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What’s Up with Housing Inventory?

by Allison Simson

Question:  What’s Up with Housing Inventory?

I am excited to have Chip Wagner, an icon in the appraisal industry and friend of “Keeping Matters Current” as a guest writer today.  Although Chip’s observations are primarily about Chicago- it’s a great “primer” to remind us of how the housing sector works and it is relevant to the majority of the country.  I’ve said it before, and I’ll say it again – remember that the Summit County Real Estate market tends to lag behind Denver and the national economy by about 18-24 months, historically. Enjoy this information from Chip!

It’s All About Supply and Demand

Definitions of Supply and Demand:

 Dictionary.com

In classical economic theory, the relation between these two factors determines the price of a commodity. This relationship is thought to be the driving force in a free market. As demand for an item increases, prices rise. When manufacturers respond to the price increase by producing a larger supply of that item, this increases competition and drives the price down.

In real estate appraisal context, the principle of Supply and Demand states that:

The price of real property varies directly, but not necessarily proportionately, with demand and inversely, but not necessarily proportionately, with supply.

My most simple explanation of Supply and Demand is: It is the relationship between sellers present in a market, which is the supply; and buyers looking, which is the demand. This relationship is reported in months’ supply of inventory.

So, what is the latest challenge?

Some (or most) might say that there are not enough “good” homes for sale. This could represent a shortage of supply, something we have not talked about for several years. It is allowing sellers to raise their asking prices and buyers who have been ‘shopping around’ are now willing to pay higher prices based on other homes they are comparing and/or contemplating to the home that they want.

Why aren’t there many “good” homes for sale?

There are several contributing factors:

1. New construction – We are seeing new construction picking up again at all price points, which is certainly a positive. But with fewer builders, and more conservative approaches after getting burned, builders are not keeping up with the demand that is present. This is leaving buyers searching for resales. And because of the slowdown in new construction, (few new homes were built between 2007 and 2012) the nearly-new resales rarely exist.

Lack of new construction is a contributing factor as many builders folded or downsized significantly over the past 5-6 years.

2. Foreclosures – Foreclosures are a trend that is affecting supply of inventory. Banks are slower at foreclosing, in some cases taking over 3 years through the process. In some cases, the buyers aren’t even interested in these properties, and the investors are picking up these properties and flipping them at a profit.

Foreclosure properties, once viewed as a deal perhaps 25% to 40% under market values, are now being sold at only a 7% discount according to RealtyTimes.com.

3. Investors – Investors have entered the market at greater levels, some to purchase properties to rent, others to rehab and flip them. With the high inventory, investors were able to seek out the best deals, now there are fewer homes available for them.

4. Few people really want to sell at the bottom – Personally, I think the biggest reason that our inventory is low is simply because everyone wants to buy at the bottom; but what seller really wants to sell their home at the bottom of the market? That being said, there are many sellers who cannot sell.

Recently, I heard Steve Harney speak at the Leading Real Estate Companies of the World Conference; he stated there are over 10 million people that are still under water and cannot sell their homes. That is a significant number – these are ‘move-up buyers’ that will create a domino effect. A portion may also represent the potential downsizing buyers who have that upper priced home to sell. This is a very complicated situation. There are many opportunities in the market as demand continues to surge.

Move-up sellers have pent up demand and are ready to buy – if they can sell!

Remember, our market dropped 37.6% as a region since 2007 (some areas fell less than 20%, and other areas fell greater than 50%). The buyers with 20% down lost equity in their homes. Buyers with 5% or 10% lost substantial equity in their homes. If they sell today, they don’t have the down payment necessary for that next home.

Various predictions by “experts” suggest our recovery may be anywhere between 2% and 8% annually. At a conservative 4% annual rate of recovery, it is 5 more years before we can reach 20%.  Those who last purchased their home between 2006 and 2008 are being hurt the hardest in today’s market.

One positive is that renters are ready to purchase. Generation X and Y buyers now believe in homeownership; they want to get out of renting apartments because rents continue to go higher than taking out a mortgage. Interest rates remain at historic lows, with no indication of a significant increase of rates on the horizon.

