Boulder Valley Real Estate: The rise of virtual in real estate after COVID-19

It is evident that the world was woefully unprepared for a pandemic like COVID-19, and local real estate was no exception. COVID-19 wrought fright, confusion, and uncertainty on buyers, sellers, real estate agents, and legislators, as everyone tried to discern how best to navigate the crisis unfolding before them. Many contracts to buy and sell real estate that were then in-process fell through or were renegotiated, and the legal fallout from that may stretch on for years.

And yet, life marches forward, and people continue to need to move and buy/sell real estate, so all of the players have learned to adapt in order to help people move on with life. Some of these adaptations will likely become enduring features of the new normal, while others may fade with time. The following is a brief look at some of the most prominent trends to emerge from this pandemic and whether they are likely to last.

The real estate industry has been notoriously slow to modernize its practices, but one surprising benefit of the pandemic is that it appears to have pushed the industry into the 21st century.

  1. Marketing.Before COVID-19, a small minority of properties were marketed using 3D technology, relying instead on photos and, perhaps, static floor plans. Now, however, virtually every buyer expects (and sellers demand) an immersive 3D tour of a listed property. Pre-pandemic, buyers would likely visit many homes in-person before deciding on which home to make an offer. Now, buyers are almost certain to “tour” a number of homes virtually and then select the one (or few) that they actually want to see in person. We are even seeing this trend emerge in commercial real estate, as being able to tour a property virtually can save companies time and money in assessing whether a potential commercial space will fit their needs.

This 3D marketing trend will almost certainly continue for the duration of the pandemic, but it is less clear if it will continue after or slowly fade back to “normal” as people begin to feel safer again.

  1. Remote transactions.Before this pandemic, a large portion of a real estate transaction could be accomplished electronically, with agency agreements, purchase contracts and property-related disclosures all commonly being signed electronically. However, when it came time to close the transaction, the parties still had to physically attend a closing and physically sign documents in front of a notary public. This was the case for two primary reasons. First, Colorado’s previous attempts to pass remote notarization legislation, which would have removed the requirement of physical presence and allowed parties to sign documents via the internet, never made it through the legislature. And second, many lending institutions continue to require physical “wet” signatures and in-person notaries to minimize the potential for fraud. To solve the first problem, Gov. Polis signed an executive order allowing remote notarization. However, as we soon learned, even with remote notarization now allowed, lending institutions (inexcusably, in my view) persisted in requiring in-person physical signatures. Thus, we experienced the phenomenon of “curbside closings,” wherein the parties would drive to the title company and sit in their cars while a notary in a mask and gloves would hand them the document, watch them sign, and then notarize their documents. Having witnessed such “curbside closings,” which are clunky and awkward, I can predict that buyers and sellers will demand that the government and lending institutions allow fully remote closings in the future. Once in place, I believe this trend will be here to stay because it is vastly more convenient for people.
  2. Shifting consumer preferences.With most employees (those fortunate enough to keep their jobs) being forced to work remotely, many people and companies have discovered that, not only do they like working from home, they can actually be more productive. As a consequence, an emerging trend we are seeing is that buyers are looking for homes with an office (or workspace) more than before. And they also seem to be favoring rural (i.e., private space) over dense and urban. This may also portend a coming shift in the commercial office market, as companies realize that they can get by with much less space than before. This trend is likely to continue as more people become accustomed to being productive from home; however, the strength and reach of this trend will be limited by the fact that some jobs can be done only in person and more space at home costs more money, so not everyone will be able to realize this desire.

These are just a few of the trends emerging from the COVID-19 pandemic, and it is likely that others will develop as things continue to unfold. It will behoove buyers, sellers, and landlords to track these trends carefully to best position themselves for the future.

Originally posted by Jay Kalinski is broker/owner of Re/Max of Boulder.

Posted on June 16, 2020 at 7:00 pm
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Real estate in the time of COVID-19

At the start of the year, I read an article about the 10 biggest threats to the global economy in 2020, written by a prestigious international organization.  “Global pandemic” did not make the list, which goes to show how generally lousy we humans are at accurately predicting the future.  As such, any predictions that I (or anyone else) could give you about how this pandemic will unfold, in terms of its impact on the local real estate market, would likely fare no better than random chance.  Similarly, with the situation evolving so rapidly, any advice or best practices I could offer today may become obsolete in short order.

