May 2013 -Market Warming Up With the Weather
Rely on Local Sources (not Internet Sites) for Good Info
Ahhhh … Spring in the North Fork Valley, what could be better? Before we know it school will be out for summer and the thermometer will start to climb toward the uncomfortable, but let’s not get ahead of ourselves. May is a word of possibilities and it’s a month that may be the best in a long while.
The pace of things in local real estate has quickened noticeably, we’ve seen multiple offer / competitive bidding situations, higher offers being made as a back-up in case the first one fails for some reason, and a few “same-day” sales when a property goes under-contract the first day it’s on the MLS.
It is also encouraging to see sales of commercial orchards around the area because it makes a statement about the local fruit industry and its ability to attract capital. Real estate is, by definition, a capital-intensive business that relies heavily on debt – making a buyer’s ability to obtain financing the cornerstone of the American dream of home ownership and, more broadly, the U.S. housing industry.
Recognizing that the real estate boom and ensuing financial catastrophe were the cause and effect siblings of loose credit lending coupled with loosely rated mortgage-backed-securities, the future stability of the home finance system depends on making sound reforms.
It pleased me to read recently that my trade association, The National Association of REALTORS, is actively involved and working with congress to help develop these reforms. On March 4, 2013, Federal Housing Finance Agency announced that the Fannie Mae and Freddie Mac would collaborate on the creation of a new entity that will consolidate many back-office functions, and eventually, issue mortgage-backed securities.
Long-term stabilization will require increasing levels of private capital and to this end NAR recommended “improvement of loan level and mortgage pool disclosures to market participants to enhance opportunities for private capital participation. This data is an essential foundation for investors to efficiently analyze and price mortgage credit risk” according to its website.
Finding a solution to the current near total reliance on the U.S. Treasury & Federal Reserve for home loan funding is a big picture problem with the potential for very local consequences, should the solution prove elusive. Finally, on the financing front, if you have an FHA loan you may want to look into the FHA Streamline Re-Finance Program.
It requires less documentation and has less cost than a traditional re-fi – Google it and look for a participating local lender.
Have you ever used the real estate website Trulia, Zillow, or the foreclosure site RealtyTrac? Well, you’re not alone. It’s not uncommon for us to receive a call from someone asking for more information on a house they’ve found using one of these the uber-popular house hunting websites.
We are always glad to field questions from prospective buyers but have noticed that frequently the house they’re calling about is already under-contract or even sold. Zillow markets what it calls a “Zestimate”, which is supposed to be an estimate of a home’s value.
One example I looked at recently was for a foreclosed home in Paonia that was being offered for sale at $131,000 and went under contract quickly indicating it was a good value but, their “Zestimate” was $194,161! Way off the mark.
Another that sold in September 2011 shows “54 Days on Zillow”. These sites have some helpful tools, like maps, links to tax records, and multiple channel data sourcing, which give a user a lot to look at. Unfortunately the accuracy and reliability of much of that data is flawed.
April – 2013 Sales are Up But High End Properties Still Slow
How wonderful it is to have rounded the corner out of winter and into spring. Even though there is still a little snow flying around it seems like everybody has just a little more bounce in their step, the crocuses are pushing up and real estate activity is going strong but not through the roof – so to speak.
I took a look at year-to-date North Fork home sales through 3/21 (the copy deadline) and was initially taken aback. The local Multiple Listing Service showed sales of $3.44 M on 19 units for 2012 but only $2.2 M on 15 sales so far this year – it just didn’t seem right.
Then I looked at what is under-contract too and found the missing link. There are 15 properties with a total listed value of $2.89 M currently pending sale – a big increase from 2012. So far, so good.
Short sales and foreclosures still account for about one third of all sales, a trend that will continue for at least another year it looks like and which is depressing market values somewhat.
Of the 98 residential properties sold in the North Fork including Somerset over the past twelve months 31 were priced under $100,000 (many of which were purchased by investors) while only six places sold for more than $300,000 and each of those was on at least twenty acres of land.
To put that in perspective, there are currently 48 N.F. residential listings on forty acres or less priced over $300,000. In the real estate business we look at what is called an “absorption rate” or how long will it take to sell the current inventory by taking the number for sale and dividing it by the number sold.
In this case (48 / 6) means the absorption rate for $300K+ priced properties is eight years! It should be more like two or three.
By comparison, the median area home price is about $150,000 and over the past twelve months there have been fifteen homes sold between $140,000 and $160,000 but just eleven currently listed for sale in that range – only a nine month supply!