Back to Supply and Demand …

A balanced supply of inventory is considered to be 4 to 6 months. A balanced supply is going to be neutral in pricing, while an undersupply is going to lead to upward pressure on prices – a Seller’s Market. An oversupply will lead to downward pressure on prices – a Buyer’s Market.

Our supply of inventory is at its lowest level since the end of 2006 and most areas have been reduced to a balanced supply of inventory, with undersupply observed in many sub-markets in the region.

The anticipation is that the pricing will continue to be pressured upward as the desirable properties (in terms of location and condition/modernization) will be gobbled up. Remember the multiple-contracts driving up values last decade? Many agents are now experiencing these trends again.

Get ready for a wild and crazy ride as our real estate market is pulled and pushed in all directions in 2013

Here are a few things to watch…

  • Watch the days on market (DOM). Take time to understand if an area’s high DOM may be due to stale listings of homes that are overpriced, distressed and/or in inferior condition.
  • Trend the increasing Sales Price-to-List Price ratios - in many sub-markets that I appraise in, I have seen these trend from 93% to 96% or higher just in the past year.
  • Track the number of pendings in relationship to the number of listings? One appraiser friend of mine tracks this and calls this “market velocity.” Right now, I see some areas where there have more pendings than listings in a given sub-market.
  • Are the pendings priced higher than the previous sales prices? Another indication of an increasing market that I am seeing in many areas.

Welcome to, we all hope, the Slow and Steady Housing Market Recovery!

 

For answers to your real estate questions, call Allison at 970-468-6800. Email - [email protected]. Her philosophy is simple, whether buying or selling, she understands that the most important real estate transaction is yours.  Want to know the value of your Summit County property? Visit www.SummitHomeValue.com  

Financing on condos tips

by Allison Simson

Question: Allison, we own a condo a Lake Cliffe in Dillon, CO, and we are ready to put it on the market, but we’ve heard that it is next to impossible to get a loan on a condo right now.  What do we need to know?

Answer:  Good question!  We have had some big challenges with condo financing for the past several years.  The good news is that the trend seems to be loosening up a bit.  For more details, I checked with Wendy Paulus of Cherry Creek Mortgage.  Here’s her take:

“For the last several years, we have been pretty restrictive on condos, particularly those in resort areas.  Effective in 2013, our rules have been relaxed and we are in a position to offer conventional financing, including 30 year fixed, up to $417,000 loan amounts and the rates/costs are typical conventional!!!

(we hope to expand this to High Balance Conforming and Jumbo soon as well)

PRIMARY HOME BUYERS:

-          Up to 95% loan to value with and without mortgage insurance

SECOND HOME BUYERS:

-          Up to 90% loan to value with and without mortgage insurance

INVESTMENT HOME BUYERS:

-          Up to 80% loan to value

We no longer call a condominium a condotel just because there are short-term rentals in the project. 

We are still restricted from lending on a project that has more than 20% commercial in the building.

We still ask for information from the HOA including questionnaire, decs/bylaws, insurance(s)  and annual budget

Front desks for 24 hour check-in/booking are still an issue.

We are going to try to get some projects approved in advance of actually taking a loan application so if you have a condo project that you find is a strong seller in your market, let me know and we will attempt to get it approved for you.”

This is good news for Summit County where almost all of our condo complexes could have been considered condotels in the last few years.  We’re making steady progress forward! 

 

For answers to your real estate questions, call Allison at 970-468-6800. Email - [email protected]. Her philosophy is simple, whether buying or selling, she understands that the most important real estate transaction is yours.  Want to know the value of your Summit County property? Visit www.SummitHomeValue.com

Summit County Quarterly Sales Report for your area is available!

by Allison Simson

How is the Summit County, Colorado Real Estate market???  Good question!

At Summit Real Estate, it is always our pleasure to keep you informed about what’s happening with regard to the market here in our fine county!  We enjoy providing the HARD FACTS about the market – not just the cocktail conversation and innuendo!

