Michael Clarkson

Are you paying "The Procrastination Tax"????

In these times of economic hardship, there is a tax so many pay WILLFULLY!!! I can never understand why, but they do:The Procrastination Tax.

You pay it, and don't even realize it! And it's likely the biggest discretionary tax you will pay! It's a tax paid for with trade-offs.

Well, remember when you bought that Jan Michael Vincent "AirWolf" Leather Jacket back in 1984, instead of putting that $500 in Apple Computer stock? Well, that $500 of Apple Computer stock, if bought on September 7, 1984, would be worth over $22.5k today, though it peaked over $33k in December 2007.

What is the "AirWolf" Jacket worth today? Uh, not that much. And, THAT'S assuming you can live through the humiliation of admitting you ACTUALLY watched "AirWolf".

Don't you wish you could have THAT decision back? That's an example of a trade-off gone sadly awry.

Like that decision you wish you could have back, here is an opportunity to avoid as costly a mistake by waiting in the market, assuming buying up is a right move for you. I have shared this exercise with clients and they appreciated it -- the insight about the money lost to lost opportunity.

So, let's assume this is you:

• You have a $200k home
• You want to buy 50% up (as most folks do) to a $300k home
• You put down 3.5% (or $10.5k) with a $289.5k loan on your new home and are able to get a 5%, 30-year fixed mortgage
• BUT, you wait, because you think you can get that last $1k or $2k out of the market and then rates creep up.

What does that cost you? Well, depending on how long and how far rates move, potentially, a lot!

Take a look at this table.

Even if you make no decision, you really actually HAVE made a decision - or acquiesced to the decisions the market is making for you. If rates drift up to 6%, you will pay $2,179 per year MORE. In short, the longer you delay, the more you pay, all for waiting. The market made that decision for you. I call it the "Procrastination Tax".

Now, if you think rates will go down below 5%, then you get some uplift.

Have rates come down? Do you think they will again? Conventional wisdom is betting against you.

Think about it: at 5%, rates can go only go down a numerical maximum of 5%, but they can go up INFINITELY!!! Though unrealistic that they would go up infinitely, it is more probable that an upward change would occur rather than a downward change.

BUT, that isn't the only cost of waiting.

You also have the cost of lost appreciation, too!

You can lose on the front end with interest rate changes and on the back end with missed appreciation opportunity.

So, if you waited one year to pull the trigger on:

•1. A $300k home

•2. With an FHA loan (3.5% down)

•3. And saw rates go from 5.0% to 6.0% and

•4. Held onto the $300k home for 10 years,

How much Procrastination Tax did you just pay?

• Incremental payments due to interest rate change (year 1 to year 10): $21,792
• Lost appreciation (you only lose the 1 year of waiting, assuming prices stay relatively the same on both homes): $3,786
  • Remember, 3.79% is a fairly low appreciation rate for Denver and is only indicative of the years prior to the mortgage crisis, not the next 5; the historical, national average is over 5%.
• Total incremental cost of ownership caused by delayed decision: $25,578 or 8.53% of the $300k home price (new home). That's the cost of your "Procrastination Tax".

So, consider this my $25,578 gift to you, but it's only good if you use it. So, knowing me just made you $25,578 - how many other folks have done that for you today?

Market Conditions - June 2009

In June, the national unemployment rate reached 9.4%. That is the 2^nd highest it's ever been since statistics have been tracked consistently, starting in January 1948. The five most recent highs have been:

•1. 10.8% - November and December 1982

•2. 9.4% - May 2009

•3. 9.0% - May 1975

•4. 7.9% - October 1949

•5. 7.8% - July 1976, November 1976, July 1980, June 1992

While that is a high number - one which was not expected to be hit, we have come back from similar - and worse - unemployment.