If there’s a ray of hope that it could get a little easier to sell these higher priced homes this year it comes from the fact that the front range market (Ft. Collins to Colo. Springs) is having quite a come back and historically we’ve seen that area as a pretty good source of “third tier” buyers since $300,000 isn’t a particularly big price tag over there.
The Roaring Fork area, Steamboat, and Crested Butte are in a similar camp. The fact that the BLM oil & gas leases were taken off the table is another positive development that should help buoy the upper-end market. Most, if not all, local brokers have had out-of-area buyers balk at coming to the North Fork due to the risk of it becoming a drill-zone. Although not necessarily gone for good it does seem that the tide has turned and folks may be more willing to consider a move our area.
Extremely low interest rates are also helping fuel a recovery. The mortgage bankers even seem a little more willing to make loans even though the documentation they require could choke a horse. Only time will tell how things play-out but for the time being the market is definitely on a better track.
February 2013 – North Fork Real Estate: Residential Sales Up Last Year, Business and Lots Down
“Really?” he said, half-shocked with his head kind of cocked to the side, eyebrows raised a little, in a classic “call me skeptical” look. “Really. I can’t ditch work to go skiing with you, got too much to do” I repeated. Besides, it was too darned cold!
Flying in the face of the common belief that nobody looks at real estate in the depths of winter, this year has started with a flurry of activity. Once the holidays and fiscal-cliff fiasco were over the phones started to ring! It’s a good indication that the progress made last year will likely continue in 2013.
While the broadest measure of the Delta County real estate market showed a very modest 2% growth, there were huge variations among market segments ranging from down 70% to up 290% – a classic case of “the devil is in the details.”
As reported by the local MLS, total brokered sales last year of $79.1 M was just slightly better than the $77.3 M the year before, or basically flat, compared to the jump from $56.8 in 2010. Residential property sales accounted for two-thirds of the total at $55.6M, a healthy 10% improvement which helped to push up the county-wide average sale price by 1% and the median by 4%.
Ironically though, the North Fork area lead with a 16% increase in units sold but posted a 5% drop in the average sale price while Surface Creek had a 1% decline in units sold but a 13% jump in the median price due to the sale of some higher priced properties. The Delta area had the highest volume at just under $20M but the lowest average price.
Sales of farms and ranches rebounded nicely in 2012 posting a 23% increase to $18.4M fueled by the sale of some big places in Delta, Somerset, and Crawford and also by a good number of 20 – 60 acre spreads. Most notable were the deep discounts from the original asking price that many sold for (25% to almost 50% in many cases) and the fact that two-thirds of the business done was in the North Fork area.
Vacant land and developed lot sales tanked last year, down 60%, to $3.4M from $8.8 the year prior. Most of the volume was generated by 10 – 35 acre building sites or recreational / mountain acreage with developed lots selling in the $15,000 to $30,000 range (less than the value of the water and sewer taps in some cases) adding just a fraction. Well over half the sales were in the North Fork area.
Commercial real estate took a downturn last year too – off by 30% county-wide. The numbers for Delta were up ($1.5M total) due to the sale of the corner where the new Maverick gas station is going in, while the North Fork was down 57% to $750k, and Surface Creek fell 72% to just $435k. The value of and ability to sell commercial property is directly linked to the health of the local economy and right now there just isn’t much demand for commercial space.
I don’t expect the trends to change much this year. Slightly better demand may come from retirees who have seen their pension accounts rebound, as well as improvement in their local real estate market. Interest rates will remain low as long as the Federal Reserve keeps its thumb on them – an increasingly expensive proposition that can’t continue indefinitely.
Locally a lot may depend on what happens with the BLM lease sale and if the coal mines can avoid a major disruption. Stay warm and pray for more snow, even though you’re already sick of winter, because we’ll surely need the water this summer.
January 2013 – North Fork Real Estate: A New Year, Gas Leases, Gravel Pits and Hope
Happy New Year! There’s just something about turning the page on another year that naturally encourages optimism. People instinctively want life to be good and each year to be better than the last. And, as far as the local real estate market is concerned, I think there is good reason to believe 2013 will be a healthier one.
We’ll have a complete breakdown of all the year-end statistics next month after the books are closed but I can say now that 2012 will be characterized as a step in the right direction. One of the things I like best about living here is the change of seasons, each one so distinctly different from the last; changing abruptly right when the calendar calls for it.