Ready for some great information about each and every complex in Dillon, Frisco, Keystone and Wildernest/Silverthorne regarding recent sales and active listings? You can view it online right now! Click the hyperlink below, fill out the information required and you will automatically be directed to the sales reports for Summit County.  Good stuff.

Summit Real Estate Quarterly Report

We value your opinions and comments.  Let us know what you think!

10 'must-do' steps to sell your home this year

by Allison Simson

Question:  Allison, I keep hearing about how the market nationwide- and in Denver is heating up, but our home in Summit County has been on the market for several months now and hasn’t had any offers.  We didn’t do much to fix it up, because we thought it didn’t matter.  Are there some things we should do now to help the place sell?

Answer: Yes, it’s true that our market is stabilizing and moving in some “segments”…not every category of home is feeling the incline yet.  I always believe that it’s important to put your home’s best foot forward before selling.  Even if you own something that will sell in a snap no matter what its condition, you can help it sell more quickly and with fewer hassles with a bit of attention to detail.  According to David Sambrotto there are 10 must-do steps to selling in any market.

1. Recognize every market is different. Your state, town or neighborhood could dovetail with national numbers or buck the trend entirely. "There really is no national market," says Sambrotto. "There's a patchwork of regional markets." Never rely solely on one person's advice or opinon. Talk to a handful of professionals, do your own research and listen to your gut instinct.

2. Get your home inspected. "Before I would even call a real estate agent, I'd have my home inspected," says attorney Diana Brodman Summers, author of "How to Buy Your First Home." Some real estate agents advise against spending the money (most basic inspections range from $200 and $400, according to a 2004 survey from the American Society of Home Inspectors), because the buyers will get one anyway prior to closing. Others recommend it, because it gives sellers an early warning on any repairs they might have to make. But in this market, it's better to be proactive, says Summers. "I would rather know what the inspector is going to find and be able to fix it -- and pick who will fix it," she says. Her method also allows you to shop around for the best price instead of perhaps paying an inflated price later on.

3. Shape up before marketing. A buyer's market means you've got more competition. "You want to put your best foot forward," says Eric Tyson, co-author of "House Selling for Dummies." If your home isn't appealing and in good repair, potential buyers won't even stop. Some sellers feel it's OK to skip this step and take less, but if the house is not appealing you may not get the chance to negotiate. "Six weeks before you want to put it on the market is a great time to get it done," says Summers. You don't need to renovate, but make sure everything looks great and works well. There are some things you can do to make your home stand out:

  • New paint. Paint the whole house, if it needs it, or just the trim, shutters and door to freshen up.
  • A clean entry way. Sweep or pressure-wash the front walk and porch. Polish the outdoor metalwork, clean the windows and glass and replace any burnt-out bulbs in outdoor lighting. And, if you can, add planters with flowers.
  • Lush landscaping. Think new mulch, sharp edging, a healthy lawn and beds of flowers.
  • "Maximize your chances of people being excited about your listing when it hits the market," says Tyson. 

4. Devise a marketing plan. Do you want to use a real estate agent or would you rather sell it yourself? If you try doing it yourself, have you set a time limit after which you want to enlist the aid of a professional? Selling it yourself can save you the real estate commission (often about 6 percent), which can be an advantage in a tight market. But a buyer's market (or rapidly changing market) is also a good time to have a little professional expertise to price, market and move your property. And don't forget, potential buyers may feel that if there's no agent involved the price should already be 6 percent less. Both the buyer and the seller can't save the same 6 percent.

5. Check into company relocation assistance. Are you moving to take a new job or position? If so, the company might offer some resources to make things easier, says Summers. Some companies will even provide a list of real estate pros who will work with you at a discount. If you're selling in a tight market, every little bit helps. Best source: call your human resources department.

