July 26, 2010

 

HARRY'S WEEKLY UPDATE

A CURRENT LOOK AT THE COLORADO SPRINGS RESIDENTIAL real estate MARKET

 

THE NEWS AIN'T ALL BAD

Locally, initial claims for unemployment are down 28.6%. The unemployment rate is down to 9.1%. New auto and truck sales are up 7.2%. Taxable retail sales are up 7.2%. The hotel occupancy rate is up 77.7% and foreclosure filings are down 7.9%.

SO, WHY DO I HAVE THIS UNEASY FEELING?

Because local Realtors report that telephone requests for information about listings have dried up and appointments for showings by other Realtors have almost disappeared.

and

Because local Lenders are reporting a big reduction in calls from "Rate Shoppers". Calls from individuals who need mortgage money have dried up and the only calls that are coming in are from people who want to refinance.

and

Because the chief Economist for NAR is predicting an increase in interest rates as a result of the recent overhaul of the financial industry. The $18-$29 billion predicted annual administrative cost of that legislation will increase lenders' costs and will be passed along to consumers. (You remember consumers, don't you?. They are the ones that the law was passed to protect).

The positive side of all of this s that Homeowners are taking their money out of the stock market and using it to remodel their homes or buy investment property.  That's why the story that appears, below, should interest you.

 

BIG SUPPLY PLUS LOW DEMAND = OPPORTUNITY

Although Colorado Springs has a lot going for it and is better off than most other parts of the country, the local real estate market outlook does, necessarily, reflect the national Real Estate market outlook....and that's not a very happy picture. The Wall Street Journal summed up the problems facing the national market in two recent articles, "housing market Stumbles" (July 21, 2010) and "Home Inventory Rises as Sales Fall" (July 24, 2010).

Some of the various reasons for the current grim National outlook are:

  • Tremendous decrease in housing starts (Locally, single-family home permits are down 12.3%. Builders are uneasy about the future.)
  • Weak job growth (Locally, wage and salary jobs are down 1.7%)
  • Elimination of the federal tax credit for home buyers, which resulted in:
  • A decrease in real estate sales (Buyers chose to close before June 30, 2010, in order to take advantage of the federal tax credit.

One result of these negative pressures is an increase in the inventories of new and resale home inventories.

To what extent does our local market reflect this growth in inventories? Well, in Colorado Springs, the month of June showed an increase of 6.6% in listings over May, 2010 and an increase of 15.4% over June, 2009. These increases translate into a growth of inventory of available homes to a level that cannot be absorbed within a reasonable time frame.

What accounts for this sudden growth in inventory? Well, keep in mind that, basically, there are three types of Sellers with homes for sale. First, there are those individuals who have to move out of their homes. They have changed employment or lost their jobs .They are worried about foreclosure..A personal crisis requires them to move closer to some member of their family, etc., etc... The bad economy has contributed to an unusual increase in this type of listing.

Then, there are those Sellers who don't have to move, but would like to cash in on the value of their homes and move up into bigger, better homes. These individuals, misled by the recent, artificial upsurge in sales created by the deadline for the federal tax credit, have concluded that the time is now ripe for them to place their homes back on the market. Because they don't really have to sell, they are not very aggressive in their pricing and are not that interested in negotiating.

(This type of Seller puts the Realtor in an awkward position. Because the Seller's asking price does not reflect realistic market pricing, the house does not attract prospective Buyers. Furthermore, Lenders' appraisals will come in far below the asking price, thus killing the sale. In such instances, everyone is unhappy. The Buyer doesn't see any activity. The prospective Buyer and his Realtor waste a lot of time and the entire deal falls through. For these reasons, responsible Realtors tend to refuse this type of listing).

 Finally, there are the foreclosures and short-sales that Lenders are now listing. Unfortunately, these listings are slow to sell, primarily because of unrealistic pricing by the lenders and slow response time to offers (Almost every Realtor has horror stories about losing sales because a lender would not respond to their offer in a timely manner).

Right now, all three types of Sellers have placed homes on the market and our inventories have grown accordingly.

The bottom line for Sellers is: If you really want to sell, work with your Realtor to establish a realistic listing price and be ready to negotiate.

The bottom line for Buyers is:  Low mortgage interest rates and an oversupply of homes for sale make this a great time to buy your new home.