But, like in the old saw about how “everybody complains about the weather but nobody’s willing do anything about it” – some things are just out of our control and we have to take what we get.
As far as the local real estate market goes there are several outside variables that will have a significant impact on us but upon which we have little to no control. How fast and how far the real estate market recovery advances this year might hinge on just a couple key factors.
First and foremost will be whether or not the BLM goes through with the oil and gas leases. The mere threat of it has roiled the real estate waters and cast a lot of doubt on the future of the valley.
The threat to our quality of life and livelihood is so apparent to the local real estate brokers that we collectively submitted a letter of protest to the BLM asking for the North Fork parcels to be withdrawn from the February lease sale.
What’s the rush? A new resource management plan that recognizes existing uses will be formalized within months and should be a part of any discussion about where drilling is, and is not, appropriate in the North Fork.
Continuing the deductibility of mortgage interest is another important element in sustaining the housing recovery and, while it may be reduced for second-homes or super-jumbo loans as part of a U.S. budget “grand bargain”, I doubt it will be completely eliminated.
The Federal Reserve’s policy to keep interest rates super-low is already “baked in” but the more crucial money questions are about the continued availability of financing through Fannie Mae and Freddie Mac due to more stringent underwriting standards for new loans. Cheap money is only a benefit to the economy if people can get it.
Recognizing this fact, the Federal Housing Administration (FHA) is offering to refinance their loans though a “streamline” process. It’s a tremendous opportunity for anyone who has an FHA loan to reduce their payment or shorten the term of the loan while reducing the interest rate.
A client of mine just did it and the payment dropped by over $400 a month! It’s certainly worth checking out and one Google search on ‘FHA streamline’ will bring up quite a list of sites with program details and lenders offering their services.
It was gratifying to see the Delta County Board of County Commissioners vote 2 to 1 to deny the application for a new gravel pit that was proposed in the Crawford area. From a real estate perspective, approval of it would have been a disaster to the residents of the adjacent neighborhood and would leave the door open to virtually any type of industrial development anywhere in the county.
By recognizing that the negative impacts of a gravel pit could not be adequately mitigated so as not to damage the neighbors, commissioners Atchley and Hovde rightly voted against approval.
It was a particularly significant decision given that the Crawford Area Planning Committee and the Delta County Planning Commission both voted to recommend approval. But, of course, there have been cases where the planning department staff and these same advisory groups recommended denial of an application but the commissioners approved it anyway.
Make no mistake, the job of a county commissioner comes with wide ranging authority. Since each application is considered based upon its unique facts and circumstances, it will be interesting to see how Mr. Roeber, as the newest member of this select group, will view these difficult decisions where the rights of one person to develop their land has to be balanced against the harm that may befall their neighbor.
December, 2012 -The Bill Tennison Rule of Predictions and the Return of Gas Leases Not Good News for Local Realtors or Sellers
As Bill Tennison was fond of saying, “He who looks into a crystal ball and makes predictions had better be prepared to eat crushed glass.” Bill was always good for a home spun metaphor when the situation called for a simple explanation.
And I thought it was fairly simple to see that the referred item #1C on November’s ballot was a sure loser but am now picking glass out of my teeth.
To recall, 1C allows the Delta County to keep and spend revenues it may obtain by implementing “impact fees” on new real estate developments. Based on my own very limited exit polling the measures’ language “without increasing any tax rate or imposing any new tax” coupled with “to be used for public safety, County road and bridge improvements, and public health and human services purposes” was good enough for the 58.65% of folks who voted in favor of it.
Given the incredible bulk of developed lots already on the market it will be a quite while before any significant revenues begin to flow regardless of what the county may enact.
It’s too bad that Bill isn’t with us any more to not only share his insight and interpretation of things like the financial collapse, the housing bubble, and the fiscal cliff but, also, to convey his never ceasing sense of optimism and opportunity. I would be curious too how he would view the proposed leasing of BLM land for energy production. It is a sword that cuts both ways to be sure.
The topic of gas production and its ramifications has woven itself deeply into the fabric of local, regional, and national discussions about all manner of things from jobs and employment, to health and safety, to middle-east oil and geo-politics.
From a local real estate perspective though it looks like a really bad scenario. Any broker can tell a story of someone who is reluctant or has refused to buy a home here with the threat of gas drilling looming. The real estate market is making a fragile recovery and the renewed prospects of gas field development are hurting it.
