Housing Decline (Arvada, Boulder, Longmont: short sale, apartment, foreclosure)

[Charles]

Originally Posted by jazzlover

Sometime in the coming 12-24 months, I expect the Colorado real estate market to seriously tank....

This is a hot topic on many other forums (California, Los Angeles, Orange County) too. A lot of the causes have to do with the foreclosures and ARMS resetting to much higher rates.

The upside is that you could be sitting on the sidelines licking your chops waiting to scoop up cheaper real estate.

[LiveinDen]

For condos, I would check craigs list under 'real estate for sale.' What suburbs are you considering?

[Charles]

Originally Posted by jazzlover

2. Cheap and easy money. People forgot all of the hard-earned lessons from the late 1970's and early 1980's, when an era of cheap and easy money brought on out-of-control inflation and ecomomic distortions. The cure was a painful recession and the S&L debacle. The current speculation circus makes that era look tame. The correction from that will be much more severe.

What? Early 1980's, 18% mortgage rates? (Of course T-Bills and CDs were delivering huge returns too.)

[formercalifornian]

Anecdotally, I think the housing situation is going to get worse before it gets better. The last house on my street to sell was an REO that went for $212k. It sold in early 2006 for nearly $250k. That's a serious haircut!

Everything here in the Castle Rock 'burbs looks just rosy on the surface. There are nice cars in every garage, everyone wears the latest fashions, and the kids have all the gadgets, but things under the surface are not good. A friend up the street is taking on odd jobs at night to make ends meet. Fortunately, he and his wife are making it, barely.

On the other hand, at least three of my other neighbors are facing foreclosure. One owner can't sell until October, because he has a prepayment penalty. He bought with an interest-only loan from the builder's financing arm, of course. He's underwater, facing a rate hike, and the bank is unlikely to accept a short sale. Besides, if he lets it go to foreclosure, he walks away with a tarnished credit rating. If he short sells, he gets 1099'd the difference and ends up owing taxes to Uncle Sam. So, in all likelihood, he'll do the same thing another neighbor did a few months ago. He'll pack up in the middle of the night and vanish. What does he have to lose?

Colorado foreclosure takes about six months, so in my neighborhood, we'll probably see more downward pressure on prices into at least the middle of next year when the aforementioned properties hit the market as REO's. Oh, and BTW, the builder just pulled out, leaving several streets of unbuilt houses and some very ticked off residents who are not happy with the half-finished development.

I couldn't be happier to be a renter. Originally, we rented because we wanted to take our time investigating the area before we bought. Now, I'm thinking it may have been the smartest financial move we're ever made.

[jazzlover]

Charles,

It was the cheap money, easy credit, and poor governmental fiscal policies that sent inflation through the roof (for then) in the late 1970's--along with a little help from skyrocketing oil prices. By the early 1980's, the feds faced either reigning in credit or risking debasing the currency and causing hyper-inflation. They chose the former, and interest rates went up like crazy. In many areas (including Colorado), the real estate market tanked and most of the country got to enjoy a recession. (In some areas of Colorado, it took the real estate markets most of a decade to recover what was lost in a year or so in the early 80's.)

Fast forward to 2007. Easy credit for several years. Inflation starting to rear its head. Inflating energy prices (and huge foreign energy dependency) starting to really show. Lots of overstretched borrowers in trouble. As Yogi Berra says, "It's deja vu all over again." Only this time, I think it will be much worse than the early 1980's debacle--a lot more "wretched excesses" and distortions in the economy this time. Plus, a REAL energy crisis looming, and not one just contrived by a few oil exporting countries.

As formercalifornian said, I expect to see a lot more "jingle mail" in Colorado, as people walk away from mortgages they can not ever hope to pay (mailing the house keys to the lender, thus the nickname). I can remember in the early 1980's when, in the relatively small Colorado county I lived in, the foreclosure notices posted in the Public Trustee's office took up a whole wall of the office.

To rephrase what I said earlier, anybody who didn't live in Colorado then, or is younger than about 30 or so doesn't even know what that was like. I fear many of them are going to find out what a real estate bust feels like. Take it from one who lived through it then, it sucks.

[2bindenver]

There may be pockets of "problem" areas...but the stats don't lie. Our market is improving.

There will be two emerging markets in the coming years...the prime properties, good areas, shows well, goes for top dollar and the investor/handyman special - gross, run down, reo or hud/va owned selling close to wholesale prices.

[jazzlover]

2bindenver,

Sorry, I don't share your optimism. I think the mortgage lending meltdown is in its infancy. Just like the stock market, it's possible to have some "sucker rallies" along the way. You are right that there will be areas that fare better than others, and some properties always will do better than other junk on the market. I also know plenty of people all over Colorado who are very nervous about the economy, their jobs, their investments, and their income. They are "hunkering down." Just one piece of bad news (oil supply disruption, terrorist incident, major corporate bankruptcy, etc.) could send consumer and investor confidence down the toilet. Back in 1929, the stock market had some huge "up" days right before it crashed. I take little solace in any rally in real estate right now--it still looks prime to me for a serious fall any time now. I just don't know exactly when or what will trigger it. If I did, I'd figure out how to short it and make some money.

[formercalifornian]

Average prices in my Castle Rock neighborhood are off about 10%, with the most recent sale off 16%. Although I tend to agree with 2bindenver regarding the two emerging markets, I want to emphasize that I live in a relatively nice area, and we're hardly out in the sticks. It's about 20 minutes (counter-commute, I might add) from the southern side of the DTC.

Also, as I've been following the Douglas County foreclosure market (10 pages worth today), I'm seeing more and more high-end properties, meaning north of $500k and hardly "investor/handyman specials - gross, run down, reo or hud/va owned selling close to wholesale prices." Parker seems to have the most pending foreclosures at the moment, but Castle Rock is certainly holding its own. Highlands Ranch and Littleton in Douglas County have their fair share, too.

Houses are sitting for a long time in my neighborhood, mostly because owner-sellers cannot compete against the REO's. Two houses up the street have been sitting since last fall, despite being in very good condition. They're simply holding out for too much money, and three agents have yet to convince either of them to drop their prices. My guess is that they're underwater on their loans.

I'm not convinced that now is the time to buy. I'm going to hold out until late next year, at the earliest. At worst, prices will hold steady, and if I keep saving my pennies, I'll be in an excellent position to negotiate once I decide to dive back in.

[Noahma]

here is an oppinion from a home designer here. We have definatly seen a slow in smaller home designs. but i will tell you that some of our builders are having some of the best months of their entire career at the moment. choose your location very wisely. i would stay away from condos for the time being, you can probably get a town home for a little more than a condo. they are not as easy to sell as single family homes, but they do sell better than condos

We expect things to get a little worse, but from what i have been hearing the market is expected to make a soft landing, and not a full out crash.

[formercalifornian]

Originally Posted by Noahma

here is an oppinion from a home designer here. We have definatly seen a slow in smaller home designs. but i will tell you that some of our builders are having some of the best months of their entire career at the moment. choose your location very wisely. i would stay away from condos for the time being, you can probably get a town home for a little more than a condo. they are not as easy to sell as single family homes, but they do sell better than condos

We expect things to get a little worse, but from what i have been hearing the market is expected to make a soft landing, and not a full out crash.

May I ask where your clients are located in the metro region and in what price range that they are seeing an uptick?