Despite that news, Denver's real estate market was substantially improved over most of the rest of the country. Remembering that 6 months is the tipping point between Seller's markets (below 6 months) and Buyer's markets (above 6 months), here is how Denver is faring:

•· Nationwide - 10.2 months of inventory

•· Denver - 5.71 months of inventory

Denver's sub-markets by price were the following:

•· $0- $200k (up to the median price) or 50% of the market - 2.4 months of inventory (strong seller market)

•· $200k to $400k (median to the $100k annual qualifier) or 50% to 88% of the market - 5.6 months of inventory (seller market)

•· $400k to $1m - 13.8 months of inventory (heavy buyer market)

•· $1m and up - 43.3 months of inventory (fuhgeddaboutit! You're holding on to this home for a LONG time)

So, 88% of our addressable market is seller to strong seller market and remaining firm to firming.

Listings are static at 20,734. This has not materially changed since January and has been nearly exactly the same for three straight months. The 5 years' average is 26,366 listings, meaning listings were down 21.4%.

Sold listings were 3,628. Though up from last month, the 5 years' average is 4,702, meaning 22.8% fewer homes were sold. However, this drop in sales appears to somewhat coincide with approximately 2,900 homes under contract for more than one month, which are still yet to close. Including those, the Denver market approaches more historical sales levels. Nevertheless, despite these pending contracts, Denver continues to be a strong market and will be measurably stronger when those close.

As a result of this market strength, prices are moving up.

•· Median sold price - $220k up from $210k last month

•· Average sold price - $262k up from $254.4k last month

•· As a result of high end homes listing, but not selling, the average list price was $538k up from $532.5k last month. The lack of high end mortgages precludes them from being sold readily, and increases the risk of higher end foreclosures in the near to intermediate term.

Days on market (DOM) is 105 days.

Overall, the market is strong and improving. However, that is still subject to national macro-economic issues and a restricting lending environment.

I am done with real estate!!!

Yes, you heard me. I am done!

Well, sort of…

I live in Denver, Colorado, recently identified as the #1 recovery market in the country. Mind you, other investor/brokers who see the numbers have been saying that for about 12 months – as I have on my blog. (Way to be on top of the breaking news, media folks.)

I love working with people. However, people right now are scared and they are doing some dumb things – well, things that are borne of being misinformed (by the media) and choosing to remain uninformed despite what I share with them (deliberate ignorance).

Now, I could moan up a storm about how clients suck. They don’t, so I won’t.

I could lament how much banks suck. Even though they DO, I won’t.

Instead, I took some time last month and decided what is best for my business. I came to the conclusion: I no longer can work for others!

I have been working such incredible deals for folks. However, I am incredulous at what appears to be the increasingly chronic stupidity in the market:

• Unprofessional brokers who don’t respond

• Brokers who are uninformed about the market, either specific to their listing or generally city- or nation-wide

• Buyers who are unwilling to get prequalified because they are the “exception to the credit crisis”

• Sellers who think their home is the “ONE home worth $50k over market value”

• People so invested in their own personal ego-petting that they don’t understand that the $75 item they “won’t budge on” will unlock multiple thousands of equity – never mind, be made up in the first month of payments due to the historically low interest rates.

• That people think rates will go lower

• That prices will continue to descend

That's compounded by a National Association that is directionless, weak, and unresponsive in the first or second most significant crisis in the history of the association….nothing really material has come from its efforts. (Regrettably, I hear that a lot out there lately.)

So, I am done.

I recently transitioned the last of my listings and have decided to invest full time…in Real Estate. I am referring out leads I generate -- and my website generates about 2-3 per day!

Why? A good friend told me: You make a good living selling real estate, but you make an incredible lifestyle owning it. So, effective June 1, 2009, I am only going to work for my closest friends and associates to whom I previously committed help. AND INVESTING!!!!

This week, I will be sending out 2000 mailers to potential target properties. Statistically, that should mean 10-20 deals for me in just that mailing. And I won’t just earn the commission, I will earn THE WHOLE EQUITY play.

Then, I will sell those flipped through my company as the listing broker.

However, as I am the Seller and the broker, I won’t have to worry about the ego investment of the Seller, because I AM THE SELLER. I will be ahead of price changes in the area. And, I will have something few of us do in this business: A Seller that listens and acts promptly.

I will price to the market (and slightly lower) to make deals move.