Could widespread well development boost sales and prices, sure, but at what cost to the over all quality of life we enjoy here. Sometimes people criticize this as NIMBYism but I contend that these areas are not in our back yard but rather they comprise our FRONT yard and should be off the table, at least for now. Delta County and the area already contribute to the country’s energy demand by supplying good, super-compliant coal. That should be enough.
November, 2012 – Debrucing of Impact Fees Will Lose Because of Lack of Voter Education
According to the Mayan calendar, this is definitely the beginning of the end… of the year. With less than 60 days to go it looks like 2012 real estate sales will exceed those of last year – it just remains to be seen by how much. Buyer activity is as good as we’ve seen in ages and the number of available local homes are down a bit, which makes it feel a little less like the purely “buyer’s market” that it’s been. Some of the increased demand has come from people who were finally able to sell their home in(fill in the blank) and some has come though the convergence of low prices and even lower interest rates. Other things remaining equal, if the trend continues through next year values should begin to stabilize and perhaps stop declining. These changes we’re seeing in market psychology are a good step in that direction.
Because the Merchant Herald comes out at the first of the month it’s probably safe to assume that many folks will be reading this after the election is over. None the less, I was so surprised to see measure1Con the sample ballot, and was so confused about what it was and where it came from, that I thought it would be a good topic of local interest for this column – even if a bit after the fact. I’ll start by sticking my neck out and predict its failure to pass. Why? Mostly because of bad timing and the fact that nobody advocated for it. Question1Cwould allow the county to keep and spend money it might collect (as required by TABOR) from “impact fees” assessed on new development (lots) and springs from the notion that growth should pay its own way. As the Delta County Master Plan Goal Statement #3 reads: “The growth policies ofDeltaCountyshould ensure that the financial impacts of new development are paid by those who benefit, and that development is directed to those areas where there is adequate infrastructure and services.” And, one of the twelve implementation strategies being to: ”Develop a fiscal impact model to assess cost/benefits of new development.”
Since the county commissioners put it on the ballot by resolution naturally I assumed they’d be in favor of it, so I called my local commissioner, Olen Lund, to see why there wasn’t a voter education effort underway. “Just because we put it on the ballot doesn’t mean we’re advocating for it” he said.
Really? Yes indeed. As he put it, “it’s up to the voters.” If people want it, by voting to let the county keep the money, then they’ll consider whether to implement the fees. Never mind that whether or not voters would approve the idea might depend on how much the fee would be, but, if the TABOR vote fails, there’s no need to even debate how much might be appropriate. Commissioner Lund was quick to point out that IF the county had impact fees that they should not be viewed as a tax on developers but as a way for those who buy a new lot to ante-up for the county infrastructure that’s already in place. Since we’re about to get a new District 3 Commissioner I though I’d call the candidates to see how they felt about it. Mark Roeber, the Republican candidate from Paonia, said that “it all depends on how it’s implemented.” “I think it’s really targeted at large developments that don’t have roads and infrastructure to support them.” If done right he doesn’t have a philosophical problem with it.
Mike Mason, on the other hand, opposes impact fees as an additional tax by government that is detrimental to jobs and the local economy. “If the fees are needed because more people move here then why doesn’t government issue refunds when the population declines,” he said.
Then I spoke with Scott C. Wilson the Democratic candidate from Hotchkiss who said he was “Not really up to speed on it.” “I don’t know much about it,” he said. Then he grabbed his copy of the ballot, gave it a quick read – pausing in the same places where most folks who read the measure probably start saying to themselves “huh?” – and he responded, “I’ll probably vote against it because it doesn’t make sense.” What really makes no sense is why the commissioners chose to put it on the ballot now, at a time when land development is as dead as it gets, and why they made no effort to let the public know that it if they support those elements of the master plan this measure would give the county a mechanism to implement them.
October, 2012 – Federal Reserve and Government Moves to Help Homeowners and Buyers & Local Interest in Higher Priced Homes Spikes
As the colorfulness of Colorado and this valley unfold in autumn light and cool air replaces the heat of summer the thoughts of many folks in the North Fork turn to harvesting, hunting, and houses. It’s the time of year when sellers start to think that they’ve missed finding a buyer and may have to wait till spring.
On the other hand, folks who are looking to buy usually prefer not to have to move during the holidays or in the dead of winter so there’s a bit more urgency in their approach. Judging by the activity of the past few weeks it looks like there could be something of a fourth-quarter comeback for the local real estate market. The number of showings and inquiries about higher priced homes has spiked in recent weeks which indicates that the people with deeper than average pockets may be feeling more confident about things.
