Eddie Hurt

THE RULES:

There are many rules in a fluid real estate market, but here are a few that we believe hold true IN ANY MARKET (one favoring buyers; one favoring sellers; it does not matter):

•LOCATION, LOCATION, LOCATION

•MONEY IS MADE ON THE BUY

•SELLERS SET ASKING PRICES; BUYERS DETERMINE VALUE

•BUYERS BUY VALUE

•CONTINGENCIES CLOUD NEGOTIATIONS (THE MORE "IFS" THE FEWER DOLLARS)

•THE HARDEST THING TO GAIN IS TRUST; THE EASIEST THING TO LOSE IS TRUST

•REPUTATION AND ETHICS ARE VALUE-ENHANCING ATTRIBUTES

•A HOUSE HAS DIFFERENT VALUES FOR DIFFERENT BUYERS: BUYER A CAN BUY HOUSE X FOR

DISCUSSION:

If the bell curve does not swing upwards in March, it likely will in the next 45 to 60 days. The last four months have been some of the slowest market activity in memory, but some forces are at work to improve the conditions of the market. A market improvement will not will be uniform or consistent in nature, but will be characterized by months of inventory reducing, prices stabilizing, and time on market decreasing for sellers with a well-positioned home in above-average condition.

The negative news is really easy to find after the February data publish. The year-over-year price is off 9%, unit sales are off 18% and sales volume is off over 26%. There is a 10 month supply of housing. There have been 62 sales over $500,000 in the last four months... and there are 923 homes for sale asking over $500,000. That's a 5-year supply.

Here is why those numbers are so dreadful: among the "average" value homes in Colorado Springs ($150,000 to $300,000) there has been an increase in listing activity this year (nearly the entire 9% listing increase seen in Feb. 2008 over Feb. 2007 is in this price range) due to military relocations who know they needed more time to sell by the time school is out. Many military sellers are putting their homes on the market before they receive their transfer orders. The order processing system has been running 30 to 60 days behind for many military personnel, so that creates two problems:

1) It increases supply (need time to sell) and decreases demand (the sellers' military colleagues relocating into the market also don't have orders, so instead of risking a purchase in an area where their own job is probable but not certain, they wait).

2) The second factor has missed most media discussion: prices are going down a little, but the "city-wide average" is going down because some homes have some buyers, and some have no buyers. Conventional financing stops at $417,000. So a purchaser of a $500,000 home needs about $85,000 down-payment to purchase that home with a conventional loan. The present interest rate for a conventional loan is around 6%. For a jumbo ($417,001 and larger) that rates is between 7.5% and 8.00%. The huge financing difference creates a road block to a buyer's ability to buy. Since jumbos went off the conventional-rate schedule in early August, high-end sales have stalled. For the most part, the only properties that are selling are under $400,000. Conventional limits are increasing to the $700,000's in some markets, but not in Colorado.

So where is the good news? Demand is actually increasing: The military relocation delay is temporary. Orders are now being written and out-of-market buyers are showing up. Unlike a local buyer who has plenty of time to "wait" for the right home or the right deal, an out-of-market buyer buys "off the shelf" from the selection presently at hand. Unit sales were down by almost 17% last month, but at this time last year there were relocation buyers already active in the market. With the delays in military relocations, the number of sales can be seen as low, but "not that bad". While units for sale went up, that was also due to a market where sellers were getting more realistic on how long it would take for their home to sell; at this time last year, a seller was more likely to put their home on the market in Mid-March than early February if they needed a late May closing. Despite this change, units for sale were only up 9% and eight of the previous nine months saw a decline in listing stimulus. Compared to last year, there are 7.1% more listings for sale... in most of 2007, that year-over year comparison was 20 to 30% higher.

Advice for:

SELLERS: Top Two Sell. The Rest: Don't.

than a local buyer. A relo buyer has hours not days to negotiate and usually needs to close in 30 to 75 days. A local buyer may have weeks not days to negotiate and can wait around for "the perfect deal". Correspondingly, the top listings in price in an area will sell despite the market doldrums. The rest will get traffic, but is it really actionable or palatable?

BUYERS: Shop with Peace of Mind. The good lenders are beginning to shine in this market.

As a buyer: GET RATE PROTECTION. Rates are variable and can change by the hour or Wall Street's Mood Ring. Get a worst-case cap and the option to lock when rates are favorable. There has been over a 1% swing in rates (up) in the last 45 days. Seize the day on a good rate and secure the option to get an even better one.

INVESTORS: These are assets. Treat them like one.

Even though rental rates are starting to climb and even though there are plenty of people who will rent under the idea that buying now is foolish, renters still want it all. Better condition, newer properties are renting for a lot more then low quality older properties. Clean-em up and take care of them and they will take care of you.

If the bell curve does not swing upwards in March, it likely will in the next 45 to 60 days. The last four months have been some of the slowest market activity in memory, but some forces are at work to improve the conditions of the market. A market improvement will not will be uniform or consistent in nature, but will be characterized by months of inventory reducing, prices stabilizing, and time on market decreasing for sellers with a well-positioned home in above-average condition.

