More evidence of the coming real-estate induced recession/depression coming to Colorado (Denver: days on market, for sale)

[jazzlover]

I happened to be reading today's business section in the Grand Junction Daily Sentinel (sorry, no links--the stories have not been posted on-line yet). The two lead stories caught my eye--when you read them together, the picture of Colorado's coming economic crisis become quite clear.

The first article talks about a study just completed, based on 2005 data, showing that ONE IN NINE Colorado jobs is in the real estate industry. Interestingly, that figure actually EXCLUDES people employed in residential construction which, of course, would inflate the percentage even more. A graph accompanying the artice shows real estate employment per 1,000 population by region across the state. Those percentages run from around 3% on the Eastern Plains to a whopping 15.8% in the mountain resort areas.

The second article's headline tells its story: "Look at the facts: Credit crisis far from over." The article details the latest attempt to bailout the failing mortgage-backed securities markets by several of the major banks. The article is full of ominous statistics, including Standard & Poors' stunning downgrade of credit ratings on mortgage-backed securities, new home construction plunging to the lowest level in 14 years, and homebuilder sentiment falling to the lowest level on record.

So, at a point where the U.S. has not even "officially" entered a recession, a major financial segment of the economy is in deep trouble. The Fed is trying to prop the mess up by lowering interest rates--effectively flooding markets with cheap credit. That is a fool's course, as that additional liquidity will only stoke inflation and further debase the dollar. If that does not fuel inflation fast enough, there is ample evidence in increasingly tight crude oil supplies, along with the weakening dollar, are going to send fuel costs through the roof--probably starting before the end of the year. Before somebody gets giddy about Colorado's increasing energy sector influence, it should be noted that almost all of the growth there has been in natural gas drilling--and regional natural gas prices are currently stagnating because there is insufficient pipeline capacity to transport the gas being produced in the Rocky Mountain region to other areas.

Let's see where we are in Colorado: the state is not immune from the national financial problems looming in the real estate markets and soon to spill into the general economy. In fact, because real estate has been bid up to such hysterical levels in much of Colorado (especially compared to local incomes) by cheap credit and in-migration of people flush with securities and real estate appreciation from other areas, the Colorado market is ripe for a major correction when those "positive" influences wane. Finally, when one looks at the high percentage of employment in Colorado reliant on the real estate markets "partying on," it's not hard to deduce what is going to happen when those markets really start to sour. A lot of Coloradans are going to be out of work.

Anecdotally, I spoke with a friend who works in a Colorado County Treasurer's office (which houses the Public Trustee that is in charge of handling foreclosures) this past week. In her particular county there are more foreclosures in process this month than in any given month for nearly the past 20 years.

I will hear it once again for being a "doom and gloomer," but even the "don't worry, be happy" crowd can't ignore the "elephant in the living room" much longer.

[sunsprit]

There's a false premise here in how the statistics were gathered, in that there's many more people who hold real estate licenses in those mountain communities ... seeking "found money" in the boom times of real estate up there ... than there are people actually making a living in the business as agents or other aspects of the business.

I know of several resort communities where there's far more license holders than there are listings for sale. Even at that, the sales volumes are still active and in the higher end segment ... most of the sales are for cash.

So, while there may be a lot of people who would be counted as in the real estate business, the reality is they're not ... they derive their real living from other sources which are more durable income.

For example, I just got off the phone with one of my tenants in Vail ... he's a front desk manager for a hotel complex, and his wife works as an accountant for another. Both hold real estate licenses, and he's a sometime developer of land in the region ... buying parcels and subdividing a few homesites and building a house or two with his family. The RE license merely helps keep a few more dollars in his pocket when he buys/sells properties. He might even get a client from his contact at the hotel, but that's few and far between.

As a mountain area investor, watching my assessor's valuations skyrocket on my properties ... the market simply isn't crashing as many would like to forecast.

As for the pipeline capacity shortage, market forces are bringing that up to the needed levels. All of the folks in the business are expanding capacity, building new pipelines, etc. ... as natural gas is considered "clean energy" by many and the demand is there for it. There will be a lot of area jobs to get that capacity increased for a fair amount of time.

[Secluded]

I found this related topic in Denver Post today:

Crushing ARMs squeeze homeowners

The mortgage crisis is expected to intensify as millions of borrowers see their rates adjust upward.

link:

The Denver Post - Crushing ARMs squeeze homeowners

[Mike from back east]

LOTS of natural gas pipeline capacity is coming on-line. The picture for the gas industry here is quite good. Six billion plus people on the planet need energy, someone has to supply it, why NOT our state and region? Invest!