Even those of “regular means” have quite a bit to feel better about too. Homes that were once quite unaffordable have been brought to within reach through a combination of incredibly low interest rates and some best-in-a-decade real estate prices. The fact that the Federal Reserve has launched a huge mortgage bond buying campaign to assure that rates stay low and money continues to flow in support of the market means that this window of opportunity will remain open for the foreseeable future.
On the flip side, the reality that foreclosures and short-sales will continue to provide a ready supply of properties at “must sell” prices means that we’re not likely to see appreciation any time soon. In fact, I’m a bit worried that by the time the economy and demand have improved enough to spur price gains, interest rates will start their inevitable climb also. We’ll just have to see.
From what I’ve read it appears that the Fed is also hoping that these super-low interest rates will inspire people to re-finance at a lower payment which will free up their family budget enough to allow for a little more consumer spending or just help people having difficulty making ends meet to get by.
For example, a $150,000 mortgage at 6% requires $900 / month for principle and interest but payments are only $675 at 3.5%, a difference of $225 per month! Because values have fallen and too many people have negative equity or are “underwater” on their loans, the government is offering a special re-finance program under the “Making Home Affordable” program. There is lots of detailed information on program eligibility available on the internet if you’re curious about it.
The program also has a foreclosure alternative element that provides seller’s who have a qualifying short-sale with cash to help them cover relocation expenses. I’ve seen both of these programs work locally and overall they should help reduce the number of distressed properties and add stability the housing market. It’s a long, slow, grind to a healthy and growing market but over time we’re seeing improvements and the end of 2012 has the potential to mark a pivotal turning point.
September 2012 – No Can Do: Local Banks Avoiding Residential Mortgages
That was then, this is now. Just a few short years ago the likes of Countrywide Home Loans were writing mortgages as fast as their printers could spit them out. Money flowed like a river, the economy thrived and all was well in the land. Oh my, how things have changed in the world of real estate loans. It’s easy for the mass-media to cast it off as “the banks don’t want to lend” but that’s how banks make money, so why would that be? It’s not that they don’t want to lend, it’s because they’re scared to death of one thing: Loan Repurchase.
Naturally the roots of today’s difficulties trace directly to the loose lending practices of the boom years, roughly 2005 – 2008. Fannie Mae and Freddie Mac were buying loans in record amounts with little scrutiny. After all, the historic default rate for home mortgages was relatively low and it was good for the economy, society, and shareholders, right?
It was the time of home equity loans to 125% of value, second homes, Jumbo loans, and the popular “stated income” loan where the borrower just told the lender how much they made instead of having to produce tax returns, bank statements and pay-stubs to prove it. We all know how well that worked out. Not. And now Fannie and Freddie are screaming foul. The loans they bought were supposed to meet certain guidelines and a large fraction of the “bad” loans, it turns out, were made without much regard for those rules. When a violation of underwriting guidelines is discovered Fannie & Freddie have the right to make the bank buy the loan back.
For the banks it’s like being forced to buy back a dead horse…only one that they have to feed until it’s buried. According to a recent Reuter’s report (Insider: 8/15/12) repurchase requests at Fannie Mae grew by 20 percent to $14.6 billion from the first quarter while Freddie Mac had outstanding repurchase requests of $2.9 billion.
To say this has made the banks a bit gun-shy is an understatement. Before they’re willing send a dollar out the front door they have to be 100% certain that the loan will go out the back door – and not come back. Wells Fargo is so nervous that in July they announced that they would no longer be buying loans for servicing that were originated by independent mortgage brokers because they couldn’t be verify the quality of their underwriting.
While the banks argue that Fannie and Freddie are being unreasonably picky over technicalities they are busy nailing down every little detail as several of my clients, and those of other brokers in our office, have recently experienced first-hand. This is an ‘i’ and this is a ‘t’. The I’s must have a dot, and the T’s shall all be crossed. No exceptions. Case in point, as I write this column I’m waiting to hear back from Wells Fargo whether or not a blank left empty on a power-of-attorney form will render the contract invalid in their eyes, sending us back to square one after six weeks and untold hoop jumping.