So, rather than peddle advice and predictions, let’s pause and take stock.

Nationally:

Back in 2008, the financial crisis was sparked in the real estate sector and led to a crisis that nearly collapsed the banking system.  We see from history that recessions that begin in the housing sector tend to be worse and last longer than recessions ignited by other factors.  Today, the recession we are likely heading into has a very different background — our economy and housing market were far stronger and more resilient, thanks in part to the measures put in place after that recession (tighter lending restrictions, more stringent liquidity requirements for banks, etc.).  In fact, we were enjoying the longest economic expansion since WWII.

According to National Association of Realtors chief economist Dr. Lawrence Yun, “Conditions today are very different than the last boom/bust cycle.  In 2004, we had a huge oversupply of new homes.  In 2019, we still had a huge undersupply of new homes.  In fact, we haven’t been building enough new homes to keep up with demand in over a decade.  During the last downturn, there was the subprime factor and the variable interest rate.  Now there are fewer variable rate mortgages and virtually no sub-prime mortgages.”

Colorado and Boulder County outperform the nation:

Colorado is well-positioned as a top economy nationally.  Real GDP growth in Colorado ranked seventh in the nation year-over-year, and the state’s five-year average ranks fifth, according to economist Rich Wobbekind with CU-Boulder’s Leeds School of Business.  Wobbekind says that Boulder County’s economy has been outgrowing the state economy, and is uniquely able to weather a recession.  Boulder County’s economic vitality is fueled by a highly educated workforce and diverse ecosystem of industries including government research facilities, aerospace, biotechnology, cleantech, and information technology — industries that endure in the long term.

Boulder ranks number one in the nation for home value stability and growth for the fifth consecutive year, according to SmartAsset. As discussed in our recently published real estate report, based on our extensive data and market analysis, we have had a healthy housing market through 2019.  Even through the grim days of the Great Recession, home prices in Boulder County declined only by 5 percent and recovered quickly post-recession. If you held onto your home for at least six years, there is no period when you would have lost money on your investment here.

Summing up:

While past performance is no guarantee of future results, the real estate market in our area has a history of weathering recent recessions better than other places and recovering more quickly after the storm has passed.  Given everything that is going on, I still believe that owning property in Boulder Valley is and will continue to be an excellent investment.

Be well and do what you can to flatten the curve.  Stay home.

Posted on April 1, 2020 at 3:00 pm
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Boulder Valley real estate – Rear and forward view

The year 2019 was another very good year for residential real estate in the Boulder Valley, but unlike the previous five-plus years, it was marked by slowing appreciation, slightly rising inventory (finally), and longer average time on the market.

In Boulder County, median and average sales prices of single-family homes increased by a very modest 1 percent, while attached dwelling (condos and townhomes) appreciation was essentially flat.  In the city of Boulder, the average single-family home sales price increased a modest 2.6 percent to an immodest $1,246,250, while attached dwellings increased 2.4 percent to $538,360.

Single-family listing inventory in Boulder County reached a peak of 1,058 homes and attached dwellings topped out at 370 units on the market, both reaching their peak in June, and both above the peak inventory of the last several years.  To put this in perspective, however, the inventory of single-family homes in 2006 (just before the Great Recession) reached a peak of 2,763, more than two-and-one-half times the peak of 2019.  That is, we still have far less inventory available than we used to.

The average number of days homes stayed on the market before closing reached 61 days, an increase over last year by 5.2 percent for single-family homes and 15.1 percent for attached units.  The average months of inventory (the time it would take for all existing homes to sell if no additional homes came on the market) rose to 1.8 months, an increase of 6 percent for single-family homes and 28.6 percent for attached units.  By traditional standards, this would still qualify as a seller’s market (when months’ of inventory is in the 5-6 percent range, it is considered a balanced market, and we are still a long way from that).  Charts on top  show a snapshot of the Boulder County 10 vital statistics we track to gauge the market.

So, what is going on?  Why do the months’ of inventory indicate that we’re in a strong seller’s market when many of the other metrics are pointing toward a more balanced market?  And what can this tell us about 2020?