- Rocky Mountain News - Denver and Colorado's reliable source for breaking news, sports and entertainment: Energy & mining (The Rockies region is forecast by the U.S. Energy Department to overtake the Gulf of Mexico as the largest domestic source of gas...)

- Kinder Morgan - Natural Gas Pipelines - Rockies Express Pipeline (Kinder Morgan, et al, have teamed up to build one of the largest natural gas pipelines ever constructed in North America. The 1,678-mile Rockies Express (REX) project will...)

MANY realtors are part timers, their high numbers skew the data, the person next door to me is a realtor, but makes her living on the eight investment properties she rents. If more people move here, we'll keep our realtors and our builders busy. The Front Range is an affordable alternative to high cost coastal areas and old-school sunny mecca's of Vegas, Phoenix and the rest of the desert southwest. People are coming here all the time.

Sub prime mess is a drag on the national picture, we get our share of it too, but like all else before, this too shall pass.

No doom and gloom here, at most I'm concerned that we manage it smartly and learn from these idiotic mistakes.

Go Rockies! Go Bronco's! Snow's falling in the high country. All is well. Party On!

[jazzlover]

Originally Posted by Mike from back east

LOTS of natural gas pipeline capacity is coming on-line. The picture for the gas industry here is quite good. Six billion plus people on the planet need energy, someone has to supply it, why NOT our state and region? Invest!

- Rocky Mountain News - Denver and Colorado's reliable source for breaking news, sports and entertainment: Energy & mining (The Rockies region is forecast by the U.S. Energy Department to overtake the Gulf of Mexico as the largest domestic source of gas...)

- Kinder Morgan - Natural Gas Pipelines - Rockies Express Pipeline (Kinder Morgan, et al, have teamed up to build one of the largest natural gas pipelines ever constructed in North America. The 1,678-mile Rockies Express (REX) project will...)

MANY realtors are part timers, their high numbers skew the data, the person next door to me is a realtor, but makes her living on the eight investment properties she rents. If more people move here, we'll keep our realtors and our builders busy. The Front Range is an affordable alternative to high cost coastal areas and old-school sunny mecca's of Vegas, Phoenix and the rest of the desert southwest. People are coming here all the time.

Sub prime mess is a drag on the national picture, we get our share of it too, but like all else before, this too shall pass.

No doom and gloom here, at most I'm concerned that we manage it smartly and learn from these idiotic mistakes.

Go Rockies! Go Bronco's! Snow's falling in the high country. All is well. Party On!

Funny, how the people I know in the natural gas business talk about nothing else than how the regional price for natural gas is SO far out of phase with the national prices because of pipeline capacity constraints. Yes, there is new pipeline capacity coming, but some of it is still years away. I recently spent a long time talking to some folks intimately involved the nuts and bolts of all of this, and the privately spoken view of the picture is a lot different than the public pronouncements one sees in the newspaper.

As to people continuing to move to Colorado from other areas--well, they have to sell their property there--wherever there is--to someone, now don't they? Not easy to do that, when the real estate markets are already starting to tank in those places.

By the way, sunsprit, as to assessor's valuations increasing in Colorado: they are based on sales information gathered retrospectively. They are basing valuations on data that is a minimum of a year or more old.

More and more economists are figuring that the decline in real estate may last until at least 2010, if not longer. For the millions of people about to be "upside down" with the property they own, that might as well be 3010. As the economist Lord John Maynard Keynes said, "In the long run, we're all dead."

"Party on" if you must, but eventually the booze runs out, and a mega-hangover ensues.

[sunsprit]

By the way, jazzlover .... as a long term owner/investor in Colorado Real estate since 1966 ... I do know how the county assessors value property.

Just so the folks here on the site can understand what's going on here ... and how mistaken you are with your assertion about "a minimum of a year old data" ...

the county assessor's offices reassess every two year cycles. So, my assessment notice in early 2007 was based upon actual completed sales data of (allegedly) comparable property sales through June 2006. That valuation will remain in effect until the early 2009 assessor report.

Now, since I'm not as stupid or ignorant as jazzlover would infer ... I look at the new assessed valuation each time when it comes in, and aggressively seek to find my own comp's to contest the valuation.