Because of the threat of future loan repurchase losses all the lenders have established new guidelines and procedures in an attempt to create a perfect loan file. Buyer’s had better be ready to have every aspect of their financial lives examined and the same thing applies to those wanting to refinance. Hoping to avoid some of this mess I recently called our local banks to see what options they could offer to someone who was willing to maybe sacrifice getting the absolute lowest rate possible in favor of doing business with the people in town.
The answer was the same from all. Sorry, no can do. All of them quit writing residential real estate loans because the banking regulations were changed to require them to administer escrow funds for taxes and insurance – just like the mortgage companies.
Unfortunately the software to keep track of it is prohibitively expensive so the local banks just dropped those kinds of loans from the menu. The consequences, both intended and unintended, of these recent changes are beginning to unfold and everything indicates that going forward they will be a drag, not only to deal with, but on the real estate market’s recovery.
August 2012 – Overview: Commercial Sales Down, Residential Sales Up
You may have noticed that last month’s issue didn’t have this column. When I sat down to write it all I could come up with was “more of the same” so Tom graciously let me take the month off. What I didn’t really realize at the time was just how much more of the same I would have to report on this month. Specifically, we’re at the mid-year point and sales volume in some categories of Delta county real estate is quite a bit more than last year.
The number of homes sold so far this year is 28% above last year’s level (167 vs. 130) with all three reporting areas of the county up – Delta 43%, North Fork 32%, and Surface Creek 7%. However, only Surface Creek had an increase in the median sale price – up 12%, while the North Fork was down 2% and Delta was down 9%. More sales at lower prices has been the trend for two years now and, in this case, more of the same means about $4.5 million more in sales. Not bad.
Vacant land and lot sales reflect the same trend with almost twice as many transactions (26 vs. 14) generating about half the dollars compared to the first half of last year ($1.8M vs $3.4). The biggest decline was in the North Fork where 11 parcels sold for an average of just $80,000 each. The average was torpedoed by a number of lots in Hidden Valley selling at liquidation prices of $5500 to $20K – less than the cost of the included out-of-town water and sewer taps ($15,000 and $7,500 respectively).
Land sales in the Surface Creek area were up primarily because they couldn’t have gone any lower. Last year there were NO SALES at this point so the ten parcels that have sold in 2012 ($468,299) is a substantial improvement.
In Delta there were five sales totaling $472,500 vs. two for $195,000 last year – a respectable 150% increase but the two largest parcels each sold at just over half of their original asking price after 550 and 600 days on the market.
County-wide sales of commercial property tanked in the first half – just three sales totaling $1.55M this year compared to 11 for $2.74M last year. While commercial sales may be languishing it’s been nice to see an up-tick in main street business activity around the North Fork with the new Subway and Taco Hut in Hotchkiss and the Living Farm Restaurant and Burger Bomber opening in Paonia.
You can also look for the former Bangs spa building in Hotchkiss to be reincarnated as the new home of Randy Fisher’s long established North Fork Accounting Service. A robust market for downtown buildings is directly connected to the success of the businesses inside.
Do what you can to help these new merchants keep the doors open. And, in case you’re wondering, multi-family (apartment / duplex) sales are ZERO for the year.
Last, but certainly not least, Farm & Ranch sales spiked with a whopping threefold increase! Yee Haw. Aggregate sales rose to $11.5M on 16 sales from $2.8M on 8 last year.
The North Fork area lead by posting just over $8M in sales on 11 transactions ranging from $260,000 for 40 irrigated acres and an old farm house on Grandview Mesa to $3.54M for the 200 acre Pomotawh ranch on CR12 above Somerset. Delta area sales were up impressively, grossing $2.5M from just two sales compared to $500K from just one last year. Surface Creek lagged behind with three sales totaling $960K – just half of last year’s figure.
While it was a fun first half for this market segment it’s virtually certain that the year-end figures will be moderated.
Although we are seeing more cash transactions the majority of deals still rely on financing and most of the brokers I’ve asked recently have shared stories about what should have been a routine transaction that turned into a hellish nightmare.
Next month I’ll try to explain what “full documentation” means from a loan underwriter’s perspective and how seemingly insignificant details can torpedo a homebuyer’s dream. I’ll also go over some recent improvements to the short sale rules that are helping make it a more viable process to sell a home that’s underwater.
July 2012 – Local Real Estate Market “Out of the ICU and Into Physical Therapy”
“So, is the market getting better?” I should keep track of how many times in a week I get asked that question. Sometimes people ask because they’re thinking about buying or selling but a certain number seem to be asking out of general curiosity and a bit of wonderment as to how we manage to keep the doors open.