There are too many alternatives to bank financing and too many people left to help…and best of all, I don’t earn just a piece of the transaction, I earn THE WHOLE THING!!!!

So, to those of you who sit here and complain. Get out of the business! Leave it to the professionals. Or migrate your business into something more aligned with the realities of today’s market.

Most importantly, you will do your clients, the industry, and, most importantly, yourself a huge favor in the process!

Rembember, they ain't making any more dirt, so it's time to accumulate it while you're living on top of it instead of buried beneath it!

Seriously, folks, if you are only selling now, and not investing, you are doing yourself a huge disservice.

Kind regards,

Michael Clarkson

Still selling his own vis www.MileHighHomeHunter.com

And investing at www.CashPathRealEstate.com

This is a test blog entry for the launch of the blog.

See more here: Denver Market Statistics

Some interesting points:

Unemployment:

• National - 8.5% (up 0.4%) - the highest since 1983.
• Colorado - 7.2% (up 0.6%) - the highest since 1988.
• Denver - 7.9% (up 0.5%)

Months of Housing Inventory is DOWN SHARPLY (good thing for prices), meaning a trend toward a Seller Market.

• Seasonalized (taking into the seasaonality of the Denver's market sales 60% April - September; 40% October - March) - 5.35 Months of Inventory - Seller Market
• Unseasonalized (taking only the current month demand into account) - 6.43 Months of Inventory - Neutral Market
• A well balanced market is 6 Months of Inventory

Days on Market

• 106 Days - For all markets, Single Family Homes & Condos. It was the first time in recent memory where all markets converged for this metric.
• Days on Market were relatively stable for Single Family Homes, and Condo Days on Market is down from 118 Days this time last year.

Housing markets in Denver are increasingly stratified by price segment:

• $0 - $200k (median price in Denver) 2.6 Months of Inventory - STRONG SELLER MARKET
• $200k - $400k - (median price to roughly about the $100k qualifying buyer) 5.1 Months of Inventory - SELLER MARKET
• $400k - $1m - ($100k qualifying buyer to the sub-luxury market) 12.4 Months of Inventory - STRONG BUYER MARKET
• $1m and above - (the luxury market) 37.1 Months of Inventory - FUHGEDDABOUDIT (By the way, that's not an official real estate term.)
• In fact, you heard about that story on KMGH 7News this past week. (See story here: http://www.thedenverchannel.com/money/19134459/detail.html )

However, if you have been a reader of my blogs for the past year, you KNEW about this trend (and others) for over a year:

The diverging market addressed only this week by Channel 7. But here is what you heard about this market for the past year:

November 2, 2008 - http://milehighhomehunter.blogspot.com/2008/11/denver-market-statistics.html

• A lower end market housing shortage (meaning that lower priced homes were flying off the shelf):

July 28, 2008 - http://milehighhomehunter.blogspot.com/2008/07/news-from-mile-high-home-hunter.html

• Paying the "Procrastination Tax" - Talks about why you shouldn't try to time the market like a stock

May 14, 2008 - http://milehighhomehunter.blogspot.com/2008/05/daily-dirt-real-estate-news-update-from_9798.html

• This one also speaks to the errors in RealtyTrac showing Denver was NEVER a #1 state for foreclosures - and it cost you!!!

Listing inventory is at a 5 year low at 20.628 homes

• Down 25% from the recent peak in 2006
• Down 19% from 2008

Sold homes are at a 5 year low at 3,206 homes.

• Down 30.3% from the recent peak in 2005
• Down 13.5% from 2008

The percentage of homes under contract - waiting to close - which normally averages at 127.8%, stayed high at 150.5%. In short, for 100 homes sold, 150.5 were waiting to sell. This is consistent with prior years' activity for this time of the year.

• This percentage is a great leading indicator of the market. In short, it's the window into anticipated activity in the market one to two months out.

Prices are rebounding convincingly:

• Average sold price - $251,583, up from $236,920 in February - up 5.8%
• Median sold price - $203,950, up from $192,500 in February (Median is the point at which 50% of the market sells above that price and 50% sells below that price) - up 5.6%

If you have any questions, give me a call.