The bottom line for investors is: CALL ME. The following story shows how our present market offers a once-in-a-lifetime opportunity for investors.     

 

A BEDTIME STORY FOR PROSPECTIVE INVESTORS

Here's a true story that should make prospective Investors sit up and take notice.

On July 23, 2010, we negotiated a sale for a Buyer, on a home that sold for $313,500. (A comparable home in a similar neighborhood sold for $346,000 on July 2, 2010). Our Buyer paid 25% down and we obtained a 30 year, fixed-rate mortgage @ 4.75%. We required the Seller to pay all Buyer's closing costs, including prepaids.

The PITI monthly payment will be $1530 and the home will rent for between $1800-$1850.

Based upon just these factors, here's how our Investor will realize a minimum 9.4% annual rate of return on his investment:

  • Loan amount = $235.125
  • Buyer will receive income tax deductions of $11,090 for interest paid and $2,737 for property taxes paid
  • At a tax bracket of 28%, the income tax savings to the Investor will be $3,872/year, or, $323/month.
  • That makes the monthly cost approximately $1,200 ($1,530 - $323)
  • Minimum rental income should be $1800

Bottom line: The Investor will put about $600 per month into his pocket. That's $7,200 annual income.

Considering the original investment of $78,375, that income of $7,200 represents a rate of return of at least 9.4% ($78,375 divided by $7,200).

Additional factors that will benefit the Investor are:

  • Depreciation write-offs of $9,580 annually ($313,500 minus $50,000 for land, divided by 27.5 years)
  • All fixed expense write-offs
  • Local rentals are projected to rise
  • A conservative estimate of just 3% appreciation will increase the home's value by $9,000 - $10,000/year.
  • Inflation will add even more value to the home

Considering all of these benefits, our Investor should realize a total annual rate of return of 20%-25% annually, on his original investment.

If all of this sounds too good to be true, consider the following:

  • We currently have access to all-time-low mortgage interest rates
  • Because of the large number of foreclosures and short sales, there is now a high level of demand for high-quality rentals from the people who have had to move out of their "formally-owned" homes
  • Rental vacancy rates are near record lows, because of increased demand
  • There is a Buyer's market because of the high inventory of available homes
  • And, perhaps an even more persuasive factor: INFLATION IS COMING

Call me and let's discuss this opportunity !!!

And, please remember, I would be honored to serve as your Broker for all of your residential real estate needs. I want to help you, my reader, make the most prudent and accurate Real Estate business decision.

Also if you know of anyone who desires to buy or sell local real estate, or, who is moving in or out of the Pikes Peak region, remember that, with over 37 years of providing relocation and Real Estate services to clients throughout the country, I am uniquely qualified to assist them with the relocation process, including buying and/or selling their homes on both ends of their move. Please allow me to implement my negotiating skills on your behalf.

Just click on the icon at the top of this email to listen to my latest podcast. ..And, if you would like to learn more about our Job Loss Protection Program, or, about our CyberHomes Complete Market Analysis of a property, please contact us. 

 

JOKE OF THE WEEK

real estate AD EUPHEMISMS


Starter home - run down 

Needs TLC - Major structural damage.

Spacious - average size

Charming - small

Comfortable - very small

Cozy - very, very small 

Low maintenance - no lawn 

Easily maintained - Requires at least two gardeners and live-in maid.

Convenient - Located on freeway entrance ramp.

Walk to stores - nowhere to park your car

Close to lakes - Impossible to park from April to October.

Natural setting - forget about planting, the deer will eat everything

Secluded setting - far, far away 

Park-like setting - there's a tree down the block

Executive neighborhood - high taxes

Sophisticated City living - Next to a noisy bar.

Old World charm - Has some woodwork, needs cleaning.

Contemporary feeling - Has no woodwork, needs cleaning.

Security system - Neighbor has a dog.

Neutral decor - brown walls.

Unique city home - Used to be a warehouse.

Daring design - Still a warehouse.

Sophisticated - Black walls and no windows.

Prestigious - expensive

Bright and sunny - Venetian blinds not included 

Useful outbuildings - No inside toilet. 

Motivated Seller - Has been on the market for 14 years.

Much potential - Grim. 

One-of-a-kind - Ugly as sin.

MUST SEE TO BELIEVE - An absolutely accurate statement.