Real Estate Market / Inflation / Recession / Depression (Denver: equity, foreclosure, broker)

[jazzlover]

Great post, Bob. I've been doing some checking over the last few days with a lot of my contacts (real estate, banking, government) who are daily observers of the Colorado real estate markets. The common thread among all of them are that number of sales are flat to significantly decreasing, and--if and where there are any modest sales increases--that an increasing number of those sales are "distressed." A lot of areas have not seen a significant decline in asking prices, but--in nearly all of those areas--very little is selling, either. Which only proves the old axiom, "Askin' ain't gittin." I think this is a manifestation of a last, great hope that Ben Bernanke, God, or the Tooth Fairy can "rescue" the summer real estate sales season in Colorado. There may be some uptick in sales volume this summer, as the last few out-of-state chumps with actual money burning a hole in their pocket buy into to what may be the top of the Colorado real estate market for the next 10 or 20 years or so, but I suspect there won't be enough "suckas" to support anything like the current asking prices once fall arrives. Then I think the "next leg down" will really gain momentum, and it will likely be the one that mortally wounds Colorado's speculation/development/construction-dominated economy.

As you note in your last paragraph, Bob, this is going to be a very painful adjustment for just about everyone, but--quite frankly--the sooner it happens, the better it will be for everyone in the long run. And, when it's done, Colorado will actually be affordable again to the working middle-class people who are actually left in the state. Admittedly, a lot of people with their living tied to construction, real estate and speculation won't be the ones left in Colorado to enjoy that.

[formercalifornian]

Wow, Jazzlover. But, just so we're clear, how can there be only middle-class working people left in the state? I thought Colorado was filled with west coast "chumps" who don't have to work (i.e., your mailbox economy).

I have news for you. Of all the former Californians I've met in my couple of years of residency, I've met only one who no longer has to work. The rest of us get up everyday and trundle off to work in non-real estate positions, and I take issue with your characterization of us a chumps. Personally, I've spent the last two years researching neighborhoods, saving like a mad person, finding a modest property that meets our family's need, and you think I'm a chump because I actually have the money to pay for that house? I believe I'd be more of a chump if I'd stayed in California, working myself into an early grave to pay off a half-million dollar, 1400 sq. ft. tract house an hour-and-a-half (or more) from the employment centers in Silly Valley. Instead, I brought my family here, so they could be close to their grandparents, we could work to live rather than live to work, and so that we would have the resources to retire at a reasonable age. My spouse and I, and the many others like us, are hardly chumps.

Bob, I love Dave Ramsey's philosophy "Live like no one else, so later on you can live like no one else."

[jazzlover]

Whether you rent or buy in this market is a personal choice. My own feeling is that this market has severely topped out, and those who bought at that top are going to feel like chumps when they see what, for many of them, is their largest dollar-cost asset heading dramatically down in value. (Nationally, I believe the statistic is that about one-quarter of the homes sold since 2006 are ALREADY worth less now than their sale price.) I also don't buy into the hokum that this is a short-term "blip" in an upward real estate trend. I think Bob's analysis of that is quite lucid.

My specific point about out-of-staters is that a lot of the real estate bubble in Colorado has been financed and perpetrated by out-of-state people cashing out their equity in inflated real estate markets elsewhere (California is but one example) and using that to purchase Colorado property--contributing to real estate price inflation here. With that "cash cow" rapidly drying up now, the liquidity that has been sloshing around to keep the bubble inflated here should be about dried up by fall. At that point, the whole real estate/construction/speculation house of cards will start to collapse under its own weight. Also at that point, some old-timers who own their homes outright, and didn't think of the "paper" appreciation in them over the last decade or so as "real wealth" are going to look pretty darned smart. What remains then is the question of how much collateral damage the bursting of the Colorado real estate bubble will do to the rest of the state economy. By my reckoning--plenty.

[Bob from down south]

Formercalifornian, I think I read Jazz' post a bit differently than you.

The only real animosity I've actually seen displayed first-hand for out-of-staters in my limited time in CO in the last year was directed at the so-called "equity locusts"--those from California and other high-cost markets that made a fortune in the bubble runup, cashed out while the getting was good, then took their windfall into Colorado and proceeded to bid up housing prices to the point where the working class could no longer afford to live where they grew up. To that degree, Colorado was affected by the California housing mania, and it seems understandable that some of the natives might still be grumpy enough to want a few scalps. They're gonna be even grumpier if Congress pumps several hundred billion of their tax dollars into bailouts for those fine members of the left coast Massengill disposable clan.

I think we're seeing much less of the equity locusts now, because the housing and credit market implosions are killing them in place right where they used to hatch, in California, Arizona, Nevada, and Florida in particular.

