because it is a measuring stick of only the properties that are moving, and four out of five are less than $300,000. Some interesting numbers are at work in the under $300,000 market... There is presently a 6.8 month supply of housing under $300K. That's still a long 200-day window that the average property will need to sit through in order to sell, but the National Association of REALTORS defines an "even-market" where neither the buyer nor the seller has the advantage as a 6 month market (180 days). The price range of $150,000 to $250,000 accounts for 45% of all sales activity year to date (as well as the median and average prices for our market) and the story is similar in this, "the bread and butter" of the market, a 7-month supply of inventory. April saw a 9.8% decrease in listing inventory over 2007, and while sales were down 13.6% from 2007 (that isn't positive), April had seen little to no gain over March sales in either 2006 or 2007. This year it was up 7%.

Advice for Sellers:

Supply is Slowing. Demand hasn't picked up yet. Don't take chances. Now more than ever is the time to strike if you are a seller. The market is not exactly heating up, but there are some favorable trends. Get your yard looking better than any other on the block. Address your paint. Prune your shrubs. Get the inside smelling fresh and clean (Glade Air Fresheners are not nice and clean smelling). Clean the furnace, don't wait for the inspector to kill the deal. As relo season begins, condition matters, and relo buyers increasingly are anxious to get in and get a good buy. With 72 hours to pick a house, they'll only buy good value homes that are tidy and ready for move-in.

BUYERS:

Use this information to your advantage. Supply is slowing down. Colorado Springs will not likely have 7000 single family choices this summer. That means the maximum inventory will occur by mid-summer. Ask yourself this: "if supply is slowing down, is that a good thing for my future values? If demand is still low, is that a good thing forBuyers: DON'T BLINK. July and August may not be so favorable. My negotiating strategy? How many more times will I see a 6% 30-year fixed rate? How often will I see a seller so willing to pay my closing costs?"

INVESTORS:

If you've been waiting in the wings for the market to recover, start looking in your rearview mirror. What do you see?See any good deals from the last year you might have missed? Like Buyers, Investors need to ask questions that are not focused on the next 90 days, but the next 3 to 4 years. While the rest of the mortgage world has reset to 1999 underwriting rules, one place it hasn't changed is investor rates at or near primary occupant values. Some of the best deals in years are out there now, and relocation buyers who are starting to flood the market often can't waste their time with them. They want move-in condition. A long-on-market property needing a bit of work ($5000), is usually not a move-in property for a relocating buyer who needs every dollar to go towards their down-payment now that 100% finance is gone for anyone but a VA buyer. That means that the local investor buyer who has cash, 10% minimum, 20 to 25% better, has a ton of power. A classic rule of negotiating: those with needs have little power. Those with power have few needs.

As predicted in the annual report, the first quarter of 2008 was as tumultuous as any time in the recent market slowdown. Characteristics of the First Quarter, 2008 include: low prices, low selling activity, high inventory, tightened credit and bad press coverage. What is not characteristic of the First Quarter, 2008: increases in local foreclosures, a continued increase in listing stimulus, and the end of civilization as we know it. The big bail out in the financial markets orchestrated by the Federal Reserve was not on Main Street but on Wall Street with the giant $20 billion bailout of Bear Sterns. The classic rule of real estate was proven true in the first quarter: location, location, location.

At the end of the first quarter, crocuses were popping through the frequent snow gales of the Colorado spring. The vast majority of the real estate practitioners have not seen a first quarter that they would have liked: total volume is off 25% year to date, and few turn cartwheels of the "good ol' days of 2007." However... as weird as the market has been, as strange and as sudden as the slowdown has been, it is beginning to make sense; and it is beginning to show signs of picking up.

The popular press likes to look at two pieces of data to tell the entire story of the Pikes Peak Market: Average price and total units sold. March 2008 was a lousy month according to the popular press: the average selling price of $236,000 was similar to the same value in March, 2005. Three years down the road and zero appreciation sells papers. Similarly, March '05 and '06 both saw more than 1000 units sell. March '08 saw 722 units sell, the lowest March total since 1999 and an 18% drop over 2007. But real estate is a market with many variables and supply and demand rules real estate just like it rules all markets. The numbers for demand were week, but the numbers for supply showed improvement. The market has only 150 more listings than the same time last year and is only up 4% in total inventory from March 2007. Even better, March '08 listing units were down 18% from March 2007. It now appears unlikely that the 2008 actively listed single family inventory will break the 7000 unit ceiling as it did in 2007. While $236,000 is not a sure sign of positive appreciation, it is $10,000 higher than the February average sales price.

The first quarter has closed with sub 6.00% interest rates on 30 year fixed loans, most buyers have at least a little cash and think ARMS are "what got everyone in trouble" and the listings that are selling are well-priced and in great condition. Stuff is starting to make sense again and the late arriving relocation buyers appear more eager to buy this year than the year before.

Advice for Sellers:

Supply is Slowing. Demand hasn't picked up yet. Don't take chances. Now more than ever is the time to strike if you are a seller. The market is not exactly heating up, but there are some favorable trends. Get your yard looking better than any other on the block. Address your paint. Prune your shrubs. Get the inside smelling fresh and clean (Glade Air Fresheners are not nice and clean smelling). Clean the furnace, don't wait for the inspector to kill the deal. As relo season begins, condition matters, and relo buyers increasingly are anxious to get in and get a good buy. With 72 hours to pick a house, they'll only buy good value homes that are tidy and ready for move-in.

Advice for BUYERS:

Use this information to your advantage. Supply is slowing down. Colorado Springs will not likely have 7000 single family choices this summer. That means the maximum inventory will occur in the next 90 days. Ask yourself this: "if supply is slowing down, is that a good thing for my future values? If demand is still low, is that a good thing forBuyers: DON'T BLINK. July and August may not be so favorable. my negotiating strategy? How many more times will I see a 6% 30-year fixed rate? How often will I see a seller so willing to pay my closing costs?"

INVESTORS:

If you've been waiting in the wings for the market to recover, start looking in your rearview mirror. What do you see?See any good deals from the last year you might have missed? Like Buyers, Investors need to ask questions that are not focused on the next 90 days, but the next 3 to 4 years. While the rest of the mortgage world has reset to 1999 underwriting rules, one place it hasn't changed is investor rates at or near primary occupant values. Some of the best deals in years are out there now, and relocation buyers who are starting to flood the market often can't waste their time with them. They want move-in condition. A long-on-market property needing a bit of work ($5000), is usually not a move-in property for a relocating buyer who needs every dollar to go towards their down-payment now that 100% finance is gone for anyone but a VA buyer. That means that the local investor buyer who has cash, 10% minimum, 20 to 25% better, has a ton of power. A classic rule of negotiating: those with needs have little power. Those with power have few needs.