In the case of 2007, the assessor was not only spot on (a unique experience), but by April 2007 when I did my review ... the valuation was low. As I watch the sales reports of the Vail Valley through each month, I know for a fact that my valuation is still skyrocketing. Average cost per square foot of sold housing in the area has still been going up dramatically.

You can check this trend out for yourself. There's a number of area realtors who post the sold results, market trends, time on the market data on the web. Just google Vail area real estate and they'll come up. I don't know if it's OK to post the links to the realtors directly ... so I'll not do so here. But they are on-line, and I get their monthly promo sales brochures and area sales reports .... which reflect the very active market.

As far as what I'm hearing in the "gas patch" ... since I work in industrial coatings for the heat exchangers, pumps, and related equipment ... there's nothing but long term optimism from the folks I deal with. The pricing/value game is just that ... a game that the energy business folks play with; they look at how much less their product is than it might be somewhere else, but it's still going up in relative value and the economics dictate that they work to find ways to get into that marketplace. Meanwhile, the folks closer to home get to pay increased prices even though their market is being served already.

[jazzlover]

Originally Posted by sunsprit

Just so the folks here on the site can understand what's going on here ... and how mistaken you are with your assertion about "a minimum of a year old data" ...

the county assessor's offices reassess every two year cycles. So, my assessment notice in early 2007 was based upon actual completed sales data of (allegedly) comparable property sales through June 2006. That valuation will remain in effect until the early 2009 assessor report.

I'm not trying to flame anybody here. You are correct about the assessment cycles in Colorado--I know them quite well. The sales data for the 2007 valuation cycle (of which taxpayers were notified of the value on May 1, 2007) was 1/1/2005-6/30/2006--thus my comment of about a year or more old.

As to the "long-term" optimism in the gas patch, that is also correct. Gas producers know that they have a commodity that most likely is going to increase in value significantly over the long-term. What I'm hearing from people I know who are close to that industry is that the CURRENT disparity between the Henry Hub price and the Opal price (most readers of this forum don't know what that is, but I bet you do, Sunsprit) is causing some producers to think about curtailing further drilling until more pipeline capacity comes on line.

[skeezix]

Originally Posted by jazzlover

...In fact, because real estate has been bid up to such hysterical levels in much of Colorado (especially compared to local incomes) by cheap credit and in-migration of people flush with securities and real estate appreciation from other areas...

You need to get your "facts" straight. Buyers coming to the western slope "flush with securities and real estate appreciation from other areas" do not set real estate prices. It's all the greedy, nearsighted sellers egged on by commission-hungry agents who inflate home prices.

[formercalifornian]

I think Jazzlover was onto something when he referred to in-migration from coastal areas slowing. Sales in my former region of California have slowed to a halt, and asking prices have dropped 20%, so that influx of coastal liquidity has probably dried up. The east coast real estate market isn't doing so hot, either. We may still be in for a significant hit as the housing market sorts itself out.

[2bindenver]

Originally Posted by formercalifornian

I think Jazzlover was onto something when he referred to in-migration from coastal areas slowing. Sales in my former region of California have slowed to a halt, and asking prices have dropped 20%, so that influx of coastal liquidity has probably dried up. The east coast real estate market isn't doing so hot, either. We may still be in for a significant hit as the housing market sorts itself out.

I disagree. How many people on this forum have moved to CO compared with those who said they left or are in the process of leaving?

People need to live somewhere. Rental prices will increase because some people choose to or need to rent. Vacancy rates are at near record levels. People who do have good credit and the wherewithal to buy are getting loans.

We live in a fabulous area - with all sorts of indoor and outdoor activities. Unparalleled. Sunshine, mountains, sports, shopping, arts, travel....

I have been watching the residential real estate market from inside Colorado since 1989 - when home prices fell and the Days on Market average was 9 months. It is nothing like that now - nor has it been since the downturn in 2001. In some areas of Colorado it is a Seller's market (the seller picks the price, hopefully based on what other willing buyers paid other willing sellers) and in some other areas it is a balanced market - neither side the apparent victor - and in still other areas in CO are decidedly a buyers market - everything is on sale - and interest rates are still low.

You can't believe everything you read in the papers. Any competent Realtor can show you a buyer or a seller, market stats - and explain what those numbers mean to you in this micromarket - so you make an informed decision.

I don't make house payments or decisions for my clients. With all the information in hand, they choose what is best for them.

May you all be able to buy low and sell high.