Real Estate Market / Inflation / Recession / Depression (Denver, Fort Collins: housing, rent, vacation)

[Charles]

Originally Posted by sterlinggirl

Thanks for clearing that up for me Charles

I'm glad you were kidding.

I'm never really quite sure about some other posters though (Posts like "I want to move to LA to pursue my dream of becoming a movie star, can I get a one bedroom on the beach for $700?") I've been made aware that there are some graduates of the Los Angeles Unified School District on City-Data.

Here are some of the valedectorians:

YouTube - Americans are NOT stupid - WITH SUBTITLES

(What the heck, it's Saturday night.)

[cbang]

What is all of this talk about a "NATIONAL" housing picture? It's local, plain and simple.

[tfox]

Originally Posted by multitrak

this denver housing chart Paper Economy - A Real Estate Bubble Blog breaks out the various market segments: the high end market is holding up well (as reported by custom home builders on this forum) while the middle market and especially the low end market (the subject of the news piece) are getting hit harder. i'm curious what the current bankruptcy rate is in denver given all those reported foreclosures. are things really that bad in the green valley ranch neighborhood? or is this another case of piling on bad news long after the fact? the article makes it sound like last one out of denver, please turn out the lights...

Yeah, I thought it was strange that the article focused on Denver, especially since the housing market here is nowhere near as bad as Vegas, Phoenix, SoCal, Florida, or about two dozen other places. While the 5% drop in values we've seen here is little fun for those affected, that's frankly peanuts compared to the double digit drops elsewhere.

The article didn't say this, but part of the reason why many experts are looking very hard at Denver is that we were something of the leading edge of the foreclosure mess. Our foreclosures started to tick up sharply while places like Phoenix and Vegas were still in the throes of the boom, even all the way back in 2005. Likely, the same experts will continue to look at Denver to see what will happen in the overall market. If we drop off the deep end, the thought is that the rest of the country is in trouble. If we pull out of housing-induced recession here, then the thought is that the rest of the country is not far behind.

I'm not sure that we really are a leading indicator since we're so unlike the "boom" states. We have not had anything resembling a housing boom this decade, nor even if you look back well into the 1990s. In the middle 1990s, we did have a mini-boom of sorts, but that's ancient history now. We had almost no speculation in our market, no out of state speculation, certainly. Our economy also historically has not run in sync with the rest of the country, mainly due to our strong presence of commodities and oil and gas. So, I could very easily see the present crisis easing here while still forecasting more problems for the bubble markets like Arizona and Florida.

[Bob from down south]

I think there's a dangerous trap in the mindset that says "It's different here...we didn't have a big boom in Denver, therefore we don't expect a big drop."

Cheap money was everywhere. Denver too. I suspect that the availability of stuntman NINJA loans (No Income No Job or Assets) and many other forms of toxic financial waste probably prevented Denver from seeing a more sizeable drop which should have ensued after the dotcom tech wreck. IOW, the availability of cheap money propped Denver's market up when it should have been in a significant decline.

In that scenario, Denver may well find itself in negative territory regardless of the absence of a California or Florida-like bubble on the upside.

The key is in leverage, IMHO. The article illustrates that in some of the newer communities, Denver was no different than California in that most of the people buying houses there took on more debt than they can reasonably be expected to repay. The older neighborhoods aren't as hard impacted...yet...because there were folks that owned houses there before the attack of the mortgage robber barons, when all sense of sanity went flying out the door. And how many of those folks put those houses in hoc with HELOCs and seconds?

I think it's a bit early for Denver to declare victory. We're still in the early innings of this double-header. I know people are becoming fatigued with the whole topic, but this isn't like a stock market correction that happens in a few weeks (or a few hours even). The waves of foreclosures coming as a result of the mortgage insanity of 2005-2007 are only now beginning to arrive. We have clearly foreseeable successive waves of foreclosure pain coming at least as far out as 2012. Those torpedoes are already in the water and streaking our way.

Add large numbers of job losses in a recession, and the already known waves of bad news look to turn into a tsunami. And in Denver, too.