6. Interview real estate agents. If you're interested in using an agent, interview several early on about listing your home, says Tyson. "Ask them for their advice," he says. "That's a good way to select an agent." What would they highlight about your home? What would they change before it goes on the market? Ask to see an activity list -- a list of all the buyers and sellers they've represented, the areas of town and the price ranges. You don't want private details, says Tyson. But you want to see if they've worked in your neighborhood, in your price range and if they have a track record of successful sales.

How old are the comparable sales (often called "comps") they are showing you? A few years ago, you could study comps that were 6 months or a year old. This year, because many markets are changing, you want neighborhood comps that are no more than two to three months old, says Summers.

And find out how long each has been a professional. Experience counts. "If you're going to pay 6 percent, you might as well get the best your money can get," says Tyson.

7. Set a price. The rules are different in soft vs hot markets. "You don't overprice your house 20 percent to leave wiggle room for negotiating," says Tyson. While that kind of strategy might never be a good idea, it can really backfire in some markets. If your property is overpriced 20 percent, the buyer's agent "may not even show it to them," he says. Again, it's not a matter of being willing to negotiate. If your price is too high potential, buyers may not even look at it. And they may very well see a negative message in such a high price. "Those who overprice their homes in this market are wasting everyone's time," he says.

Then set a realistic figure. Your goal: to maximize the chances that the perfect buyer will actually see it, Tyson says.

To get an idea of what's going on now, you want recent comps. But you may also want to look at comparables from the last six months. "You will see trends," says Patricia Fitzgerald, broker/owner of Coastal Properties in Jupiter, Fla. "You also need to look at what is in the market" in that area, she says. Are properties moving? Are prices holding steady or are sellers dropping prices?

Pricing is strategy. And much of it comes down to just how motivated you are to sell -- or how quickly you have to leave.

If you have to pad the price, it's "an art, not an exact science," Tyson says. "Five to 10 percent is one thing. Fifteen to 20 percent and you have a problem."

Two more points to consider:

  • Modern technology. Agents and buyers are often using computers to search for properties. If you want to sell yours for around $400,000, consider listing it at $399,999, rather than $400,500. That way, a computer search of anything between $350,000 and $400,000 will include your listing.
  • Commissions aren't add-ons. Don't add the real estate commission to the value of the home to come up with your asking price, says Tyson. If you use an agent, the fee comes out of your share of the profits. Otherwise, "you're going to get penalized for overpricing your house," he says

8. Understand your price. While you don't want to undervalue your house, many sellers today won't make as much as neighbors who sold last year, says Summers. If you have your heart set on a certain amount, and find out that houses aren't selling for that, you may "have to change your mind and sit on the house," she says.

9. Get rid of the junk. "This year it's more important because buyers are going to be more fussy," says Summers. "Buyers are going to come in with an attitude." Throw things out, ship them early or rent a storage locker. But clear out that clutter. Buyers look for space and light. To show it off, you need to be able to tour a group comfortably through the house, as well as actually walk into those "walk-in" closets.

10. Stay on top of the market. "You must be aware of market changes," says Summers, which is one reason she recommends using an agent. Stay on top of what is happening with mortgages and finance rates, keep looking at comps and, "see trends before they happen," she says. "The real estate market is still in a time of correction. You have to be so careful with both buying and selling."

 

For answers to your real estate questions, call Allison at 970-468-6800 or 1-800-262-8442. Email - [email protected] or visit their web site at www.SummitRealEstate.com. Allison is a long time local in Summit County. Summit Real Estate – The Simson/Nenninger Team is located at the Dillon Ridge Marketplace. Allison’s long-time residency and years of real estate experience can help you make the most of any buying or selling situation. She’s a Certified Residential Specialist (CRS), the highest designation awarded to a Realtor in the residential sales field.  Her philosophy is simple, whether buying or selling, she understands that the most important real estate transaction is yours. 

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Summit Real Estate
The Bright Choice
330 Dillon Ridge Way, Suite 10
Dillon CO 80435
970-468-6800
800-262-8442
Fax: 970-468-2195

Allison Simson, Owner/Broker, is a licensed Colorado Real Estate Broker