Explaining the months of inventory question

There appear to be a couple of key factors keeping our months of inventory much lower than historically.  First, the nation as a whole — and Boulder County especially — have been building far fewer new homes that we were building pre-Great Recession.  This graph from census.gov illustrates the situation well:

In Boulder County, we are getting close to full buildout under our current zoning and land use regulations, meaning that unless they are amended, we will run out of available lots on which to build new housing.  (In practicality, this means that neighboring counties will become our bedroom communities, as Boulder still has the lion’s share of jobs in our area and people will be forced to commute farther and farther.)

Thus, with people continuing to move into the area at a strong pace while building is lagging behind, demand will structurally continue to outpace supply.

Second, people are staying in their homes longer than they used to.  In 2010, homeowners nationwide stayed in their homes an average of eight years before selling.  By 2019, that figure had increased to 13 years. With people selling less frequently, inventory goes down and, with strong demand like we have in Boulder, months of inventory stays low, too.

In Boulder, this issue is exacerbated by the fact that a lot of our homeowners are older (the National Association of Realtors reports that homeowners 73 years and older stay in their homes for an average of 17 years) and many of these Boulderites want to continue to age in place.  Moreover, the Boulder Valley does not have a lot of options for the elderly looking to downsize and stay in their current community.

Accordingly, housing turnover is lower than it used to be, and this trend is likely to be even stronger in Boulder, further suppressing inventory.

So what?

For 2020, it appears that our available housing inventory will continue to be reined in by the structural impediments of inability to build sufficient new housing and current homeowners staying in place.  That will put upward pressure on prices.  Continued migration into our area fueled by our (currently) robust economy will keep demand high and put additional upward pressure on prices.  Additionally, our return to very low interest rates will allow more potential buyers to qualify for our expensive property than would have otherwise been the case.

On the other side of the equation, home prices have risen so high (especially in the city of Boulder) that, even with low interest rates, the pool of buyers able to buy in our area will be relatively small.  Moreover, the political uncertainty of election years can cause people to take fewer risks (such as buying a home).  The fact that this promises to be an especially colorful election cycle will likely be a drag on demand as we get closer to November.

Based on the foregoing, if I had to make a prediction, I would suspect that the first part of the year will have very strong activity, with prices rising and multiple offer situations being not uncommon.  Then, I suspect that the market may cool as we get closer to the election, which may be an especially good time to buy for those with intestinal fortitude.

 

Originally posted by Jay Kalinski

Posted on February 5, 2020 at 3:00 pm
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Kalinski: How buying and selling a home will change in the Roaring 20s

As we enter a new decade, the massive wave of technological advancements fueled by entrepreneurial tech companies has reshaped consumers’ expectations.  Companies such as  Uber and Amazon have both dramatically shortened the time that people expect to wait for gratification and raised consumers’ expectations with regard to the ease and smoothness of the experience.  That is, consumers now expect to press a button and have whatever it is that they want delivered to them in a matter of a couple days (Amazon shipments), hours, or even minutes (Uber rides); moreover, they want to be able to track their shipment’s progress through a simple, pleasing interface on their phones.

While consumers now expect smooth, pleasant and near instant gratification in most aspects of their lives, the real estate home sale process still typically takes 30 to 45 days and — due to its complexity, legal ramifications, and the fact that it is an ongoing negotiation between multiple parties — it is usually neither frictionless nor “fun.”  This growing friction between consumers’ expectations and the longer duration and complexity of completing a real estate transaction has made the industry ripe for innovation.  What follows are the likely developments that will make real estate transactions faster and easier over the coming decade.

1.  The home search-to-closing customer journey.  The days of agents-as-gatekeepers of real estate listings are gone.  These days, most buyers start their search online and look at up to hundreds of homes to educate themselves.  When they get serious, though, about 90 percent of buyers (and sellers) choose to use an agent to help them with the home buying/selling process. 

Why is that?  It’s because Realtors realized that they needed to change their value proposition to buyers and sellers in order to stay relevant and, well, valuable.  One of the challenges for buyers and sellers is that, with the exponential growth of information available on the internet, the amount of “noise” has grown exponentially as well, but the valuable information (the “signal”) has become harder to find.  Today’s Realtors have things that are in short supply online: hyperlocal and market knowledge, a network of trusted vendors and professionals, expert negotiation skills, a refined process to make the home buying/selling experience less painful, etc.  These skilled Realtors who have adapted to consumers’ shifting expectations provide their clients with better technology, a smoother process, and expert advice.  Those agents who fail to adapt will eventually exit the business.