In fact, it wouldn't surprise me if, in the next year or two, instead of a bunch of equity locusts, we'll see instead something that looks more akin to refugee flow coming from some of those places as they suffer the brunt of what looks to be the economic s#!*storm of the century. Colorado may have to decide what to do with carloads of west coast deadbeats fleeing the consequences of their collective lunacy...who wants to rent to a family with a recent California bankrupcy and foreclosure in their credit report? And who wants to hire that guy? (hint--not me)

Anyway, I applaud you for being the rare moth with the wisdom to turn away from the flame.

[jazzlover]

Originally Posted by Bob from down south

Formercalifornian, I think I read Jazz' post a bit differently than you.

The only real animosity I've actually seen displayed first-hand for out-of-staters in my limited time in CO in the last year was directed at the so-called "equity locusts"--those from California and other high-cost markets that made a fortune in the bubble runup, cashed out while the getting was good, then took their windfall into Colorado and proceeded to bid up housing prices to the point where the working class could no longer afford to live where they grew up. To that degree, Colorado was affected by the California housing mania, and it seems understandable that some of the natives might still be grumpy enough to want a few scalps. They're gonna be even grumpier if Congress pumps several hundred billion of their tax dollars into bailouts for those fine members of the left coast Massengill disposable clan.
I think we're seeing much less of the equity locusts now, because the housing and credit market implosions are killing them in place right where they used to hatch, in California, Arizona, Nevada, and Florida in particular.

In fact, it wouldn't surprise me if, in the next year or two, instead of a bunch of equity locusts, we'll see instead something that looks more akin to refugee flow coming from some of those places as they suffer the brunt of what looks to be the economic s#!*storm of the century. Colorado may have to decide what to do with carloads of west coast deadbeats fleeing the consequences of their collective lunacy...who wants to rent to a family with a recent California bankrupcy and foreclosure in their credit report? And who wants to hire that guy? (hint--not me)

Anyway, I applaud you for being the rare moth with the wisdom to turn away from the flame.

Exactly. (Especially the part I highlighted in red.)

[formercalifornian]

The only real animosity I've actually seen displayed first-hand for out-of-staters in my limited time in CO in the last year was directed at the so-called "equity locusts"--those from California and other high-cost markets that made a fortune in the bubble runup, cashed out while the getting was good, then took their windfall into Colorado and proceeded to bid up housing prices to the point where the working class could no longer afford to live where they grew up.

Uh, that would be me. So now I'm a douchebag (I got the Masengill reference) and an equity locust. I'm movin' up in the world.

[sterlinggirl]

Maybe they just thought you smelled like strawberries

Speaking of which......this would be a good time to establish a strawberry patch in the CO climate. If you like asparagus, planting it in with the strawberries works pretty well.

[EdatGenesis]

Oh yea..it's horrible here

I just sold (at a big loss) an investment property I purchsed in 05 - Bought it at $41k under market & due to foreclosures, lost all that equity & more .. I had to cut my loss's & run

I don't think we've seen the worst of this yet

[Bob from down south]

Originally Posted by formercalifornian

Uh, that would be me. So now I'm a douchebag (I got the Masengill reference) and an equity locust. I'm movin' up in the world.

Hey, you forgot "chump."

Well, you may well be a locust (good luck for you, but at the expense of those around you), but you're probably not part of the Massengill clan. Those are the ones who massively overborrowed, will eventually default on the crushing debt they irresponsibly signed up for, and will then try to find a way to send the bill for their mania to the rest of us. I suspect [hope] that's not you.

The San Andreas fault is our last Great Hope...this mess might all even out if that big 9.0 we're all waiting for slides the whole #^$%& place into the ocean. And it'll take a little time off the drive from Colorado Springs to the beach, too...

[vfrpilot]

The only real animosity I've actually seen displayed first-hand for out-of-staters in my limited time in CO in the last year was directed at the so-called "equity locusts"--those from California and other high-cost markets that made a fortune in the bubble runup, cashed out while the getting was good, then took their windfall into Colorado and proceeded to bid up housing prices to the point where the working class could no longer afford to live where they grew up.

Bob - Did the CO real estate market get to this point? I was told that the home prices were going crazy in CO in '03 when we started looking. I never saw it in COS. There was even more homes for sale in El Paso County than in San Diego County(10x larger) back than. I looked at homes that had been on the market for over a year. The home we finally bought was listed for about 4 months and they accepted an offer 15k less than asking. At the same time San Diego real estate was appreciating at 35% annually and selling quickly. Ours sold in less than a day with a full price offer. Maybe the Denver market was different back then.
It seems like the housing market here has been driven by consumers desires to buy huge homes. I can see those homes are out of the reach of most working class folks, unless 'creative' financing is employed. I don't see where this 'bubble' has driven the cost of smaller or older homes much. You can still buy a 'starter' home for around 100k, or a new smaller home under 180k.
Maybe it's just my perspective, having moved from an area where the bubble should've been called a blimp.
btw> this thread has been a fascinating read, mostly due to your's and Jazzlover's knowledge and ability to put it in an understandable(mostly) form for a mere mortal to digest. Kudo's to the both of you.