As we began to climb out from the depths of the great recession I would sometimes describe it as “the patient is out of the morgue and into the ICU.”
In hindsight the analogy was pretty accurate. The bottom of the local real estate market came in February of 2010 when there was just one sale in the North Fork for a whopping $55,000!
By contrast, there are currently 23 properties under-contract in Paonia, Hotchkiss and Crawford. I think it’s safe to say now that the patient is out of the ICU and in physical therapy, but, as anyone who’s had the privilege to go through PT knows, it’s a long, painful process.
One of the biggest “pains” comes from excruciatingly long marketing times. I have yet to meet anyone who enjoyed getting their home ready for sale and welcomed having strangers come at all times of the day to see it. Sure, some places are selling quickly these days but there are many, many examples of places that have been on the market for over 1000 days! Ouch.
Before the market gets healthy again it’s going to have to lose A LOT of weight. The supply of property for sale still far exceeds the demand. Residential property sales have improved the most but there are still roughly 9 homes on the market for each one that sells. Vacant land and lots are in much worse shape with something like 30 to 1 and the picture for farms & ranches isn’t much better — with the average marketing time approaching two years.
Our area tends to lag what’s going on elsewhere, and the reports of brisk real estate sales from Fort Collins to Colorado Springs should bode well for our area going forward.
Some other good news is that foreclosures rates appear to be slowing in Delta County like they are around the country. Perhaps “less bad” is a better way to put it because there are still too many households in, or at risk of, foreclosure.
A quick search of the public trustee’s list of active filings show 18 North Fork properties, 30 in the Surface Creek area and 40 in Delta. Adding those in the “Intend to Cure” category and the number goes to over 100 county-wide (which, coincidently, used to be the typical number of foreclosures for an entire year).
Recognizing that the problem of “under-water” properties and financially struggling households isn’t going to go away quickly, banks are increasingly willing to negotiate short sales. It is tremendously expensive for banks to foreclose and then sell a property so accepting less than full payment from a borrower who has fallen on hard times is often the least painful route. They use what’s called a net-present-value calculation to determine whether or not to approve a short sale – it’s the banks way of deciding to take a bird in the hand in lieu of a poke in the eye.
Loan modification is another way that lenders may try to help borrowers who are behind payments avoid foreclosure but, unfortunately, it’s somewhat rare that they actually work out. While these tools may help to stabilize the market, it will take increasing local employment, higher wages, and time to make a meaningful difference.
North Fork Real Estate: Real Estate Sales See a Burst of Activity Bargains Being Snapped Up
Whether it was the mild weather, some strengthening in the local economy, the stock market’s upturn, continued low interest rates, or a combination of all those factors – the reality is that the first quarter’s local real estate market was more active than it’s been in a few years.
Residential sales volume in the county was up 22% and the number of homes sold was up a whopping 40% compared to 2011 Q1. However, along with those increases have come declines in average sales prices, ranging from –18% in Delta ($107,000 vs. $130,000), to –12% in the North Fork ($175,000 vs. $200,000) and down 7% in the Surface Creek area ($128,500 vs. $139,000).
There are currently 18 residential properties under contract in the North Fork with eight of them priced over $200,000, which is welcome news. Vacant lots are still barely moving. Only two have sold so far this year in the North Fork, and none in Surface Creek or Delta.
On the other hand, eight larger North Fork parcels ranging from 2.5 to 100 acres have been sold – the largest one closed for just $199,000 or $2,000 per acre.
And, from January through March, seven Farm / Ranch properties sold in Delta county, totaling $4,620,000 compared to just $1,340,000 for the same period last year. An increase of almost $350% – now that’s a turn-around!
Commercial property is still moving pretty slowly. Just three properties closed county-wide during the first quarter totaling $1.552 million. The largest sale was the 7 acres running from the intersection of Highways 92 and 50 in Delta from the old UBC lumber yard to where a new Maverik gas station and convenience store is slated to be built.
In general, however, the supply of real estate for sale is still much greater than the demand – but demand is improving and that’s an important step toward clearing the excess. The foreclosure wave will continue to roil the market throughout the year with bank owned properties providing stiff price competition for the “owner occupied” sellers.