The negative news is really easy to find after the February data publish. The year-over-year price is off 9%, unit sales are off 18% and sales volume is off over 26%. There is a 10 month supply of housing. There have been 62 sales over $500,000 in the last four months... and there are 923 homes for sale asking over $500,000. That's a 5-year supply. Here is why those numbers are so dreadful: among the "average" value homes in Colorado Springs ($150,000 to $300,000) there has been an increase in listing activity this year (nearly the entire 9% listing increase seen in Feb. 2008 over Feb. 2007 is in this price range) due to military relocations who know they needed more time to sell by the time school is out. Many military sellers are putting their homes on the market before they receive their transfer orders. The order processing system has been running 30 to 60 days behind for many military personnel, so that creates two problems: it increases supply (need time to sell) and decreases demand (the sellers' military colleagues relocating into the market also don't have orders, so instead of risking a purchase in an area where their own job is probable but not certain, they wait).

The second factor has missed most media discussion: prices are going down a little, but the "city-wide average" is going down because some homes have some buyers, and some have no buyers. Conventional financing stops at $417,000. So a purchaser of a $500,000 home needs about $85,000 down-payment to purchase that home with a conventional loan. The present interest rate for a conventional loan is around 6%. For a jumbo ($417,001 and larger) that rates is between 7.5% and 8.00%. The huge financing difference creates a road block to a buyer's ability to buy. Since jumbos went off the conventional-rate schedule in early August, high-end sales have stalled. For the most part, the only properties that are selling are under $400,000. Conventional limits are increasing to the $700,000's in some markets, but not in Colorado.

So where is the good news? Demand is actually increasing: The military relocation delay is temporary. Orders are now being written and out-of-market buyers are showing up. Unlike a local buyer who has plenty of time to "wait" for the right home or the right deal, an out-of-market buyer buys "off the shelf" from the selection presently at hand. Unit sales were down by almost 17% last month, but at this time last year there were relocation buyers already active in the market. With the delays in military relocations, the number of sales can be seen as low, but "not that bad". While units for sale went up, that was also due to a market where sellers were getting more realistic on how long it would take for their home to sell; at this time last year, a seller was more likely to put their home on the market in Mid-March than early February if they needed a late May closing. Despite this change, units for sale were only up 9% and eight of the previous nine months saw a decline in listing stimulus. Compared to last year, there are 7.1% more listings for sale... in most of 2007, that year-over year comparison was 20 to 30% higher.

Advice for:

It is very hard to discount the average sales price at a three-year low. The dip of 20% in sold units was equally alarming. The January sales price was a $20,000 dip from December when signs of price stability were beginning. The price dip undoes some of that stability, but needs to be analyzed. However, in terms of units, January is the slowest volume month of the calendar year (only 590 units on average sell each January over the last 9 years). With such a small number of sales, and with so many of them occurring in the lower price ranges, it is obvious that the higher value homes (in excess of $300,000) saw very little traffic, while homes at average and below ($150,000 to $250,000) saw closer-to-seasonally average traffic and contracting. Most of the sales volume dip was in the higher price ranges which have seen a gigantic increase in months of inventory since the credit squeeze began six months ago. When looking at homes above $325,000, only two $25,000 price brackets have less than 10 months of inventory. From $325,000 to $700,000, the median time on market is a starling 14 months. From $150,000 to $325,000, the average months of inventory is half of that at 7.33 months. Interestingly, one of the slowest price ranges is $225,000 to $250,000 at over 9 months of supply.

All areas are presently selling at a slow pace with 10.5 months of inventory market-wide. However, within MLS areas with higher price ranges, the lower price ranges are selling at a brisk pace. Within MLS markets exist micro-markets and if a buyer is looking at a price $100,000 less than the average asking price within an MLS area, it is likely that there is more demand for that product than for "the average" product within the MLS area.

those that HAVE to sell and those that WANT to sell. Quite simply, it's a whole lot better to be a seller that WANTS to sell than a seller that HAS to sell. If you want to sell, get it done as quickly as you can. The ability to buy up has not been this good in two decades and the local economic conditions are significantly more favorable than the last bad real estate spell. If you HAVE to sell, again, do so as quickly as possible. If you have some equity position, get it now and don't try to pad it. A seller's personal situation has little to no bearing on a buyer's desire to get maximum value when they're buying. Strike while the buyers interest is hot, which is the first 30 days on market.

Buying for the long term is a great idea in 2008, and going after (the increasingly scarce) sitting-&-complete new construction offers excellent opportunities to cash flow on a 30 year fixed mortgage with 20% down... and possibly less. But be reasonable in rents and get the property rented as quickly as possible. The stimulus to keep rents going up will continue for some time, but vacancy keeps an investor open to lower quality tenants.

Markets are fluid. Wall Street rises and falls daily. Interest rates require buyers to lock because they move up and down hourly. Real estate prices move up and down because they are ruled by supply and demand. Economics involves markets, markets change, real estate is a market, and the local real estate market changed in 2007. It changed early, often and as 2007 closes, it is in the midst of yet another change brought about by a number of variables.