Other innovators, such as so-called iBuyers, will make you an offer, often within a day, to buy your home for cash quickly.  This convenience, however, comes at a cost, as many iBuyers will likely cost you two-to-five times more out-of-your-pocket than using a Realtor would.

2.  The loan experience.  Typically, the longest (and perhaps most annoying) part of a real estate transaction is the loan process.  Many lenders can take 30 days or more to complete their due diligence, including their assessment of your loan-worthiness and an appraisal of the home, before approving a home purchase loan.  Anyone who has been through this process knows how frustrating and slow it can be.

Fortunately, at least for many people, this process may get a lot shorter and easier.  Lenders are using artificial intelligence (AI) to conduct automated appraisals on properties and help with assessing buyer’s applications.  For “in the box” situations, with well-qualified “W2 employees” buying homes that the AI algorithms can value with a high degree of confidence, the underwriting process can be dramatically shortened without the need for a physical appraisal.  This is already a reality — last fall, we represented buyer clients whose lender did not require an appraisal on the home they were buying and gave them very fast loan approval.

3.  The title and closing process.  Almost everything can seemingly be accomplished these days online from the comfort of your home.  However, at least in Colorado, you still need to physically go to the title company and hand-sign a stack of documents in front of its notary public (how barbaric, right?).  Well, this isn’t actually the title company’s fault, as many lenders — and state law — still require physical notarization of certain documents.

The good news is that this may change in 2020, if the Colorado legislature passes a bill similar to Senate Bill 18-109, which would allow optional remote notarization of documents.  If such a bill were to become law, then notarizations could be done using audio-video recording of the document signing (kind of like signing over Skype or FaceTime, but with more layers of security).  Thus, you would be able to close on the purchase/sale of your home from anywhere in the world, so long as you have a good internet connection.

Conclusion.  The players in the real estate industry have (finally) recognized that consumers’ expectations and demands have shifted and are innovating quickly to make the home buying and selling process faster, easier, and more enjoyable (or, at least, less painful).  Within the next few years, many people will be able to buy/sell a home in half the time or less than it takes on average today, and with a lot less disruption to their lives.

Originally posted by Jay Kalinski is broker/owner of Re/Max of Boulder.

Posted on January 15, 2020 at 5:00 pm
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The end may be here (but don’t panic)

At this time last year, our market was experiencing all-time highs for average home prices and all-time lows for housing inventory.  Many of the market indicators we track were pointing to continued strong demand and price appreciation, especially with the continued influx of people into Boulder and Broomfield counties.  And yet, with home price appreciation outstripping wage gains for the better part of a decade, in the back of everyone’s minds was the question: “How long can this go on?”  We may now be starting to get our answer.

The big picture

In 2018 last summer, the Federal Housing Finance Agency measured the average appreciation nationally at 6.89 percent which slowed this year to 5.05 percent.  Then, FHFA ranked Colorado as having the fourth-highest one-year appreciation in the country, at 10.63 percent.  Boulder County ranked 68th among metropolitan areas in the country with 8.25 percent appreciation.  This year, Colorado has dropped to 28th, with 4.78 percent appreciation, while Boulder fell to number 91 with 6.14 percent appreciation  So, Colorado and Boulder County are cooling compared to the rest of the country, but, as a bright spot, Boulder County’s appreciation since 1991 still leads the entire nation at 417.28 percent.

There are 10 statistics we track to gauge the state of the residential real estate market, and studying the movement of these indicators can give you a good sense of the direction of the market.  For most of this decade, those indicators have generally pointed toward a rising market, marked by tight inventory, brisk appreciation, quick sales, and low months of inventory (the time it would take to sell all existing homes if no new homes entered the market).  At the close of the second quarter of 2019, we are seeing a strong shift for both the single-family homes and attached dwellings (see charts).

As you can see, nearly every indicator we track is pointing to a softening, shifting market, aside from interest rates.  And while Months of Inventory still indicates a seller’s market, the trajectory is moving toward a balanced market (between five and seven months of inventory).

