Denver Real Estate Discussion / Opinion Thread (NO Data Charts) (Aurora: zoned, oil)

[illinoisphotographer]

Originally Posted by Jobster

Wow, reading through this thread, there is some serious delusion going on. I think people don't understand how the economy works.

Interest rates are rising, the dollar is strengthening, and growth has slowed to a standstill.

What do you think will happen next? Liquidity injection? Perhaps. If not that, then what?

Growth has not slowed to a standstill in CO. Not sure what "delusion" you have.

If we were talking IL or West Virginia I can see your point where there is negative population growth. But CO had a 10% growth from 2010 to 2016 adding over half a million people.

Rising interest rates might make people hesitate on budget constraints, but if you're going to buy a home, then you're going to buy a home regardless. The mortgages today are significantly better than the mortgages of the early-mid 2000's and people aren't going to be defaulting on them like they were before.

The strengthening dollar only matters on imports/exports, not internal commerce.

[illinoisphotographer]

Originally Posted by MN_Ski

Again, I don't think we will have a crash like last time, but I do believe there are some major risk opportunities that get overlooked. There are too many on the "It's different this time" side of the discussion, without realizing that there is more than one way for a real estate market to correct/crash.

The flip side of the coin is if you plan on staying in the house for 7-10+ years (which is recommended anyways), any small corrections will probably be offset in that time period.

Ideally you bought in 2010 or so. But I was still in college, and it is what it is. A $1600/month mortgage payment isn't going to make or break me -- hell it's not much more than I'm paying for rent and I'd get a much larger place with land and a garage. Would it be nice if it were $1300/month instead of $1600? Sure, but it's not the end of the world.

[Jobster]

Originally Posted by illinoisphotographer

Growth has not slowed to a standstill in CO. Not sure what "delusion" you have.

If we were talking IL or West Virginia I can see your point where there is negative population growth. But CO had a 10% growth from 2010 to 2016 adding over half a million people.

Rising interest rates might make people hesitate on budget constraints, but if you're going to buy a home, then you're going to buy a home regardless. The mortgages today are significantly better than the mortgages of the early-mid 2000's and people aren't going to be defaulting on them like they were before.

The strengthening dollar only matters on imports/exports, not internal commerce.

You apparently don't see how everything interconnected, particularly since 80% of the US economy is predicated on services.

Rising interest rates make the cost of doing business higher across the board. This is a problem when people have been using a tremendous amount of leverage to fund, in many cases, what will prove to be an artificial and unsustainable economy causing significant inflation of almost every single asset class.

Do you know what happens after inflation? Deflation.

Currently, there are multiple asset classes that are under extreme pressure, and all it takes is the failure of one major asset class to cause a global liquidity crises due to the magnitude of derivative contracts.

You don't have the experience to see these things, but you're about to have a rude awakening if you think everything is "hunky dory."

[OhioToCO]

I'd say we are not looking at slow down in terms of Denver metro real estate until we are level or almost level with Silicon Valley and Bay Area. That may mean Bay Area gets 200% cheaper, but Denver prices and housing demand will continue to grow until then.

[illinoisphotographer]

Originally Posted by Jobster

You apparently don't see how everything interconnected, particularly since 80% of the US economy is predicated on services.

Rising interest rates make the cost of doing business higher across the board. This is a problem when people have been using a tremendous amount of leverage to fund, in many cases, what will prove to be an artificial and unsustainable economy causing significant inflation of almost every single asset class.

Do you know what happens after inflation? Deflation.

Currently, there are multiple asset classes that are under extreme pressure, and all it takes is the failure of one major asset class to cause a global liquidity crises due to the magnitude of derivative contracts.

You don't have the experience to see these things, but you're about to have a rude awakening if you think everything is "hunky dory."

Except our historic inflation rates have remained pretty consistent and is even less than the 2000's.

Historic inflation United States



Interest rates were lowered to help increase commerce and spending. A few percentage point interest rate raise isn't going to stop the economy. I mean let's get real here. Mortgage rates during the .com boom of the 90's were 7-8%. We're at almost half of that.

Primary Mortgage Market Survey Archives - 30 Year Fixed Rate Mortgages - Freddie Mac

The only businesses I really see being harmed are startups and companies who are relying on cheap interest rates to stay afloat.

[Jobster]

Originally Posted by illinoisphotographer

Except our historic inflation rates have remained pretty consistent and is even less than the 2000's.

Historic inflation United States



Interest rates were lowered to help increase commerce and spending. A few percentage point interest rate raise isn't going to stop the economy. I mean let's get real here. Mortgage rates during the .com boom of the 90's were 7-8%. We're at almost half of that.

Primary Mortgage Market Survey Archives - 30 Year Fixed Rate Mortgages - Freddie Mac

The only businesses I really see being harmed are startups and companies who are relying on cheap interest rates to stay afloat.

I don't think you understand what I'm talking about. I'm not talking specifically about monetary inflation or in this case, real inflation. I'm talking about inflated asset classes, IE residential real estate, commercial real estate, the S&P500, etc.

Those are real dollars that will evaporate into thin air. That is where the deflation will come from.

[illinoisphotographer]

Originally Posted by Jobster

I don't think you understand what I'm talking about. I'm not talking specifically about monetary inflation or in this case, real inflation. I'm talking about inflated asset classes, IE residential real estate, commercial real estate, the S&P500, etc.

Those are real dollars that will evaporate into thin air. That is where the deflation will come from.

Isn't real estate worth what someone is willing to pay for it?

In a place like Detroit which has vast areas of abandoned buildings, property values are low because no one really wants to live in a bad area, in a bad house when there are other options that are in better neighborhoods with newer houses available.

If Denver were in that situation, then we wouldn't see people bidding houses 5-10K ++ over asking with multiple offers. The fact is that one house we put an offer had 35 offers. Yes, thirty-five. That means 35 people were willing to spend at least the 300k asking price of the house.

If a house is overpriced, it either doesn't sell (There's a ranch for sale right in the heart of Sheridan "ghetto" listed for 325k that's been on the market for over 6 months), or price is reduced to a point someone is willing to pay for it.

2008 happened because there were too many houses that were flooded with foreclosures and short-sales which flooded the market and drove down prices. In addition, people who couldn't afford that 300k+ house were given those mortgages to get into the houses. Today, banks aren't lending out such large amounts without reason. I was approved for $420k on a $70k/year salary, but have over $150k cash/retirement assets and a great credit score.

Given this, I really just don't see Denver's market tanking. Maybe a 5-10% correction as MN_Ski noted, but that would be brought back to initial values in 7-10 years anyways.

[SkyDog77]

Originally Posted by Jobster

An oil shock raises the price of almost everything that requires transportation.

Given what has happened with shale production in our country, this is extremely unlikely. You were probably one of those peak oil Chicken Littles.

https://www.forbes.com/sites/ucenerg.../#c5dd7f218ba9

[Jobster]

Originally Posted by SkyDog77

Given what has happened with shale production in our country, this is extremely unlikely. You were probably one of those peak oil Chicken Littles.

https://www.forbes.com/sites/ucenerg.../#c5dd7f218ba9

Doesn't have to be about peak oil. It's about solvency. That's what will cause a freeze in production. That and the fact that CAPEX has gone down considerably.

[MZMpac]

Originally Posted by emm74

That's great that you are saving that much, but that's not a reasonable benchmark to say that someplace is unaffordable if saving almost 1/3 of your income leaves you without a lot of disposable income. But if Denver doesn't work for you, and you can earn the same in a lower COL area, then sure, you should move. For many people, a lower cost area means a lower salary.

Fair point. Sometimes I forget we save that much!