In early 2007, one in four homes for sale (almost 1200) were sitting inventory builder properties. With direct competition from new-built versus resale, private citizens had a more difficult time marketing their property versus new construction options. As local builders stayed true to their self-imposed permitting freeze, and built to present demand rather than hoped-for or anticipated demand, the supply of new construction shrank while the supply of resale rose. By summer over 7000 single family units were on the market, in addition to over 1200 condos and townhomes. The market had never seen this variety or selection. Relocating buyers, who made up more than 60% of the summer buying population had little problem choosing property and often greeted Pikes Peak market conditions with enthusiasm. Interest rates were low, and market conditions were judged as no worse, and often times better, than the markets these buyers had just left. Local buyers however often stayed away.

The year was characterized by two types of sellers, and a common goal among all buyers. The two sellers were the need-to-sells and the want-tosells. The need-to-sells started the year overpriced. Pricing to their needs rather than the demands of the market kept their home on the market. The want-to-sells often saw opportunity, priced their home appropriately so that it would move, and were then able to negotiate significant savings on a more expensive property. These were people using their existing residence as an asset, not as a liability.

The buyers that operated in 2007 looked for one thing: VALUE. Location mattered, condition mattered, accurate pricing mattered, real estate representation mattered. A seller willing to meet the closing cost demands of a buyer would sell because the buyer had a harder time financing their purchase in 2007. A buyer with traditional purchasing power (some cash and good credit), had a huge advantage. The August credit squeeze brought the lukewarm summer market off the burner completely and some title companies saw one in three deals fail to fund. The sudden policing of the finance markets created overnight ripples for first-time buyers, jumbo buyers, bad credit buyers and good credit buyers. By the end of the year, finance had started to regulate itself more predictably, and buyers that wanted to buy and had cash found excellent opportunity.

Foreclosure sales have been widely discussed in media and true investment buyers have returned to the Pikes Peak Market trimming that inventory. Foreclosure and pre-foreclosure inventory began rising in our market in 2004 and 2005 not just 2007, and many of the properties clogging the market in 2006 and 2007 were remnants of a local problem that is just now striking the rest of the nation. A note to all consumers: The PPAR public record software now flags a property in any foreclosure proceeding. This action goes against the desires of this real estate company and this real estate company's legal counsel, but is an important disclosure to all consumers.

Markets are fluid. Wall Street rises and falls daily. Interest rates require buyers to lock because they move up and down hourly. Real estate prices move up and down because they are ruled by supply and demand. Economics involves markets, markets change, real estate is a market, and the local real estate market changed in 2007. It changed early, often and as 2007 closes, it is in the midst of yet another change brought about by a number of variables.

In early 2007, one in four homes for sale (almost 1200) were sitting inventory builder properties. With direct competition from new-built versus resale, private citizens had a more difficult time marketing their property versus new construction options. As local builders stayed true to their self-imposed permitting freeze, and built to present demand rather than hoped-for or anticipated demand, the supply of new construction shrank while the supply of resale rose. By summer over 7000 single family units were on the market, in addition to over 1200 condos and townhomes. The market had never seen this variety or selection. Relocating buyers, who made up more than 60% of the summer buying population had little problem choosing property and often greeted Pikes Peak market conditions with enthusiasm. Interest rates were low, and market conditions were judged as no worse, and often times better, than the markets these buyers had just left. Local buyers however often stayed away.

The year was characterized by two types of sellers, and a common goal among all buyers. The two sellers were the need-to-sells and the want-tosells. The need-to-sells started the year overpriced. Pricing to their needs rather than the demands of the market kept their home on the market. The want-to-sells often saw opportunity, priced their home appropriately so that it would move, and were then able to negotiate significant savings on a more expensive property. These were people using their existing residence as an asset, not as a liability.

The buyers that operated in 2007 looked for one thing: VALUE. Location mattered, condition mattered, accurate pricing mattered, real estate representation mattered. A seller willing to meet the closing cost demands of a buyer would sell because the buyer had a harder time financing their purchase in 2007. A buyer with traditional purchasing power (some cash and good credit), had a huge advantage. The August credit squeeze brought the lukewarm summer market off the burner completely and some title companies saw one in three deals fail to fund. The sudden policing of the finance markets created overnight ripples for first-time buyers, jumbo buyers, bad credit buyers and good credit buyers. By the end of the year, finance had started to regulate itself more predictably, and buyers that wanted to buy and had cash found excellent opportunity.

Foreclosure sales have been widely discussed in media and true investment buyers have returned to the Pikes Peak Market trimming that inventory. Foreclosure and pre-foreclosure inventory began rising in our market in 2004 and 2005 not just 2007, and many of the properties clogging the market in 2006 and 2007 were remnants of a local problem that is just now striking the rest of the nation. A note to all consumers: The PPAR public record software now flags a property in any foreclosure proceeding. This action goes against the desires of this real estate company and this real estate company's legal counsel, but is an important disclosure to all consumers.