[socalover]

I am already seeing homes in SE Aurora correcting 30% from their peak values, and the correction has just begun. So many homes for sale or bank owned in SE Aurora, and with so much new construction, I wonder if it will turn into a slum as the resales cannot reduce inventory.

[jazzlover]

Maybe Colorado markets didn't appreciate as wildly as those in California, Florida, Arizona, or Nevada, but they sure as hell appreciated to levels that a whole lot of people bought houses with borrowed money that they have no hope of repaying. Now, I will be flamed for preaching incessantly on this, but it seems to take that for people to "get it": The HUGE threat to the Colorado economy from the unwinding of the real estate bubble is that such a big chunk of that economy is now reliant on building more and more of this crap that fewer and fewer people are going to be able to afford. If you take the construction, development, and real estate industries in Colorado and effectively take them out in the back yard and shoot them in the head--and that is what the collapse of the real estate bubble will effectively do--you have knocked one leg out from under a Colorado economy that doesn't have very many legs. (It's just too bad that didn't happen sooner--there would have been a lot less economic damage and the state's economy would have been better positioned to weather the rough seas ahead.) The ripple effect of that will also saw a good chunk through several of the other legs--retail and wholesale trade, services, and tourism. That pretty much leaves agriculture and minerals (including energy). With those two industries healthy and not much else, you've pretty much described the economy of Wyoming, which can support only about 10 percent as big a population as Colorado currently does. I did neglect to mention the huge number of federal employees and military personnel who work on the Front Range. I wonder just how secure those jobs will be when deficits and the federal debt spiral a few dozen notches higher . . .

[Mike from back east]

Good morning to all. Some quick thoughts....

- Not sure if the number of foreclosures seen in Denver, or that they showed up earlier than other areas, is solely attributable to NINJA loans. The Denver Post reported well over a year ago that there was much deliberate, repetitive and intentional fraud perpetrated by people (including many ex-felons) who saw loopholes in Colorado law governing mortgages and exploited them. IMO, these clear cases of fraud would show up EARLY as there were never ANY payments made on those homes, or only one or two, before the cons left town. Stupidities in the Colorado law were fixed the other year, and discussed in another thread. IMO, the fraud aspect is as much to blame for Denver foreclosure rates as are the NINJA ARM resets that are happening nationwide. Stunning increases in home prices seen elsewhere were not seen here, though I suspect the volume of fraudulent buyers helped bid up prices in Denver. There's no argument from me that the problems are serious - everywhere.

- The CO economy seems to have more legs than many other states. For CO, I see healthy YEAR-ROUND tourism, major Defense work, the nation's second largest aerospace industry, oil, gas, mining, high tech, farming, ranching, and a growing wind power industry (both equipment makers and actual turbine farms). Not too shabby! Compare the diversity of our CO economy to that of NV (gambling, tourism, one airbase), or AZ (retirees), or NM (?), or largely agrarian states of ND, SD, NE, KS, and OK. If prices of farm commodities drop, big farming states will be in their own world of hurt, which we've seen before, followed by Farm Aid concerts.

All in all, Colorado seems a pretty good state to be in right now.

s/Mike

[Bob from down south]

Originally Posted by Mike from back east

Not sure if the number of foreclosures seen in Denver, or that they showed up earlier than other areas, is solely attributable to NINJA loans. The Denver Post reported well over a year ago that there was much deliberate, repetitive and intentional fraud perpetrated by people (including many ex-felons) who saw loopholes in Colorado law governing mortgages and exploited them. IMO, these clear cases of fraud would show up EARLY as there were never ANY payments made on those homes, or only one or two, before the cons left town. Stupidities in the Colorado law were fixed the other year, and discussed in another thread. IMO, the fraud aspect is as much to blame for Denver foreclosure rates as are the NINJA ARM resets that are happening nationwide.

I think it's important to note that ARM resets aren't a single point of failure, or even the primary reason for the housing and credit market collapses. We also have recasts of Pay Option ARMs, and a generally bad batch of all kinds of loans (hybrid ARMs, fixed rates, IO, POA etc) that were made with no regards to the long-accepted rules of loan underwriting (the so-called three C's).