Examples of some bank owned bargains include a Somerset duplex that sold for $17,000, and a 4 bedroom, 3 bath, 2700 sq. ft. Crawford home on 11 acres with a gigantic shop for $160,000. Judging by the number of inquires we’re fielding each week and the frequency that brokers are scheduling to show listed property, it looks like 2012 has a good chance of being a decent year for Delta County real estate sales.
2011 Market Overview
Irrigation Water a Problem in Foreclosures
Last month I had intended to start the year by recapping the 2011 Delta County real estate market activity but was distracted by the BLM’s lease auction announcement and the shadow that it has cast over the local real estate market.
In the weeks since then we’ve fielded numerous questions and heard concerns expressed by locals wondering what effects it will have on the value of their property. The short answer is “it’s hard to say,” because it really depends on how everything plays out. A boom of activity would likely boost values (albeit at the expense of much else) but in the near term it has already led some folks to hold-off from making a buying decision.
Whenever would-be buyers hesitate it hurts the market – we saw a lot of that in 2009 and 2010 when demand virtually disappeared.
Last year was different though. I like to say that people can only do nothing for so long and 2011 was the year that they decided to start buying houses again.
Area residential property sales (Delta and the adjacent parts of Montrose and Gunnison counties) handled by the local MLS increased 48% from 2010 levels (338 units vs. 229) with gains spread fairly evenly across the three geographic areas – up 47% in Delta, up 43% in the North Fork and increasing 51% in Surface Creek.
The vast majority of the action was in the lower price ranges with roughly 93% of the homes sold last year going for less than $300,000 and 78% under $200k. Because so few high priced homes were sold, the median sales price declined by 22% in Delta to $116,500, 23% in Surface Creek to $131,500 and dropped 15% in the North Fork to $156,500.
Remember, though, that the median does not provide an accurate estimate of overall declines as evidenced by the fact that the mean average sale price declined by “only” 10 – 15% depending on the area.
Inventory levels haven’t changed much with 15 months supply on the market in Delta, 18 months worth in Surface Creek and about a 20 months supply in the North Fork. No wonder the average days-on-market before selling is running about 200! Obviously, bank-owned properties continue to account for a significant share of the activity but there is evidence that the foreclosure juggernaut may be slowing.
According to county records the number of foreclosures commenced in 2011 declined by 12% (233 versus 265 in 2010) and, from those, 185 deeds were issued conveying ownership to the lender. To put that in perspective, it means that the number of foreclosed homes being added to the market equates to more than half the total number of homes sold in the area last year.
At that rate it’s easy to see that it’s going to take a while for the market to absorb all that inventory – regardless of price. It’s truly a tragedy whenever someone loses their home through foreclosure with ripple effects throughout the community.
One of those associated problems involves irrigation water and offers a glaring example of incompetence on the part of the mortgage lending industry (sorry to be so blunt). In most situations the “bank” only recorded a deed of trust with the legal description of the land and did not secure the irrigation water as collateral for the loan. To someone who has fallen on hard times the opportunity to sell that water to a neighbor or hold the certificate hostage, so to speak, has some appeal.
Meanwhile, the bank has the task of selling a property that formerly had water but is now dry as a bone and worth substantially less. In the case of one local property there’s about a quarter-million dollars’ worth of water in question! The same thing can go for water taps that transfer by certificate. The situation has become enough of a problem that I intend to talk with some of the various stakeholders and will report on it in more depth next month.
To wrap up the statistical categories for last year… Aggregate sales of vacant land and lots were down by 10% but with vastly differing stories for each area of the county.
Surface Creek land sales were almost non-existent at 5 parcels for $312,500 while Delta’s volume doubled last year coming in at $3 million and North Fork sales held even at the $5 million level.
Commercial property had something of a comeback last year with gross sales up by almost 50% buoyed by $1.5 million sold in Surface Creek compared to almost none the year before, and a meager $500,000 in Delta – down from one million in 2010. Annual volume was roughly unchanged in the North Fork area at $1.7 million.
Finally, the farm / ranch market broke loose in 2011 with North Fork sales more than doubling to $11 million while increasing almost threefold in Surface Creek to $3.3 million. Delta sales rose 82% but totaled just $650k. Certainly, there were also sales which were not recorded through the multi-list system – particularly those around Hotchkiss which are part of the Oxbow Mine accumulation.
Although sales were fewer in number, the local Realtors had much to be thankful for. After two years of declining sales, 2011’s total of $77 million was about on par with 2008’s. The current year has gotten off to a fairly robust start – the mild winter weather hasn’t hurt – and most indications are that this is the “new normal.”