And now for the good news

If you are an aspiring buyer in Boulder County, your timing is excellent: inventory is up, so you have more homes to choose from; prices are flat or falling, so you may be able to get a (relative) bargain; and interest rates have dropped once again, so you can get more house for the money.

If you are a homeowner or thinking of selling, the news is not all bad: you’ve rode an impressive wave of appreciation for the better part of a decade; and even when Boulder’s market stalls, it typically does not lose much value (even in the great recession, home prices only dropped about 5 percent).

Remember, don’t panic.  Boulder is still the best place in the country to invest in real estate.

Originally posted by Jay Kalinski is broker/owner of Re/Max of Boulder.

Posted on August 1, 2019 at 1:00 pm
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Where have all the buyers gone?

well-functioning market consists of two sides: suppliers who offer a particular good for sale and consumers who purchase those goods.  In the Boulder Valley residential real estate market since 2012, there have been more consumers looking to buy homes than there were sellers offering homes for sale, which has led to a long appreciation period for homes.  Now, however, it appears that the number of buyers is dropping as is their willingness to pay ever-increasing prices.

Spotting the trend

First, how do we know that there are fewer buyers in the market?  The most direct measure of buyer activity that my company tracks (courtesy of Broker Associate Mike Malec) is the number of showings per available listing.  From examining the data, it is fairly easy to see that this year’s showing activity is markedly below the recent boom years, but is still above the levels present during the recession.

Second, to further substantiate this decline in buyer activity, we can look at more indirect measures, such as average sales prices, available inventory of homes on the market, and average time a home will be on the market before sale.  Each of these markers indicates a decline in buyer activity.  Through May of this year, the average price of a single-family home in Boulder has fallen 0.6 percent, while the average attached unit has fallen 4 percent, compared to the same timeframe last year.  This indicates that there are fewer buyers competing for available homes to the point where home appreciation rates have stalled.  At the same time, the amount of homes available on the market has increased nearly 20 percent for single-family homes and almost 50 percent for attached ones, while the average time on the market for single family homes has gone up 5 percent and nearly 20 percent for attached ones.  These statistics indicate that those buyers in the market are becoming choosier and are able to take their time making decisions.

Based on the above discussion, it seems that there are fewer buyers in the market and that those who are in the market are more cautious, but why? 

Economic Conditions?

It does not appear that our local economic conditions explain the drop in buyer activity.  According to the State Demographer’s office, people are continuing to move into Boulder and Broomfield counties, albeit at a slower rate than previous years (though the city of Boulder has seen its population declining in the last two years).  And local unemployment levels continue to be historically low. 

Economic conditions at the national level are softening, to the point where the Fed is discussing interest rate cuts, so these conditions may play some role.  But, interest rates are actually about half a percent lower than they were at this time last year, which would appear to weaken that argument.

Could it be the weather?

Another possible explanation I’ve heard is that our unusually cold and snow winter could have suppressed buyer demand as people were less willing to trudge through the snow to go see houses.  While this is plausible, all else being equal, we would have expected to see that pent up demand being released as the weather improves, but we just have not seen that play out in the data yet.

The takeaway

Whatever the cause of the decline in buyer activity may be, local real estate legend Larry Kendall of the Group Inc. Real Estate in Fort Collins always says that buyers are the smartest people in the market, so they may be acting as the proverbial canary in a coal mine, meaning that they could be a leading indicator that our market is shifting from a seller’s market to either a balanced or buyer’s market.  If you are a seller, be wary of pricing above the market in these shifting conditions.

Originally posted by Jay Kalinski is broker/owner of Re/Max of Boulder.

Posted on July 2, 2019 at 3:00 pm
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Boulder-Area Home Sales Warm As Spring Approaches

February’s Boulder-area home sales shook off January’s real estate chill with a rise in sales all around. But even with the significant jump for the month, sales for the year still lag compared with last year, which could be good news for those ready to buy a home in this competitive market.

Single-family home sales for Boulder rose 26.1 percent in February – 232 homes sold compared with 184 last month. In condominium/townhomes, 78 units sold in February, a 9.8 percent improvement compared with January’s 71 units sold.

