Is Greater Denver Real Estate just stupid bubbly overpriced?

[2bindenver]

First:

FHA loans have always been 3% down, and then the borrower would pay MIP (Mortgage Insurance.) VA loans can be 0% down, and the buyer is precluded from paying certain closing costs (great deal for the Vet)

Conventional loans used to be at least 5% down - anything less than 10% required PMI (Private Mortgage Insurance) Somebody had a brilliant idea and came up with an 80% first and a 10 to 15% second at a higher rate, but no more dreaded PMI.

No Docs and Low docs (documentation) loans have been around for at least 10 years.

Second:

Properties are relatively safe investments for lenders to package and sell as securities on Wall Street to REITs, China, Teachers Unions... That is one reason that interest rates on properties have been lower and fairly stable.

In areas where there is little supply and more demand the prices will continue to go up (NYC, Beverly Hills, DC, Wash Park.) In other areas where supply and demand are reasonably met prices will be stable. In harder to sell because of amenities, commerce, jobs, transportation...the will be more supply and less demand and prices will fall and houses in that area will be on the market longer....Anyone seen the market in Florida or Michigan?

Third:

Buyers buy houses based on what they see. Your property and your competition, and for the most part, they buy the best value, based on their subjective needs. Sellers price their house base on what other buyer have willingly paid other sellers.

[formercalifornian]

Originally Posted by 2bindenver

FHA loans have always been 3% down, and then the borrower would pay MIP (Mortgage Insurance.)

Thank you for clarifying. I though something was weird in your last post.

[mol666]

Originally Posted by COflower

Where are the people that can afford those places? I personally think, because Denver - especially Denver proper - appeals to those have those high paying jobs that are probably based out of other cities. They may have employers in New York, Chicago and such (I'm not saying all of them) and are able to telecommute, go into their home base once or twice a month...I've seen it down here in C Springs too.

I also think that as Denver becomes more appealing to international companies because of the location of the airport, it's a modest place for many employers to set up a remote location.

Not that I know anything about economics but Denver and the metro area appeal to very high paid people for the lifestyle, access to a good airport and the lower cost of homes here compared to NYC, Chicago, SF.

As a former NYC/DC resident who now works for a big employer, I need to say:

--I don't know of any major corporations who set up base in central Denver. Most companies who moved here set up headquarters in the northern suburbs (Broomfield, Westminster) or around the DTC.

--Housing costs are cheaper here than in many larger cities. That said, most of my colleagues who relocated here moved closer to where they work. I do have a few co-workers who live around me, but my company has a very liberal work-from-home policy.

--If people with high-paying jobs moved here, why is it that housing prices skyrocketed in the Denver Metro area during the nationwide economic downturn (2002 - 2005)?

Yeah, Denver's a great place. So's SLC. So's San Diego. Everybody wants to move somewhere. Everybody wants to move here. Denver's a nice place. There's just something so off about the housing prices. I think it's because of cheap credit. You tighten up the credit standards, housing prices will have to go down as well.

[tfox]

Originally Posted by mol666

Supply and demand, fine, I can certainly see that.

The problem is, where are people getting the money to afford these prices? Denver's not like SF or NYC in that there are very few high-paying industries here. We don't have a lot of finance types here who have 6 figure salaries + bonuses. There are wealthy families, for sure, but nothing like in more established cities.

The one advantage Denver has over similar markets is we never had the big condo conversion here. It is possible to live in a decent apartment, work a $10/hr job, and live well here.

Well, Central Denver is (still) a pretty diverse area -- you still have multi-millionaires living just a few blocks from minimum wage workers. But, as you pointed out, the sad thing is that the pendulum is definitely shifting to the multi-millionaires and away from the minimum wagers, who are gradually getting priced out of Central Denver. In recent years, the suburbs have become clearly cheaper than Central Denver from both a rental and a housing value perspective, and the gap is clearly widening with Central Denver appreciating and the suburbs with flat property values.

I'm not happy about this. The suburbs are basically disposable: their housing stock will decline and there will always be shiny new suburbs to replace them. However, we have one and only one Central Denver; once it becomes too expensive, then it's lost to the average joe. That isn't a good thing.

However,

[mol666]

Originally Posted by 2bindenver

Properties are relatively safe investments for lenders to package and sell as securities on Wall Street to REITs, China, Teachers Unions... That is one reason that interest rates on properties have been lower and fairly stable.

In areas where there is little supply and more demand the prices will continue to go up (NYC, Beverly Hills, DC, Wash Park.) In other areas where supply and demand are reasonably met prices will be stable.

Precisely why housing prices have skyrocketed. Housing was considered one of the few stable investments after the dot-com crash. The Fed lowered interest rates to attract more activity into the economy. Lower interest rates, cheap money, easy credit... prices skyrocketed. Houses became more of an "investment" rather than a place for people to live.

I have seen real estate crashes in Boston, New York, and suburban Washington DC during my lifetime. I have also seen these same markets rebound. Real estate seems to be cyclical. We have just hit the peak of our cycle in Colorado and I really think we are headed towards a downturn.

[formercalifornian]

Originally Posted by 2bindenver

Somebody had a brilliant idea and came up with an 80% first and a 10 to 15% second at a higher rate, but no more dreaded PMI.

Are you writing tongue-in-cheek? Mortgage insurance is a way for lenders to mitigate losses in the case of non-payment and is a good idea for high loan-to-value borrowers. Second mortgages are often accompanied by low down payments, and when a home-buyer defaults, the second mortgage is the last to be repaid. This is why piggyback loans are toxic in the current financial market. Nobody's buying them, because they're just too risky. If the risk on the 10-15% seconds were priced appropriately, they would not necessarily have been bad. You’d just have 20% rates, and mortgage insurance would have looked affordable by comparison.

[AtlantaCruiser]

I will say, Denver real estate is interesting. Unfortunatly, it was the major factor in my wife and I moving to Atlanta as it was a constant strugle between cost of living and salaries. However, I now realize why the real estate can demand such a high price. Denver as a city, is worth it. I hope the prices do take a down turn so that I may return in the future.

[yukon]

Salary to cost of living/housing ratio was better in Atlanta? Interesting.