The real common red thread running through this sea of misery is that loan amounts are not supportable by incomes. That's the bottom line. Whether it was a fixed rate 30 year loan with a crazy 65% debt-to-income ratio to a 780 FICO borrower, a no-doc "liar loan" where the borrower misrepresented his income by 400%, an 80/10/10 hybrid intentionally structured by the lenders themselves to defeat the requirements for PMI and debt ratios, or a dual-income couple that can't afford the home now that wife is pregnant and unemployed. They're all bad, bad juju because, and only because, the borrower lacks the income needed to repay the loan.

The common fix for the future is that lenders are now wising up and going back to more proven standards. That makes current valuations unsupportable by the available loan products. They were unsupportable anyway--now we're getting around to recognizing it.

I think the known fraud rings are a noise level distraction in the great scheme of things...I haven't seen anything to suggest that they comprised a significant percentage of the problem loans. Rampant financial misbehavior by a large portion of the general population is what's making this such a deadly serious big problem.

Originally Posted by Mike from back east

The CO economy seems to have more legs than many other states. For CO, I see healthy YEAR-ROUND tourism, major Defense work, the nation's second largest aerospace industry, oil, gas, mining, high tech, farming, ranching, and a growing wind power industry (both equipment makers and actual turbine farms). Not too shabby! Compare the diversity of our CO economy to that of NV (gambling, tourism, one airbase), or AZ (retirees), or NM (?), or largely agrarian states of ND, SD, NE, KS, and OK. If prices of farm commodities drop, big farming states will be in their own world of hurt, which we've seen before, followed by Farm Aid concerts.

I have to wonder about the potential impacts that energy prices will have on both tourism and aerospace. We've seen three airlines--Aloha, ATA, and Skybus--fail just in the last week due mostly to high fuel costs. Rumors are that AirTran and Denver's Frontier may both be close behind. We should get a better look at tourism with this coming ski season (which I happily plan to participate in).

Originally Posted by Mike from back east

All in all, Colorado seems a pretty good state to be in right now.

86 more days, and I'll be able to say the same.

I'm not sure about a disproportional impact to Colorado, but I'm still very pessimistic about the national economy for the next 5-10 years.

[sterlinggirl]

Originally Posted by socalover

I wonder if it will turn into a slum as the resales cannot reduce inventory.

In some areas of the country, the excess inventory is being converted into section 8 housing.

[jazzlover]

I think you just made my point, Mike. Peel the layers of the onion down and here's what you've got:

Government employment. Coloradans love to espouse the "fierce independent Westerner" line all day long, but the fact is that government employment--especially federal employment--is one of the biggest sectors of the Colorado economy. Take a bunch of that away and watch what happens.

Energy. Conventional or alternative, energy does promise to be and already is a big segment of the Colorado economy, but it can't support what's here now by itself.

Tourism and retirement. Both require discretionary income or surplus assets to survive--two commodities that the deflating of the bubble are sure to shrink. Outside of the metro areas and the energy counties, this is what has supported all of the real estate development and construction industries in the rest of the state. Kiss that goodbye when the cash stops flowing.

Agriculture. Not a big employer, but a big income generator in good years. The sad irony in Colorado is that ag is more threatened by development and water grabs than it probably is by external economic conditions.

Service, wholesale and retail trade. Truth is, this is the segment that supports most of the Front Range economy. The challenge is that it lives and dies on the economic health of the other industries in the region. If they falter, so will trade.

Development and construction. In a normal world, this industry is a service industry to the other state industries. Unfortunately, in Colorado especially, but all across the US, too, this industry--thanks to the speculative BS perpetrated by easy lending, overborrowing, and overconsumption--has become a Ponzi scheme of its own. That has distorted the whole economy and diverted a lot of resources from true productive economic activity. Bad. Like most Ponzi schemes, it will eventually collapse under its own weight. That is really what the real estate bubble is all about--the bursting of it is the beginning of the collapse of the Ponzi scheme.

Is the Colorado economy more diversified than many places? Yes. But its critical shortcoming is that nearly ALL of its components rely on cheap credit, overconsumption, and--most of all--cheap and plentiful energy. All of those things are likely to become scarce and stay that way. That is why I am so concerned that Colorado's economy is headed for such a thumping.