“It was good to see the February rebound in sales for both single-family and attached dwellings. But year-over-year, sales are behind in both. We’re definitely getting a slower start to the year,” says Ken Hotard, senior vice president of public affairs for the Boulder Area Realtor® Association.

Year-over-year, single-family home sales dropped 14.8 percent through February 2019 with 426 Boulder-area homes sold vs. 500 the previous year. Condo/townhomes slid 20.8 percent over the same period with 152 units sold vs. 192.

Inventory is virtually unchanged going up .013 percent for single-family homes with 723 homes for sales in February compared to 722 in January. Condos and townhomes saw a 5.4 percent increase in inventory over the same period with 254 units compared to 241.

“The cause of the slowdown is unclear,” says Hotard. “Interest rates aren’t rising. It seems that demand, which has been strong for several years, has eased a bit.”

This can be good news for buyers who are looking for an opening to jump in the Boulder County market. With inventory holding steady and demand easing, the buying environment may be somewhat less competitive than it has been for the past several years.

“What we need is more middle-income housing in Boulder County, that is, housing priced at $600,000 and below,” Hotard notes. “Areas like Erie, Longmont, and Lyons offer homes that are in that sweet spot of affordability, but we could use new housing in that price range.”

 

Originally posted by Tom Kalinski Founder RE/MAX of Boulder on Wednesday, March 27th, 2019.

 

Posted on April 3, 2019 at 3:00 pm
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January Home Sales Chill, Fundamentals Solid

Home sales for Boulder-area real estate got off to a slow start in 2019 despite fairly mild January weather, resulting in decreased sales compared with a year ago.

Single-family homes posted 184 sales, a decrease of 20.3 percent compared with 231 homes sold in the same month last year. Sales of condominiums and townhomes dropped 23.0 percent for the same period with 71 units sold vs. 92.

“The market saw a pretty significant slowdown that started mid-November and continued through January,” says Ken Hotard, senior vice president of public affairs for the Boulder Area Realtor® Association. “The fundamentals are still solid—inventory improved and interest rates aren’t going up quickly,” he says, noting that interest rates are historically low and affordable at around five percent or below for a 30-year fixed mortgage.

Month-over-month single-family home sales dropped 39 percent in January with 184 homes sold compared to 302 in December. Townhome/condo sales were a bit stronger, nearly matching December sales with a .013 percent decrease – 71 units sold vs. 72.

Inventory jumped 15.7 percent for single-family homes with 722 homes for sale in January compared with 624 in December. Attached dwellings showed even greater improvement, rising 18.1 percent—241 units vs. 204.

Hotard explains that for now the statistics represent a series of events. “Once we get enough data, we’ll start to see trends,” he says.

“There seems to be uncertainty in the market and buyers are thinking I can stay where I am and look for a better opportunity in the future,” says Hotard. “It’s a story that’s repeating itself in a number of markets across the country.”

Yet Boulder-area prices continue to rise or hold steady, job growth and the employment rate remain strong, and Boulder County is still a desirable place to live.

“Our strong fundamentals should attract buyers as we move through February.”

 

Originally posted by Tom Kalinski Founder RE/MAX of Boulder on Tuesday, March 14th, 2019.

Posted on March 14, 2019 at 7:00 pm
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City housing proposal may be Faustian bargain

There is a serious shortage of homes in Boulder, as is evidenced by the roughly 65,000 people who commute in and out of Boulder on a daily basis.  About half of these people would live in Boulder if they could, but are forced to “drive until they qualify” for a home, which increases their carbon footprint, commute times, and overall stress level.  It is clear that creative solutions are needed to address this crucial issue.

The Boulder City Council’s proposed pilot program to “help” middle income families purchase market rate homes is, while creative, a Faustian bargain, in my opinion.  In the current iteration supported by members of the city council, the city would use a “loan-loss reserve fund” to guaranty second mortgages that would allow people to purchase more home than they would qualify for by themselves.  (An earlier version from a 2016 white paper would have had the city use its bonding power to raise money to buy a percentage of a purchaser’s home, which the city would get back at closing, plus some amount of appreciation).

 

If the program stopped there, I would applaud the city’s effort for trying to get more families into homes that would be owner occupied.  But here is where the Faustian bargain sets in.  In exchange for the city’s assistance, the buyer would have to “voluntarily” agree to deed restrict the home they just purchased to be permanently affordable.

Let us consider the consequences of this for the individual or family who purchases a home under this program:

  1. All of the burdens. The buyers now have all of the burdens of homeownership.  For example, if the furnace breaks or the roof wears out, the burden falls on the homeowner to replace them.  If the home loses value, it is ostensibly the homeowner who bears the loss when they look to resell.  And remember, in this fantasy, a lender is going to agree to loan buyers more money than the lender thinks they can reasonably afford because the city is going to guaranty a portion of the loan, which means the buyers will likely have more financial strain and be at a higher risk of default.  Whether the city can sufficiently incentivize a bank to overlook that they would likely be overextending buyers financially remains to be seen.
  2. Limited rewards.  While the homeowner is saddled with the burdens and risks of ownership, they do not reap the full reward of their home’s appreciation — the city sees to this through its deed restriction.  Suppose homeowners do an outstanding job of upgrading and maintaining their home, and the market rises over the 10 years they own their home, the owners will not receive the fruits of their labor and good fortune of an appreciating market.  Instead, the city will cap their appreciation at some percentage likely well below the market. 

For the majority of Americans, their home is their biggest asset and primary source of wealth creation.  The effect of the city’s program, then, is to make families who avail themselves of this program poorer over time relative to those who purchased homes on the open market.

It is, in my opinion, this asymmetry of unlimited risk and handicapped reward underlying the program that makes it so insidious.

If this wasn’t bad enough, let us now consider the consequences of this for the housing market in Boulder in general.  The more unfortunate souls the city “helps” via this program, the fewer homes will be available on the open market.  If the supply of homes is further restricted via this program, and demand for housing remains strong (remember the 30,000 commuters who would like to live in Boulder?), then the result will be home prices rising even faster.  So, in an effort to create a number of “permanently affordable” homes, the city will make the rest of Boulder much more expensive. 

Originally posted on BizWest.  Jay Kalinski is broker/owner of Re/Max of Boulder.

Posted on March 5, 2019 at 3:00 pm
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Equity Rich Properties Dominate Boulder County Cities

More than 40 percent of homeowners in Boulder County are equity rich – that is the amount of loans secured by the property is 50 percent or less of the property’s estimated market value, according to ATTOM Data Solutions Q3 2018 U.S. Home Equity & Underwater Report.

Cities in Boulder County notch the upper end of the equity rich measure. Here are the statistics for Boulder County. Percentages within cities vary slightly by zip code:

Boulder – 55% equity rich

Louisville – 46% equity rich

Lafayette – 42% equity rich

Longmont – 41% equity rich

Statewide, Colorado homeowners aren’t far behind with more than 32 percent of Colorado properties equity rich.

Across the U.S., nearly 14.5 million properties are equity rich. That’s 25.7 percent of all mortgaged properties, up from 24.9 percent the previous quarter. Conversely, the share of seriously underwater properties dropped to 8.8 percent. ATTOM says properties categorized as seriously underwater have a combined estimated balance of loans at least 25 percent higher than the property’s estimated market value.

States with the highest share of equity rich properties are California, 42.5 percent; Hawaii, 39.4 percent; Washington, 35.3 percent; New York, 34.9 percent and Oregon, 33.6 percent. Colorado is close on Oregon’s heels with 32.3 percent equity rich properties.

“As homeowners stay put longer, they continue to build more equity in their homes despite the recent slowing in rates of home price appreciation,” said Daren Blomquist, senior vice president with ATTOM Data Solutions. “West coast markets along with New York have the highest share of equity rich homeowners while markets in the Mississippi Valley and Rust Belt continue to have stubbornly high rates of seriously underwater homeowners when it comes to home equity.”

The ATTOM Data Solutions U.S. Home Equity & Underwater report provides counts of properties based on several categories of equity at the state, metro, county and zip code level, along with the percentage of total properties with a mortgage that each equity category represents.

For the full report and to view statistics by zip code, visit: https://www.attomdata.com/news/market-trends/home-sales-prices/home-equity-underwater-report-q3-2018/

 

Posted by Tom Kalinski Founder RE/MAX of Boulder on Wednesday, February 20th, 2019 at 2:54pm.

Posted on February 20, 2019 at 5:00 pm
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